What will be the future impact of Blockchain Technology on Accounting?

Blockchain technology has the ability to improve the accounting profession by lowering the expenses of maintaining and reconciling ledgers and offering perfect certainty about asset ownership and history.

Blockchain is currently one of the most discussed technology in business. Blockchain technology has the ability to transform sectors and provide new opportunities ranging from finance and cybersecurity to intellectual property and healthcare.

Details on the potential of blockchain, its implications for auditors, how the accountancy profession can lead, and what skills are necessary for the future.

The potential of blockchain

Blockchain is a technology for accounting. It is concerned with the transfer of asset ownership and the upkeep of an accurate financial ledger. The accounting profession is broadly concerned with the measurement, communication, and analysis of financial information. Much of the profession is involved with determining or quantifying property rights and obligations, or with deciding how to best allocate financial resources. Blockchain gives clarity about asset ownership and the existence of obligations for accountants, and it has the potential to significantly increase efficiency.

Blockchain technology has the ability to improve the accounting profession by lowering the expenses of maintaining and reconciling ledgers and offering perfect certainty about asset ownership and history. Blockchain could assist accountants to get clarity over their organizations’ available resources and liabilities, as well as free up resources, to focus on planning and valuation rather than recordkeeping.

Along with other automation developments such as machine learning, blockchain will result in an increase in transactional-level accounting - but not by accountants. Instead, effective accountants will be those that evaluate the true economic interpretation of blockchain records, linking the record to economic reality and valuation. For example, while blockchain ensures the existence of a debtor, its recoverable value and economic worth remain debatable. And, while blockchain records can verify an asset's ownership, its condition, location, and genuine worth must still be guaranteed.

Blockchain could expand the scope of accounting by removing reconciliations and providing confidence over transaction history, allowing for more areas to be included that are currently judged too complex or unreliable to quantify, such as the worth of a company's data.

Blockchain can be used to replace bookkeeping and reconciling tasks. This could jeopardize the work of accountants in particular areas while strengthening those focused on generating value elsewhere. For example, in mergers and acquisitions due diligence, dispersed consensus regarding key figures allows more time to be spent on judgmental areas and guidance, resulting in a faster overall process.

Implications of blockchain for auditors

Blockchain can be used in external auditing. Confirming a company's financial status becomes less important if some or all of the transactions underlying that status are visible on blockchains. This idea would result in a significant shift in the way audits are conducted.

When integrated with suitable data analytics, a blockchain system could assist with the transactional level claims necessary in an audit, allowing the auditor's expertise to be better spent evaluating higher-level problems.

Auditing, for example, involves not just verifying whom a transaction occurred between and the monetary amount, but also how it is recorded and classified. If a transaction credits cash, is this outflow due to sales or expenses, or is it paying a creditor or establishing new debt?

These judgmental factors frequently require context that the general public does not have, but rather an understanding of the business, and with blockchain in place, the auditor will have more time to focus on these questions.

How the profession can lead with blockchain

The transition to a financial system with a major blockchain component opens up numerous prospects for the accounting profession. Accountants are regarded as experts in record keeping, the application of complex rules, business logic, and the establishment of standards. They will be able to direct and influence how blockchain is incorporated and used in the future, as well as design blockchain-led solutions and services.

Blockchain must be developed, standardized, and optimized in order to become a truly essential part of the financial system. This process is likely to take several years - bitcoin has already been operational for nine years, and there is still considerable work to be done. There are numerous blockchain applications and start-ups in this industry, but only a few have progressed past the proof-of-concept or pilot study level. Accountants are already taking part in the research, but there is still work to be done. Creating blockchain-specific regulations and standards will be a significant issue, but prominent accounting companies and authorities can contribute their experience.

Accountants can also serve as counselors to businesses considering joining blockchains, advising them on how to assess the costs and benefits of the new system. Accountants' combination of commercial and financial acumen will position them as crucial advisers to organizations seeking opportunities in these new technologies.

Skills for the future

Blockchain and smart contract techniques will alter the areas of accounting concerned with transactional certainty and the transfer of property rights.

The elimination of the requirement for reconciliation and dispute resolution, together with enhanced confidence about rights and duties, will allow for a greater focus on how to account for and examine transactions, as well as an expansion of what areas can be accounted for. Many present accounting department operations can be optimized using blockchain and other modern technologies such as data analytics or machine learning, increasing the accounting function's efficiency and value.

As a result of the foregoing, the range of abilities represented in accounting will shift. Some tasks will be minimized or eliminated, such as reconciliations and provenance assurance, while others, such as technology, consulting, and other value-added services will be expanded. The auditor's attention will shift in order to appropriately audit a company with significant blockchain-based transactions. There is no need to check the veracity or presence of blockchain transactions with third-party sources, but there is still much attention to pay to how those transactions are documented and recognized in financial statements, as well as how judgmental factors like valuations are chosen. In the long run, additional documents may be moved onto blockchains, and auditors and regulators with access would be able to review transactions in real-time and with clarity about their origin.

Accountants will not need to be engineers with in-depth knowledge of blockchain technology. They will, however, need to understand how to advise on blockchain adoption and the impact of blockchain on their organizations and clients. They must also be able to bridge the gap by engaging in educated interactions with both engineers and business stakeholders. Accountants' abilities will need to be expanded to include an understanding of the fundamental elements and operations of blockchain.