Blockchain has been regarded as a disruptive technology that has influenced a host of industries including the accounting profession. Blockchain growth has generated both problems and benefits for the accounting profession. The question then arises is whether accounting and blockchain will have a symbiotic relationship or if accounting professionals need to explore other avenues of work?
What is the difference between accounting and blockchain?
The blockchain is essentially a DLT or distributed ledger technology. In traditional accounting the records will be kept in one centralized place whether it is a database or spreadsheet within accounting software. Here, the accountant will type in a record and does whatever is needed to cater to his client’s requests. When such data is requested for by clients the accountant will have to retrieve this information and provide it to them.
So, only auditors and accountants will enjoy access to this ledger. However, in a DLT, the records are entered and stored in a shared or distributed ledger that can be accessed by all parties. So, all accountants, auditors, clients, and regulators have a copy of this ledger always. Every record here is encrypted and all entries are time stamped automatically. The collection of such records forms a block and that is why this network is called a blockchain. Cryptocurrencies are traded using the blockchain technology and bitcoin is the pioneer and popular cryptocurrency that has huge investors. Besides, it is also surrounded by fake news like bitcoin jovanotti and other speculated news calling everything related to bitcoin a scam. However, blockchain technology is used in other flourishing industries like textile, entertainment, health care and more.
Benefits of Blockchain for Accounting:
For accounting professionals, the blockchain offers some key advantages, like immutability and transparency. For any accounting firm it is very advantageous if their records are accessible to all authorized personnel. There however should be rules regarding how such authorized people get to access the records. Blockchains have smart contracts to include these rules. So, according to experts, the blockchain is the next step forward for the accounting industry.
Big names in accounting like Ernst & Young, Deloitte, KPMG, etc have already started putting in money for the DLT and Deloitte even has 30 active blockchain prototypes. Companies like IBM and Amazon are also providing robust and scalable blockchain platforms; so, accounting companies are likely to follow in their footsteps before you know it.
What Advantages Can The DLT Offer Accounting?
⇒ To start with, well-designed blockchains are powerful and fast databases; so extraction of data from these is done more efficiently than with traditional accounting software.
⇒ You can only make mistakes when entering data on the blockchain. But once data is correctly entered, smart contracts will ensure that there are no more human errors.
⇒ By using smart contracts an accountant can automate multiple tasks making reconciliation of data is a far less tedious task.
⇒ When there is improved efficiency and fewer errors there are lower costs.
⇒ Blockchains are immutable and this makes it very hard to perpetuate frauds. To change any record that change would have to be replicated across all copies of the DLT at one time and this is not feasible.
⇒ Because of the security provided by DLT a company will experience fewer problems in satisfying regulatory demands.
⇒ Perhaps the biggest positive influence for accounting professionals is the power of the blockchain to lessen audits. Because of smart contracts several auditing functions are automated and this means an auditor will need to spend less time to study the records.
The main drawbacks of the blockchain as far as auditing profession goes is that many of the accounting software is not yet compatible with the blockchain technology. Another key drawback is that companies that wait too long to adopt the blockchain may end up becoming redundant.