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Breaking Down Blockchain for Accountants in 2020—and Beyond

May 13, 2020 1:30:00 PM

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?

A blockchain is a transparent, universally decentralized record keeping and data transfer system | Botkeeper

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.

Additionally, due to its ability to share and record data of all kinds, it’s a much better alternative to current standards. Entirely new applications and software can be created using blockchain technology, which can authenticate transactions better than existing applications.
 


 

Blockchain in Accounting

Blockchain technology can help make the accounting industry more efficient | Botkeeper

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.

Because traditional accounting practices address data security and privacy as a separate, important procedure, blockchain technology can provide a sort of patch for existing accounting software with weaker approaches to security and privacy.
 

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?


Blockchain technology implementation in accounting industry means further automation | Botkeeper

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.

Software that utilizes blockchain technology would simply provide more efficiency, optimization, record permanence, and transparency. With more accounting firms looking to grow their advisory services or other specialties, blockchain technology might serve as a sort of catalyst toward that goal.
 


 

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.

Another way that blockchain technology-based accounting will create new jobs is by increasing the industry’s scope. Now that reconciliations and uncertainty over accounting history won’t be major problems, other service opportunities will arise. Accounting firms could perhaps make more complex calculations as part of this expansion of scope. They may even be able to ascertain the value of data that a company owns, providing greater forecasting and additional opportunities for funding.
 

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.

What’s more likely is that an auditor’s duties wouldn’t be eliminated all together, but they would involve big-picture problems technical questions like how a transaction is recorded and classified. They would have greater time to see how an asset is created and what mode of payment is used, strengthening their knowledge of a company’s standing.
 

Auditing Applications

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

Some early Blockchain technology-based accounting applications are being implemented | Botkeeper

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.

Another cool feature for accounting is that automatic payments for invoices may also be made common through smart contracts. Contracts could be drawn up that would enable automatic payments after the verification and receipt of goods through a blockchain, which would help relieve the overhead involved and the burden of accounts payable (AP) and accounts receivable (AR) processes.
 

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.

If you’ve ever read posts on the Botkeeper blog, you know that we’re constantly trying to underscore the value of automation to save time and money. We firmly believe that automation through artificial intelligence and machine learning are the future, and our client success stories support that thought.

Let us show you how Botkeeper can transform the way your accounting firm operates by saving you time and money. Join us for a free presentation on Botkeeper for accountants by clicking below.

 

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Written by Botkeeper

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