Blockchain technology is, at a fundamental level, an accounting technology — used to track and secure the storage and transfer of value, blockchain technology is primarily concerned with the ownership of assets and maintaining an immutable ledger of financial information.
Blockchain technology holds the potential to significantly disrupt the accounting industry.
The accounting ecosystem is primarily focused on the analysis and transfer of financial information, which places blockchain at the intersection of accounting and technology.
Most accounting professionals are concerned with the assessment and measurement of rights over property or developing strategies for how best to allocate or distribute resources. Blockchain provides accounting professionals with far greater clarity over asset ownership and obligations than any other technology.
How Can Blockchain Help the Accounting Industry?
Blockchain technology is positioned to significantly increase the efficiency of accountancy by reducing the overall time cost and overheads associated with maintaining disparate ledgers, as well as delivering clarity over asset ownership to auditors seeking asset ownership and history data.
By providing accountants with additional clarity, blockchain technology assists with identifying the obligations and resources available to organizations. By streamlining the accounting process, blockchain technology frees up time and capital that can be directed toward strategy, planning, and valuation, rather than mechanical record keeping processes.
The intersection of blockchain and machine learning technology is slowly establishing an ecosystem in which transactional accounting is performed at a far higher rate — but not by human accountants. The automation of procedural accounting practices allows accountants to focus on economic interpretation rather than perform time-consuming transactional tasks.
The existence of blockchain records, for example, may prove with certainty the existence of a debtor. The recoverable value associated with the debtor and its economic worth, however, may be debatable. Blockchain technology is able to verify the existence of an asset, but it’s up to an accounting professional to determine the location, condition, and true worth of the asset in question.
Blockchain technology eliminates reconciliations and delivers immutable certainty of transaction history. By freeing up accountant time, the application of blockchain technology within the accounting industry allows accountants to deliver more value elsewhere.
Blockchain and Auditing
The execution of an external audit is a process that can be optimized through the application of blockchain technology. Should a company transact primarily on a blockchain network, performing confirmations on the current financial status of the company would be made far easier than in the current financial paradigm.
Auditing isn’t limited to only confirming the details of transaction value and the parties involved, but also the method through which the transaction was classified and recorded. In a transaction credits cash within a business, for example, is the transaction defined as sales or expenses outflow, remittance sent to a creditor, or the creation of an asset?
These classifications require contextual information that is typically not available to the public. By providing accounting services with the ability to access the fundamental data points that assist with classification, blockchain technology provides auditors with more time to focus on judgement and classifying transactions.
The Future of Blockchain & Accounting
While blockchain technology is still at an early stage of adoption, it’s possible that entire financial ecosystems may move to blockchain-based systems in future. Such a move would offer a broad range of opportunities to the accounting industry — accountants are typically viewed as experts in financial analysis, record keeping, and the application of complex financial rules.
Small business accountants are uniquely positioned to shape the way in which blockchain technology is viewed and integrated into future financial ecosystems. In order for blockchain technology to become ubiquitous, the entire blockchain ecosystem must be standardised, optimised, and rendered interoperable.
The contemporary cryptocurrency ecosystem is currently experiencing a wave of adoption due to expanded interoperability. Exchange platforms such as Rubix.io now offer cross-chain atomic swaps, making it possible to trade cryptocurrency across exchanges with no centralised transfer medium. In order for blockchain technology to become widespread in the accounting industry, similar interoperability optimisation must occur.
Ultimately, blockchain technology will establish a new accounting ecosystem that demands a new spectrum of skills from accounting professionals. Transactional tasks such as provenance assurance and reconciliations will be autonomous, while dynamic tasks such as advisory will become more important.
The future of accounting is interwoven with the development of blockchain technology. By capturing an understanding of blockchain fundamentals ahead of the adoption curve, forward-leaning accounting professionals can place themselves in a strong position to adapt to blockchain-based disruption.