Blockchain: A Giant Leap
Introduction : Blockchain is an accounting technology. It is concerned with the transfer of ownership of assets, and maintaining a ledger of accurate financial information. The accounting profession is broadly concerned with the measurement and communication of financial information, and the analysis of said information. Using blockchain provides clarity over ownership of assets and existence of obligations, and could improve efficiency.
Blockchain : A Giant Leap
Enhancing the Current Practices
Blockchain has the potential to enhance the accounting profession by reducing the costs of maintaining and reconciling ledgers, and providing absolute certainty over the ownership and history of assets. Blockchain could help accountants gain clarity over the available resources and obligations of their organizations, and also free up resources to concentrate on planning and valuation, rather than recordkeeping.
Blockchain technology may represent the next step for accounting. Instead of keeping separate records based on transaction receipts, companies can write their transactions directly into a joint register, creating an interlocking system of enduring accounting records. Since all entries are distributed and cryptographically sealed, falsifying or destroying them to conceal activity is practically impossible. It is similar to the transaction being verified by a notary only in an electronic way.
Blockchain is a replacement for bookkeeping and reconciliation work. This could threaten the work of accountants in those areas, while adding strength to those focused on providing value elsewhere. For example, in due diligence in mergers and acquisitions, distributed consensus over key figures allows more time to be spent on judgmental areas and advice, and an overall faster process.
Lead with Blockchain
The move to a financial system with a significant blockchain element offers many opportunities for the accountancy profession. Accountants are seen as experts in record keeping, application of complex rules, business logic and standards setting. They have the opportunity to guide and influence how blockchain is embedded and used in the future, and to develop blockchain-led solutions and services.
To become truly an integral part of the financial system, blockchain must be developed, standardized and optimized. This process is likely to take many years it has already been ten years since bitcoin began operating and there is much work still to be done. There are many blockchain applications and start-ups in this field, but there are very few that are beyond the proof of concept or pilot study stage. Accountants are already participating in the research, but there is more for the profession to do. Crafting regulation and standards to cover blockchain will be no small challenge, and leading accountancy firms and bodies can bring their expertise to that work.
The companies would benefit in many ways. Standardization would allow auditors to verify a large portion of the most important data behind the financial statements automatically. The cost and time necessary to conduct an audit would decline considerably. Auditors could spend freed up time on areas they can add more value, e.g. on very complex transactions or on internal control mechanisms.
Where will we go from here
Some are saying that the use of blockchain will dramatically reduce the amount of audit work for accountants because transactions will be recorded on an immutable public ledger, so there is less need to confirm that transactions actually occurred. However, for us to trust that transactions are recorded accurately, someone will have to audit the technology that produces the blockchain. Accountants will shift from auditing individual transactions to auditing systems that produce those transactions. This is just a continuation of a trend that started with the development of ERP, Cloud services, etc.. Accountants don’t have to recalculate the totals from every computer program because we can audit the program itself and trust the output as a result.
This article has been compiled by Mr. Deepak Joshi He is a CA Final Student and can be contacted at Mobile : +91-8700592932 or E-mail: [email protected]