Blockchain is in the news a lot lately – not always in a good sense, given concerns about a crypto currency “bubble.” However, blockchain – the technology that makes crypto currency work – has the potential to transform how we do business and may be a game changer for accountants. In fact, some people believe blockchain will make accountants unnecessary. Specifically, blockchain forms a digital ledger of economic transactions that is public (although access can be limited) and hard to corrupt. As blockchain records transactions in a way which cannot be changed retroactively, it stores information permanently.
In fact, blockchain is still not really being embraced, but when it is, it will change accounting forever. Here are some things to consider:
- Blockchain technology renders audits all but unnecessary. Blockchain can be used to record transactions into an automatic ledger that can be viewed by all authorized personnel. The good news is that this will prevent people from cooking the books and end conflicts of interest regarding auditors’ fees. The bad news is that this may, on the face of it, eliminate the need for auditors. It is, however, a little more complicated than that. Auditors may still have to sign off on things, checking that the system is working. The “auditor” of the future may no longer be an accountant, but a blockchain expert trained to spot any ways the technology can be worked around or abused – which happens with any new “security” technology. Audits will be faster, possibly more common, and require an understanding of the company over time – companies may increasingly use auditors not to check the past but to get an eye on the future.
- The technology will reduce errors, saving time accountants spend on looking for, say, that one misplaced decimal point. Although this may result in some loss of jobs, those that remain will be freed from the tedium of verifying payments and able to do higher-value activities. Clients may rapidly perceive that using a blockchain savvy accountant will result in them getting more for their money. However, accountants will need to develop an understanding of the technology, how it works, and its limitation.
- The end of year and end of month rush will disappear as accounting becomes real time. Accountants and bookkeepers will be able to monitor the flow of money in and out of the business easily and in a way which is partially automated – an AI will flag suspect transactions for the attention of a human. This ties into increasing use of cloud solutions to support a situation where accountants will not just be running the numbers, but keeping their finger on the health of the company as a whole.
- Blockchain will lead to a move from double-entry accounting to triple-entry accounting. Double-entry accounting was invented in the late 1400s and has been used ever since. It is the familiar system which shows asset, expense and loss accounts and liability, equity, revenue and gain accounts in columns, allowing the accountant to easily “balance” the books. Triple-entry accounting is coming to mean the extra step of ensuring all transactions are written to a blockchain. For example, a blockchain might be established for each specific contract to store the contract, purchase order, bills, payments, etc, keeping everything associated with it together. (This is not the same thing as triple-entry accounting for financial forecasting). The triple entry in this case is cryptographically sealed, protecting all parties to the contract. Practically, the ledger will need to be validated and real-time audited – a new role for an accounting firm.
- Smart contracts may affect how accounting works. A smart contract can replace many common financial transactions. Essentially, the contract itself holds the funds and releases them when the conditions of the contract are met. This works the same way as traditional escrow – except for being fully automated. A contract might be triggered by a contractor sending final materials – or the results of a sporting event. This will result in fewer legal disputes (and thus less work for contract lawyers), but accountants will also have to be aware of and track smart contracts and know how much of a client’s money is being held by the contracts. Smart contracts may be the most disrupting aspect of blockchain technology for the general public, and it behooves financial professionals to understand how they work before somebody offers them one. Smart contracts could also be used to replace the traditional post-dated check by being coded to take money out of somebody’s account only when the balance reaches the required amount.
- Blockchain is already affecting how companies handle procurement and supplier management. Companies are finding that blockchain streamlines payments to vendors – and accountants are already starting to find they are expected to audit and check on these payments. Procurement is likely to be the first area in which the profession changes and the meaning of the word “audit” is transformed.
- Accountants will start to use blockchain for their own cyber security needs. Because blockchain is decentralized, hard to corrupt and hard to alter, it will help prevent alteration of the books and accountants themselves can use it to store their customers’ data in a way that is more secure, harder to tamper with, and less likely to be affected by a point of failure. If used correctly, blockchain can prevent accounting records and electronic documents from being altered or deleted. It can also be used to share certain data easily and seamlessly with auditors and stakeholders. If fraud does occur, blockchain records can be used to spot the anomaly and to provide evidence to law enforcement. Forensic accountants will find it much easier to access and examine related transactions.
Blockchain will not eliminate the accounting profession – but, just like the invention of computers, it will transform it into something new. Accountants need to embrace and learn to understand the potential of this new technology so that they are not left behind and losing clients to firms who are blockchain savvy. Learning to understand exactly how blockchain will disrupt the financial industry and how to best leverage it will be vital for an accountant’s survival over the next few years – and vital for their clients. If you are looking for blockchain and data-related solutions for your accounting practice, contact Concepts Rise.
Majid Abai – Los Angeles – June 2018
About The Author:
Majid Abai is Managing Director of Concepts Rise, LLC. (www.ConceptsRise.com), a High-Technology and Innovation Consultancy based in Los Angeles, CA, USA. With over 30 years of experience in supporting US and global organizations, Mr. Abai focuses on strategic and tactical approach to use of innovation and technology to increase revenues and reduce costs for organizations. Majid could be reached at 424-320-0524 or via email at majid.abai@ConceptsRise.com.
Tags: Blockchain, Accountants, Accounting, Blockchain Technology, Concepts Rise.