Discussing blockchain is a difficult matter that attracts a lot of fear, skepticism, and incredible hype all at the same time. A major reason for this is because blockchain is so heavily associated with Bitcoin, the cryptocurrency advocated by techno-libertarian types who are convinced that it will supplant the dollar any day now.
While blockchain underlines Bitcoin, it is not the same thing and actually possesses immense technological value. Industries from health care to insurance are all looking into blockchain technology and analyzing its potential as a transparent, efficient way to track transactions.
Out of all these industries, accounting could be the one most radically changed by blockchain. Blockchain at its core is an open, distributed ledger where transactions, or blocks, are automatically recorded and linked together. The key here is that in contrast to a traditional accounting ledger, a blockchain ledger is decentralized and almost impossible to crack.
It is difficult to predict how much blockchain will affect accounting, with some claims being so bold as to assert that blockchain will supplant double-entry bookkeeping entirely. But accountants will still play an important role even with blockchain, so long as they understand how it is and why they should learn about it.
1. Blockchain is transparent, yet safe. Going into the technological details about blockchain could fill up a book, but blockchain is one of the most secure yet transparent ways to record transactions ever devised. The blocks in a blockchain are formed at the moment of a transaction and cannot be retroactively altered, making them safe as possible. Furthermore, both buyer and seller can essentially see these transactions on a joint register, making a single point of truth which can be easily verified instead of having to check two separate ledgers.
This is big news from an accounting perspective, as it could practically eliminate much of the manual work which we associate with accounting such as double-entry bookkeeping. Instead of having to rely on an accountant to check through records to make sure there are no mistakes, a business can rely on the chain itself. The information stored on a blockchain can take other form besides currency as well, which is why blockchain promises to be revolutionary in ways beyond accounting or money.
2. Blockchain removes conflicts of interest. Auditors more than accountants will be affected by blockchains. While auditing has become more important as businesses rely on them to verify that their financial statements are in order, a major problems which auditors and accountants face is that they are being paid by the firm who is asking them to check that their books are in order. Under such circumstances, an auditor may find it easy to look the other way on minor discrepancies, even if those discrepancies conceal something much larger.
Blockchains can end that conflict of interest problem. Instead of having to depend on an auditor who may have a conflict of interest to determine that a company’s financial books are accurate, interested parties can now just look at the blockchain. Auditors existed to create trust, but now the chain can create that trust with its absolute security.
3. Accountants can discover new business opportunities. If double-entry bookkeeping and auditors are under attack from the blockchain, does that mean that accountants will go extinct?
No, but the accountant’s role will have to change to something more like a consultant. A blockchain can verify a ledger’s credibility, but it cannot analyze or set financial strategies. Analysis and good judgement as opposed to rote entry work will become more valuable for accountants. This is especially true as blockchains will let accountants have more access to their clients’ financial information. This means that accountant firms will have more data, which means that a firm which is committed to analysis will draw better conclusions and help their clients develop new strategies.
4. Firms can steal an advantage by analyzing blockchain. Accounting firms will have to adapt and change as more businesses can use blockchains, but only a small percentage of firms are actually aware of this threat. Only 4 percent of accounting professionals selected blockchain as the technological innovation which will have the biggest impact on the accounting industry. Many Seattle furnace companies are already using this system. This means that accounting firms which understand the importance of blockchain and adjust their businesses to be more analysis-based and not focused on manual rote entry will be able to gain a massive advantage.