Blockchain Technology is Evolving Conventional Accounting SystemsWritten by Mindaugas on September 10, 2018
What comes to your mind when you hear the term “blockchain technology?” Your mind probably takes you to the context of Bitcoins, Etherium, Litecoins, among other cryptocurrencies. That’s expected. It’s the explosion in the use of cryptocurrencies that has brought blockchain into the mainstream. But, that’s just one of its uses – authenticating new digital currencies. In reality, cryptocurrency hasn’t even begun scratching the surface of the potential blockchain technology has in disrupting conventional business systems.
Blockchain technology versus accounting systems
When it comes to conventional accounting, all records are stored in a centralized location. This can be a database of an accounting software application or a collection of spreadsheet files. The accountant must retrieve all information they need from that location to perform whatever action is needed to serve their clients. Although one issue arises – only the auditors and accountants can directly access the centralized ledger.
Blockchain technology on the other hand, stores all the records in a shared or distributed ledger which can be accessed by all concerned parties. That way, auditors, regulators, accountants and clients would have an identical copy of the ledger at all times. Each would have access to the portion of ledger that contains their records with the use of private and public keys to authenticate users.
This breakthrough provides the advantages of immutability and transparency that’s very critical when it comes to the integrity of records of an accounting firm. Besides, by using smart contracts, the technology implements the governing rules that authorize different entities to access financial records. Because of these strengths, accounting experts believe blockchain accounting will ascend the bookkeeping industry to new heights.
Big names in the accounting industry are embracing this technology
There is a huge reason behind this adaptation. It’s all about the value. Comparing the internet and blockchain technology, the chairman of Wall Street Blockchain Alliance once said that “internet gave us a powerful ways to share and access information” but, the emerging blockchain technology “now gives us a powerful way to share and access value.”
Today, big accounting firms – Ernst &Young, KPMG, Delloitte and PricewaterhouseCoopers – are leading the way, especially in regards to blockchain research for accounting practices. Ernst & Young and PricewaterhouseCoopers are accepting Bitcoin as a method of payment while others like Delloitte ad KPMG have already appointed blockchain directors to steer them to the path of adopting cryptos in their business.
In a bid to investigate blockchain application in accounting system, KPMG launched a program dubbed ‘Digital Ledger Services’. That was in 2016. The company also partnered with Microsoft in 2010 to create the “Blockchain Nodes”, an initiative that was aimed at identifying new applications and how blockchain technology might find more uses in the accounting industry.
Deloitte, on the other hand launched Rubix – a “one-stop blockchain software platform.” Since then, the company has continued to expand and diversify their offerings. They also seek to explore initial coin offerings (ICOs). Besides, their partnership with “Waves Platform” means, among other things, that crypto-trading and ICOs are becoming more accessible and reliable than before.
Well, it might appear like we have managed to cover all the bases in the name of blockchain; the the truth is, we are just at the beginning of the process. Today, an increasing number of mainstream companies are now accepting Bitcoin for payment, including Shopfy, Microsoft, Expedia, Newegg.com, Reddit, eGifter, and dozens of others. As more companies embrace the use cryptocurrency economy, accountants and auditors will be forced to include cryptocurrencies transactions in their accounting processes.
Should auditors and accountants be concerned or excited?
Should accounting professionals look for a new line of work? As with any revolutionary technology, there is always the fear of whether it will be blessing or a curse to the adopters and anyone else involved.
Luckily, most forecasters don’t see the technology edging out accountant professionals form their jobs. Jeremias Ramos, a CPA says that “blockchain …will significantly reduce the cost of bookkeeping … but will not eliminate the need for accountants altogether.”
Why? Jeremiah says that while blockchain technology is “good at verifying financial information” it might not work well at ensuring that “a financial statement is appropriately represented using Generally Accepted Accounting Principles.” Failure to represent financial statements appropriately might lead to fraud.
So what’s really happening?
Erik Asgeirsson, president and CEO of CPA.com, believes that blockchain is just going through the process of evolution within the accounting field. In an article published by “The Journal of Accountancy,’ he says that “the roles of the auditor and the accountant have transformed”.
So, at the end of the day, it all depends on how prepared they are to embrace the technology. This doesn’t necessarily mean that early adopters will reap big rewards from the technology. Although those that adopt distributed ledger technology (DLT) as part of their business model in the next year, will enjoy its benefits sooner. That means auditors and accountants need to learn as much they can about the new technology before it becomes an integral part of their jobs.
What about the cost ramifications?
There are a lot of advantages of DLT in the accounting industry, though that doesn’t mean that there won’t be any casualties or challenges when adopting the technology.
- Your accounting software may not be compatible DLT – Even if you wanted to get started with blockchain, your accounting software might decide to frustrate your ambitions. Which means in order for you to adopt the technology, you need to purchase cloud-based accounting or possibly hire a blockchain developer to do it for you.
- Reduced long-term viability for accounting firms that stick to the status quo – Although there are still no enterprise-ready blockchain solutions for the industry, it won’t take long before developers and innovators move into to satisfy this emerging market. That means excuses for not switching to the new technology will soon evaporate and accountants will be forced to change the way they work. Those who choose to disregard the new technology may lose a lot of business in the long run.
Summing it up
There is a lot of skepticism among accounting professionals towards blockchain technology. The technology promises to be game-changing in the way accountants ‘do business’. Fact of the matter is that only a handful of accountants see the opportunity offered by the technology that would position them as cutting-edge and forward thinking.
As much as it may scare anyone who takes up the conventional accounting, blockchain has become the new frontier of the accounting industry. Many accounting firms are heavily investing into blockchain tech in hopes of figuring out novel methods that would improve auditing and accounting. This is only the beginning. Blockchain is here – it’s huge, and it’s going to get bigger.
Our guest post today was written by Hitendra Singh. Hitendra Singh Rathore is the Digital Marketing Executive and software analyst at SoftwareSuggest and loves helping people plan, optimize and launch marketing strategies.