Blockchain in Accounting: Impact, Advantages, Examples

The immutable and transparent nature of blockchain led to its exploration in financial and accounting sectors as a tool to enhance accuracy and trust. Traditional bookkeeping payroll methods often involve multiple intermediaries and are prone to errors and fraud. Blockchain addresses these issues by providing a tamper-proof and verifiable record of all transactions.

• It provides educational materials, facilitates collaboration, and advocates for adopting blockchain standards within the industry.
• Once just a buzzword linked to cryptocurrencies, it’s now becoming a game-changer for financial management, transparency, and auditing.
• For accountants in blockchain, the shift from SAB 121 to SAB 122 represents a pivotal moment.
• A blockchain-centric accounting framework could bridge these regulatory gaps by instituting universally accepted financial reporting methodologies.
• This shared ledger system ensures that all entries are consistent and verifiable, which can significantly streamline the auditing process and improve compliance with regulatory standards.

Payroll Management

Each entry in blockchain accounting is saved with a timestamp and a unique code. Among the many disruptive technology trends impacting the way we do business, blockchain is one that is less well known within the accounting community. However, given its potential impact, blockchain is certainly not a trend that accountants can afford to overlook any longer.

2 Regulatory and Compliance Concerns

• Blockchain undermines the pain point of fraudulent actions through immutability and security.
• The use of smart contracts – self-executing contracts where, once all conditions are met, payment, goods, or services are automatically released – could also make it easier to settle the bill.
• For instance, Microsoft has incorporated blockchain-based ledgers within its cloud service transactions, facilitating real-time monitoring and enhanced financial governance.
• Limitations include scalability issues, regulatory and compliance challenges, and difficulties in integrating with existing systems.
• Traditional bookkeeping relies heavily on manual data entry, which is time-consuming and prone to human error.
• Reconciliation becomes a breeze with a single, synchronized record of all transactions.

The immutable nature of blockchain ensures that once data is recorded, it remains accurate and trustworthy. Centralized databases are vulnerable blockchain accounting to hacking, fraud, and unauthorized access, which can compromise sensitive financial data. In contrast, blockchain technology offers enhanced security features through its decentralized and immutable ledger system. While blockchain offers various benefits, its adoption in auditing also presents potential challenges and limitations.

Insights from a Crypto Accountant: Sharon Yip

Instead of one central authority controlling everything, the data is spread across many computers. The literature is, however, foreseeing that the accounting ecosystem will change. The initial verification, secure storing and real-time availability and further analysing of date will change decision making and reporting practices.

• Smart contracts, for instance, can automate processes such as invoice approval and payment, ensuring that transactions are executed correctly and promptly.
• Although distributed blockchain technology revolutionizes the performance of banking industries, you don’t have to forget about the challenges blockchain and banking encounter.
• At Deloitte, our people work globally with clients, regulators, and policymakers to understand how blockchain and digital assets are changing the face of business and government today.
• Moreover, blockchain’s ability to facilitate real-time updates can significantly streamline bookkeeping processes.
• Blockchain technology proposes an alternative accounting information system that mitigates the challenges faced by the current double-entry system and transforms the technological skill set and focus of the profession.
• As blockchain technology continues to advance and new and different uses are found, it will be up to the accountancy profession to ensure that its promises of transparency and accountability are fulfilled.

Blockchain audit risks

• Additionally, collaborating with tech experts can facilitate a smoother transition to blockchain-based systems.
• Blockchain technology in accounting is a revolutionary decentralised and distributed ledger technology (DLT) that records data in chronological order.
• Blockchain’s real-time auditing capabilities allow for continuous monitoring of financial activities.
• The immutable nature of blockchain records ensures that all transactions are accurately documented.
• The benefit of blockchain technology is that the information could be shared among different stakeholders (Kinory et al., 2020).
• Blockchain uses cryptographic security measures, such as hashing and digital signatures, to secure transaction data and reduce the risk of fraud.

Performing confirmations of a company’s financial status would be less necessary if some or all of the transactions that underlie that status are visible on blockchains. Alongside other automation trends such as machine learning, blockchain will lead to more and more transactional-level accounting being done – but not by accountants. Instead, successful accountants will be those that work on assessing the real economic interpretation of blockchain records, marrying the record to economic reality and valuation. For example, blockchain might make the existence of a debtor certain, but its recoverable value and economic worth are still debateable. And an asset’s ownership might be verifiable by blockchain records, but its condition, location and true worth will still need to be assured.

This reduces the need for manual intervention and minimizes the chances of discrepancies. Blockchain technology is poised to significantly alter the landscape of the accounting profession. With its decentralized and immutable ledger system, blockchain can enhance the accuracy and reliability of financial records. This could reduce the need for extensive audits and lower the risk of fraud. Another example is the accounting firm PwC, which How to Start a Bookkeeping Business has integrated blockchain into its auditing services.

Integrating blockchain into accounting systems enables a more organised overview of information, as well as that information’s provenance. Storing data on the public blockchain creates a global reference to any piece of information, while also keeping everyone in-sync and up-to-date. In the coming decade, the demand for digital identity solutions will create a market for QTSPs. Individuals and organisations can choose to which QTSP they want to attest to their digital signature on the blockchain.