Blockchain technology, along with being a new buzzword, is also one of the most exciting technologies of the 21st century. A universally decentralized ledger system that can share data among an infinite number of users—a blockchain is unhackable. Due to its ability to share data and simultaneously record real-time transactions on every single computer connected to its network, the technology can’t be interfered with. If anyone tries to hack or scam a blockchain, the entire chain takes notice, and the chain will be forked where the hack happened, eliminating the culprit from the chain.
This is an incredible breakthrough for data transfer and recording around the world, especially for industries like accounting where pristine record-keeping and data security are essential.
How Does Blockchain Work?
Blockchain technology was created by an unknown person or group of people to help manage and track the activities of the Bitcoin network. The first cryptocurrency, bitcoin was created in conjunction with blockchain technology as a place to manage the decentralized ledger system behind the currency. This technology records any and all transactions that occur within the network and uses distributed ledger technology to broadcast all updates to each member of the blockchain in real-time. The technology behind bitcoin was so profound that it has been adopted by almost all other cryptocurrencies as a method to monitor data transfers. Some cryptocurrencies have even used a complete copy of the bitcoin blockchain coding to create their currency and monitor the currency’s activities, while others have used a modified version of it to keep control within a few powerful hands.
Blockchain technology is essentially a modern take on the traditional accounting ledger, where groups of records are bundled and put into blocks. These record blocks cannot be modified. If someone attempts to modify or falsely post data in the chain, each connected block in the chain will be affected, creating an alert that data has been tampered with.
To get more technical in an accounting scenario, a blockchain employs various protocols that require random private and public keys to authenticate transactions and allow for any transaction to take place on the network. The holders of these keys can remain anonymous, however, every transaction is still recorded on the shared ledger or chain, just as you would see every transaction on your general ledger—money coming in and out.
Since it was first used in 2009, blockchain technology has been explored in industries like finance, banking, investing, healthcare, education, etc. Its ability to record and store information and its imperviousness to tampering make it a natural partner to accounting.
Blockchain in Accounting
If you look closely at the way a blockchain functions, you’ll realize that it fits well with the functions of accounting—that is, the basics of accounting are debits and credits, and blockchain is similar to the ledger that records those transactions. Accounting is about recording and storing transactions, assets, and liabilities, which helps make sense of a company’s finances at the end of a year. It also helps monitor and prevent any fraud or embezzlement. Using a blockchain is a natural next step toward making accounting even more perfect.
Accounting has, to date, relied on paper trails and cloud-based solutions to perform its basic functions. These often require the implementation of regulatory requirements, which are sometimes hard to implement but necessary for compliance.
A blockchain’s ability to offer a provision of an unalterable record of accountancy-based data provides a chance to rid the financial world of embezzlement fraud. While it more than likely will not solve every single problem we have, it will fundamentally change the game.
Blockchain Technology as a Cost-Effective Solution
Blockchain technology can help reduce the costs of the maintenance and reconciliation of various ledgers. Since it provides certainty over the ownership and history of any assets, it could eventually bypass the need to keep records as accountants do today. Using a blockchain could, in fact, help accountants gain a lot of clarity over what resources are available in their organizations. It can also free up resources and help accounting firms expand or invest in new software.
Will Blockchain Technology Implementation Cause Unemployment in the Accounting Sector?
There’s a reality that most accounting industry practices will change due to the application of blockchain technology. It’s inevitable that smaller, quantitative problems will be brushed to the side. The automation granted by blockchain technology makes it much easier to record, store, and verify transactions, which might lead you to think blockchain technology is coming for accounting jobs. (Hint: it’s not.)
There’s always the suspicion that when new technologies arrive, they eliminate jobs. However, the more likely result is that the technology advancements end up creating new jobs as part of the deal. Blockchain technology’s core industry disruption means that the tasks of accountants will remain intact, but they’ll change. They will be more concerned with interpreting data rather than storing or recording it.
Evolution in Blockchain Technology-Based Accounting
Alongside the automation and security that blockchain technology brings, it could also create new jobs. Implementing blockchain technology can lead to better and more frequent transactional accounting being performed—but it might not be performed by accountants. It could be done by employees who work on assessing the economic interpretation of the records held within the blockchain, using the accounting records to the economic conditions of the time and interpreting/predicting economic futures.
For example, a debtor’s position could be all but guaranteed due to blockchain technology, which would serve as the middleman in place of a lawyer or other authorized professional to verify data. However, the recoverable value of the asset and its economic worth would still need to be ascertained. Similarly, the ownership of assets will be easily verifiable within the blockchain blocks, but its true worth, condition, and location would still need to be assured.
The Effects of Blockchain Technology on Auditing
Blockchain technology will have a lot of applications in external auditing. A company’s financial status and annual transactions will be easily verifiable through the blockchain. So if we were to talk about extremes related to blockchain technology and accounting, auditing could possibly be rendered unnecessary. Regardless, it’s likely that blockchain technology and other advancing technologies will continue to shape the way audits are handled in the future.
Thanks to blockchain technology, auditing applications could be far more efficient due to eliminating the need for paper trail documents. Auditors would also be able to verify any key data that underpin financial statements, leading to lower application costs and reduced time for the payer/applicant. Regulatory compliance would then be verified much more efficiently, freeing up time to pursue other tasks or create a better work-life balance.
Future Implementations of Blockchain Technology in Accounting
An accounting firm—or any business, for that matter—is only as strong as the processes it has in place for achieving success. Incorporating blockchain technology could help firms and businesses do exactly that.
Due to the strict implementation built within blockchain technology, accounting documents will be less vulnerable to unintentional modification throughout their lifecycles. This would help refine business processes and possibly ease inter-departmental collaboration. At some point, business processes may be able to span entire companies and be fully traceable.
Unveiling New Possibilities
We suspect that the use of blockchain technology will only continue to increase, changing the way accountants do their jobs and creating greater value for their clients. With the rise of technology, accounting won’t become irrelevant—rather, it will become even more efficient.
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