The Economist magazine said that blockchain technology is the most important advancement in recordkeeping since the invention of double-entry bookkeeping in Florence, Italy in 1494. The modern accounting system is a series of mutual control mechanisms, checks and balances. This affects accountants’ day-to-day operations because most of the systematic duplication of efforts, extensive documentations and periodical controls require manual and time-intensive labor. In addition, heavy regulation through the use of independent auditors ensures trustworthiness of these controls but at a high cost to businesses.
Blockchain technology changes everything by creating an incorruptible digital ledger of economic transactions that can be programmed to record not just financial transactions but virtually everything of value (e.g. electronic medical files, real estate property deeds, tax returns and smart contracts). Digital information is distributed but not copied. The blockchain network lives in a state of consensus, one that automatically checks in with itself every ten minutes. It’s a self-auditing ecosystem of digital value that reconciles every transaction in ten minute intervals referred to as a “block.” By storing blocks of information that are identical across its network, it cannot be controlled by a single entity and has no single point of failure.
Ian Khan, a TEDx speaker and technology author, commented, “Blockchain truly is a mechanism to bring everyone to the highest degree of accountability. No more missed transactions, human or machine errors, or even an exchange that was not done with the consent of the parties involved. Above anything else, the most critical area where Blockchain helps is to guarantee the validity of a transaction by recording it not only on a main register but a connected distributed system of registers, all of which are connected through a secure validation mechanism.”
Blockchain technologies will shapeshift the nature of today’s accounting. It will constitute a way to vastly automate accounting processes in compliance with the regulatory requirements. The cost and time necessary to conduct an audit will decline considerably as auditors will be able to verify a large portion of the most important data behind the financial statements automatically. Auditors can spend freed up time on areas they can add more value such as on very complex transactions or on internal control mechanisms.
Blockchain technology will help enable accountants to monitor financial performance in real time. It will be simpler than before to track and monitor the inflows and outflows from a business. Building on the increasing utilization of cloud computing technology by both accounting firms and businesses, it is expected that blockchain will replace most legacy accounting systems by the year 2023 – that is just 5 years away so get ready!
Stacy Redmond, CPA