At the dawn of the last decade, nobody among the mass populace had even heard about the internet. But in the last decade itself, the internet has managed to disruptively influence and change almost every aspect of our daily lives, as well as conventional business practices and other such processes. Blockchain is another such transactional data network which is being currently developed and has the same potential to disrupt the common business and accounting practices of today.
Let’s delve deeper and separate the hype from this upcoming technological disruptor.
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What is Blockchain?
Blockchain is a distributed database which has the ability to create an environment where each and every transaction will be logged and monitored in real-time. This creates the possibility to implement blockchain in every sector or industry, especially the accounting industry. The hype behind blockchain and its apparent disruptive influence is because of its ability to create distributed transactional ledgers, wherein duplicate copies can be accessed by multiple participants, in real-time. This brings in a lot of implications for accountants in general and may even change accounting as we know it today.
Blockchain was first developed to be used with the digital cryptocurrency called Bitcoin. However, due to distributed and decentralized database management technology, its possible applications go well beyond Bitcoin.
According to Hywel Ball, the UK Head of audit at Ernst & Young, “The ability of Blockchain to maintain a growing list of transactions and, through encryption and other activity, to verify their authenticity, which further helps to eliminate the need for admins to authenticate ledger changes.
All participants working on a ledger can edit it securely and all changes are updated in real-time which are also visible to each and every participant”. This is what makes Blockchain technology so enticing to financial and accounting services.
Blockchain and Accounting
In terms of accounting, Blockchain may very well be the next step forward after cloud hosted accounting solutions. The major reason behind this is its ability to maintain independent transactional records based on receipts. Businesses with Blockchain accounting will be able to write of all of their transactions into a shared register, which will further help to create an interlocked accounting ledger.
All register entries will be shared with authorized stakeholders and will also be cryptographically secured which will render said accounting ledgers impossible to be adulterated and otherwise. It will help businesses to notarize transactions electronically.
Modern accounting practices use a double entry mechanism which helped accountants and CPAs to trust their ledgers. But with Blockchain, accounting will have to shift to a triple entry system, which will help businesses to gain the trust of outsider stakeholders by electronically and securely verifying the business’s financial standings. This way businesses will gain a new level of standardization, which would allow auditors to verify critical financial statements automatically.
Accounting done with Blockchain would considerably decrease the time and cost requirements of conducting audits. This would further help auditors to spend their time concentration their efforts on other valuable areas like internal control mechanisms, intricate transactional records, etc.
A properly implemented Blockchain-based accounting system will also render the entire accounting system of businesses invulnerable to the threat of cyber attacks and hacking in general.
Blockchain technology which is still in its infancy has great potential to change the way we know accounting practices today. If implemented properly, it can help automate accounting practices tremendously and yet still adhere to all known guidelines and policies of accounting.
Very soon in the future, we may all see Blockchain-based accounting bringing forth many new accounting services and solutions which were simply not possible with previous accounting technology tools.