Blockchain technology is a relatively new concept and rapidly growing technology with ongoing innovations. The technology hopes to address various challenges associated with digital transactions such as double spending, data security, chargebacks, frauds, and many more.
After ‘cloud’ and ‘Internet of Things’, ‘Blockchain technology’ has been an emerging buzz word in recent time. Some believe it will be as big as the internet and will transform financial transactions.
So what exactly is blockchain technology? And in what ways it has potential to impact the future of finance & accounting industry? Let’s try to familiarize ourselves with the potential implications, opportunities and risks associated with the rise of blockchain technology.
What is Blockchain Technology?
“The blockchain is an incorruptible digital ledger of economic transactions that can be programmed to record not just financial transactions but virtually everything of value.”
Blockchain technology is actually rather easy to understand at its core. As people around the world become increasingly dependent on technology, financial services providers are seeking new ways to cater customers the same services to which they're familiar, however in a more efficient, secure, and cost effective way. This is where the application of blockchain technology comes in picture.
Blockchain technology is a shared database inhabited with entries that must be confirmed and encrypted. The technology enables complete, conclusive verification even without a trusted party. It was first designed with aim to facilitate, authorize, and log the transfer of bitcoins and various other cryptocurrencies.
The impact of blockchain: How the Blockchain may enhance today’s accounting practice
Accounting industry is already undergoing a paradigm shift as more number of businesses opts for the cloud based accounting. Considering the potential impact of blockchain technology, it is certainly not a trend that accountants can afford to overlook any longer.
Blockchain technology is likely to put several benefits for industry as well as general people. The technology will enforce the standardisation of records which will enable auditors to verify a large amount of crucial data behind financial statements automatically. This in result will reduce the cost and time to conduct an audit.
Another benefit that this emerging technology put on table is that it has capabilities to support traceable audits to prove the integrity of electronic files easily. Certainly, the accountants will be able to cater more strategic financial advisory role and assist their customers not only in growth of their business, but also in personal finances.
Applications of Blockchain in Accounting & Audit:
The blockchain is a distributed ledger that is openly available and has nominal usage cost. The blockchain usage for accounting and finance use-cases is vastly assuring. Starting from simplifying the compliance with regulatory needs to augmenting the customary double entry bookkeeping, everything is imaginable.
Here are some potential uses for blockchain in accounting and audit:
- Traceable audit trails & financial statements;
- Automated audit processes;
- Verification of transactions;
- Tracking ownership of assets;
- Development of “smart contracts;” and,
- Registry and inventory system for any asset, ranging from raw materials to intellectual property
Awareness and understanding of the blockchain technology is crucial to the success of Accountants as rusted advisors in today’s fast-paced business environment.
While the accountants and financial advisors cannot deny the fact that technology has potential to disrupt their profession, the best way is to choose to embrace this rising innovation and seek new, more strategic ways to serve clients better. In such a fast-paced technological world, keeping ourselves up-to-date and adept new changes is the key to remain successful.