Mainly when we use the term “Blockchain”, then our minds go directly to bitcoin. But, blockchain has vast potential than this. Blockchain is the part of Industry 4.0 that has the potential to change numerous business practices.
Blockchain is turning out to be an accounting technology as transferring property and maintaining ledgers have never been easier before. The role of blockchain in accounting is humongous and can be broadly highlighted as –
- It is bringing changes in the business practices and process by impacting the back-office activities such as financial reporting and tax preparation.
- With the emergence of blockchain technology, the role and skill set of CPAs and EAs have been completely changed. Like, the cloud-enabled data extraction and analysis bought a great level of standardization and transparency in the accounting industry.
- It can influence all the bookkeeping process including the way to transaction initiation and reporting.
Blockchain Technology Structure!
A blockchain is a digital ledger that is developed to capture the transaction conducted between different parties present on the same network. It is a B2B internet based ledger that has the potential to record all the transactions since its development. All the individuals or businesses present on the shared database are referred to as nodes that are connected to the blockchain. Each node maintains an identical copy of the ledger.
Every entry made into the blockchain represents a transaction that showcases an exchange of value between participants. There are various types of blockchains developed and tested by the programmers by far. But, it’s a basic framework adopted by most of the blockchains. The blockchain has a wide range of unique and valuable characteristics that has the capacity to transform the accounting industry such as near-real-time, central administrator, distributed digital ledger and much more.
The key features of blockchain are that:
- Distributed Ledgers: All the transactions originate with a single user but circulate to a network of identical ledgers, thus there is no central controller that can influence the transaction
- Permanence: all transactions and records are permanent, unable to be tampered with or removed; and
- Programmable: many blockchains are programmable, allowing for automation of new transactions and controls via ‘smart contracts’.
Blockchain in Accounting
The accounting industry has to respond to two aspects for working in blockchain ecosystem;
- Blockchain changes the dynamics of business processes and as the accounting department needs to interlink all the business processes, it has to understand the effect of blockchain on different business processes.
- Blockchain changes methods of recording, verifying and auditing transactions. Thus the accounting department has to adapt to the new methods in the blockchain ecosystem.
This technology has so many different features and functions that have changed numerous things for CPA firms – for better. Such as –
- Enhance Accounting Profession – Blockchain has the power to uplift the standard of the accounting profession by reducing the costs of maintaining and reconciling the ledgers.
- The certainty of Assets & Liabilities – Accountants are concerned with measuring rights and obligations over the properties and planning for financial resources allocation. To respond to this, Blockchain provides certainty over ownership of the assets and existence of the obligations that could intensely improve efficiency. It even frees up resources of the organization so that the planning and valuation process can be improved.
- Transactional Level Accounting – With the other automation forces such as machine learning and artificial intelligence, blockchain will bring more and more transactional level accounting, but not by accountants. The professional blockchain accountants will be those who examine the real economic condition recorded by the blockchain system and comparing them with the real market economic conditions.
For example, blockchain made the presence of debtor certain, but it’s recoverability and the market value remains undisclosed. Here, blockchain records might verify the ownership, but its location and true worth will remain uncertain wherein accountants can play their role.
- The consensus of the transactions – Blockchain works through a process of consensus whereas all the nodes identify the transactions posted by any participant and agree on before it takes effect into the ledger. Thus, confirmation and validation automatically complete simultaneously with posting. This releases accountants to carry out third party verification of historical transactions that sometimes become very hectic and time-consuming.
- Smart Contracts – Use of blockchain as a platform to host smart contracts automates and adds certainty to contractual arrangements and transactions. The potential for self-executing smart contracts allows for a programmable ledger that could fundamentally execute how all contracts operate. This relieves accountants from verifying and validating contracts and invoices before processing payments processing as all the work is executed by the coded programs.
Blockchain in Auditing
Blockchain has numerous applications that improve the external auditing process. When all the necessary financial information of a company is presented under the one transaction and it is easily visible on blockchains, then this will bring profound changes in the auditor’s work.
When the blockchain is combined with the appropriate data analytics, then this could improve the transactional level assortment involved in audit work. This way the skills of auditors will be spent on finding a solution for the high-level questions.
For instance, the auditing is not a mere process of checking the detail of transactions like between whom transaction was conducted and the amount of money involved, but it is also recorded and classified. It will check if the transaction is credited cash – is outflow because of the cost of sale or expenses or it is paying credit or creating an asset?
These questions are something that won’t be straightaway answered in the general context of the auditing processes, but with the blockchain intervention, it is possible. That’s because the transactional work of auditors will be handled by blockchain by giving more time to focus on these important questions.
Future of Blockchain in Accounting
There are still so many unknown aspects regarding blockchain impact on the accounting profession that are lurking around. However, blockchain is already influencing the CPA organizations that are using blockchain to maintain the ledgers by increasing their rate of growth. In the immediate future, the use of blockchain is still limited in the accounting and financial industries. As still, not many blockchain accounting companies are present in the market. But, some advanced accounting companies with the futuristic approach has already started using blockchain.
If you are looking for an advanced tech-oriented accounting company to handle your work and offer you some extra features, then you can visit the CapActix website. For further information, you can mail us at [email protected] or can call on +201-778-0509.