Blockchain and its impact on Accounting Profession
David Lyford asserts that with the current craze for cryptocurrencies like bitcoin, it is difficult to avoid hearing about blockchain these days.
Blockchain is the ledger technology that serves as the foundation for bitcoin and, in essence, all cryptocurrencies. It is a distributed system that maintains consistency across everyone's records without the use of a centralized database or organizer.
Blockchain is a brand-new approach to record-keeping that offers some exciting opportunities for accountants in particular as well as the larger corporate community. It's also a challenging subject to understand because it's so complex and unique. Nonetheless, while being complicated, the workings of blockchain may be understood in terms of the effects it has.
This is the aim of a new white paper titled "Blockchain and the future of accountancy" from the IT Faculty of the ICAEW. I'll go over some of the paper's most important points here; you can read the full paper at www.icaew.com/blockchain.
The key qualities of blockchain:
The three key features of blockchain according the paper are the three ‘Ps’:
1 Propagation The dissemination of new information from its source to a team of collaborators without the need of a master copy or centralized management.
2 Permanence of transactions is assured, since each person has a copy and is able to recognize and reject efforts to alter the record.as everyone has their own copy and can identify and reject attempts to change the record.
3 Programmability can be added to blockchains, enabling self-executing contracts to coexist with transactions. A blockchain's ability to be decentralized, meaning that no owner, controller, gatekeeper, master copy, or authenticator is required, is its most significant feature. A blockchain can function as a network without a leader, even though some may opt to have more centralization.
Blockchain and Accounting:
What we have is what is known as a shared ledger of transactions in the accounting world. We are aware that additions are irreversible and cannot be changed. Furthermore, the blockchain method automatically establishes consensus between all the stakeholders, so we don't have to spend time reconciling many ledgers. Hence, ideally, we could reduce the time spent performing consolidations and reconciliations.
Unsure or slow markets, like land registry, could benefit from the confidence and efficiency that a blockchain-type system would bring. Blockchains are especially helpful when there are numerous stakeholders involved in a single business process. Maersk, for example, are investigating the use of blockchain in shipping, where a single crate might pass through over 100 transactions involving 40 or more parties. Before a solution like this can be implemented, there are significant technological, legal, regulatory, and governance challenges that must be resolved; yet, it might be a powerful application for this new approach to record keeping.
In a blockchain setting, it is rarely necessary to verify that one participant's records coincide with another's; as a result, some types of transactional-level assurance, such existence and accuracy, are rendered redundant. But, areas that need more judgment and complexity, like appraisal and completeness, are, if anything, more crucial.
Further testing is also required to determine how new entries are added to the blockchain and how closely physical assets match its content. All of this suggests that accountants will transition to higher-value and more discretionary work in a blockchain-driven world.
Blockchain is not always the best solution for accounting issues because it is currently expensive and difficult to operate in many accounting systems, and it isn't always an improvement over a central database. But in situations when it's important to keep a group of stakeholders on the same page, it's a strong new alternative to consider. Future accounting standards and blockchain adoption are likely to align further.
Blockchain technical expertise may be a useful differentiator for accountants, but for the most of them, being aware of its main advantages and disadvantages will be adequate. But there may well be some contraction of services around bookkeeping, reconciliation, and other transactional work that may affect specific accountants if they aren’t prepared.