Blockchain technology has influenced every industry from finance to luxury art. The aim of this novel technology is to create an honest system that is free from manipulation.
Ultimately, it provides a complete and immutable history of every financial transaction. Unsurprisingly, this also makes it the perfect match for accounting.
That is why in this article I will be covering the benefits blockchain bring to accountancy and much more. So without further ado, let’s jump right in.
What is blockchain accountancy?
Blockchain accountancy is the practice of recording or analyzing financial information and the transfer of assets. It utilizes a distributed ledger that is secured by a decentralized network of computers. All transactions on the ledger are transparent and verifiable.
The benefits of blockchain accountancy
One of the biggest problems of conventional accountancy is cooking the books. Simply put, financial records are altered to inflate the company’s revenue or decrease expenses.
This practice is inherently illegal. However, blockchain can address this issue by shedding light on shady practices.
Ultimately, blockchain is a transparent ledger that is open and verifiable. This highlights any illegitimate activity conducted by businesses while guaranteeing authenticity.
Not to mention, it improves the auditing process considerably. Firstly, as the process is digitized there is a significant reduction in the amount of paperwork.
Moreover, each transaction of financial assets is recorded providing a complete trail. This trail is immutable meaning it cannot be deleted or edited.
Blockchain provides a history of all entries that are cryptographically sealed and distributed among a network of nodes. This makes it extremely hard to manipulate or take down.
This ensures the auditor of credibility when conducting reviews and as a result, the process is more streamlined.
Improved efficiency for accountants
Continuing from the previous point it also improves the overall efficiency of accountants. In essence, it enables the automatic recording of transactions thus reducing human intervention.
Furthermore, it eliminates the need for multiple databases. Not only does this save time but it also reduces human error.
Every time a transaction is recorded on the blockchain it is propagated among the network immediately. Consequently, auditors can now analyze real-time information instead of the delayed data records present in the traditional accountancy space.
Disadvantages of blockchain in accounting
The main disadvantage of blockchain technology is it provides less scalability. To put it into context, the second largest blockchain platform Ethereum has less than 25 TPS.
Ultimately, changes to the distributed ledger need to be propagated across the whole network and processed by each node.
Conversely, conventional accounting utilizes a more centralized architecture with servers. This allows greater scalability as there is a central authority that has extensive computational resources at its disposal.
Not to mention, there is little friction when proposing upgrades as there are fewer participants governing the platform.
Whereas, blockchain relies on a large number of participants coordinating together. Often in different geographical locations and time zones.
Examples of blockchain accounting & auditing roles
Auditing smart contracts – at the end of the day, blockchain technology is novel. Technological expertise is limited and therefore incorrect records and smart contract bugs are common. As a result, there is a huge demand for accountants to check for security vulnerabilities and logical errors.
Consultancy – as there is a shift away from reconciliations and provenance insurance there will be greater demand for consultancy. Accountants will be required to provide insights into blockchain technology and the benefits it brings.
Administrator – due to the transparent nature of blockchain technology admins are required to permit access to the network.
Should accountants care about blockchain?
Accountants should care about blockchain technology as it will likely be implemented in the future. Therefore, to adapt to the changing environment it is best to prepare ahead of time.
How can future accountants prepare?
Future accountants can prepare by studying blockchain technology. Whether that be the architecture of blockchain or more of a consultancy approach there are plenty of avenues to take.
Are accountants going to be replaced by blockchain?
Although blockchain can automate many of the tasks including the transaction history, there is still a requirement for accountants in other areas. For instance, accountants will still be required to check the validity of the information while providing analysis.
If you want to view this article in a more visual format then please check out my video below:
As you can see, blockchain is revolutionizing the accountancy space by fostering transparency and traceability. Although it has its issues with scalability it will only improve with time.
I hope you found this article useful and thanks for reading it.
Want to learn about blockchain and cloud computing? Click here to read my previous article.