How will blockchain change accounting?
Blockchain is a public, distributed, openly available network for ledger entries or transactions among the participants. Transactions on this network are safe, transparent and difficult to alter. The application of this framework will greatly change the current accounting industry and bring something new to it.
Current state of the accounting field
Currently accounting aims at:
- measuring and communicating financial information,
- bookkeeping as part of the task of maintaining and reconciling ledgers,
- allocating financial resources,
- measuring rights and obligations over assets,
- analyzing and evaluating financial information.
The future of accounting with blockchain
- In the future all transactions (financial information) will be visible for the parties involved, rending confirmation by third parties unnecessary. At the same time, auditors and regulators will be able to check the transactions in real time, making the process transparent and secure.
- With blockchain, the amount of transactions will increase. By eliminating reconciliation and replacing bookkeeping, the cost of maintaining ledgers will be significantly reduced.
- The accounting department will have at any given time an overview of all available resources and will be able to allocate them appropriately, without the need of lengthy analysis.
- The visibility gained by blockchain will give clarity about ownership of assets and the corresponding rights and obligations.
- By replacing bookkeeping and reconciliating ledgers, the main task in accounting will shift to economic interpretation of blockchain data and evaluating the true worth of ownership.
How can your company benefit?
Cost reduction and higher efficiency
- No third-party cost: Blockchain eliminates the need for a third-party authorization. The resources such as money, time and human labor related to it will be reduced as well.
- Higher flexibility: With blockchain, transfers are no longer limited by office hours and bank branch locations and both sides of the transfer get an in-time information.
- Less assertion check demands: The high data integrity of blockchain network indicates a decline for traditional assertion auditing works aiming at confirming the existence or accuracy of transactions.
Higher safety and easier electronic document keeping
- Unchangeable records: In blockchain systems, a hash string together with an automatically generated timestamping represents the unique identification of one file. Given that fingerprints are identical and unchangeable once a file is created, risk of the documents being secretly modified or removed can be ruled out and all the modifications will be recorded in the system.
- Easy to track: People can easily find and refer to a specific transaction record with its unique identification code, which offers more convenience for companies.
- In-time check: In the long term, when more and more records move onto blockchains, auditors and regulators would be able to conduct real-time check for transactions, which may also result in a new working style for related practitioners.
More about blockchain and accounting
Are you planning for blockchain adoption in your company? Feel free to contact FAE Consulting via e-mail.
ICAEW: Blockchain and the future of accountancy
Deloitte: Blockchain technology: A game-changer in accounting?