The unusual growth of blockchain technology raises both stimulation and concern for the accounting industry. Will blockchain improve accounting competence? Or will it intimidate the accounting profession — forcing accountants to scrutinize new lines of work?
The Blockchain is a distributed ledger technology that has all the information stored in chronological order. All the information is time-stamped, and hence it becomes easy to store and trace it. Blockchain has to offer a number of features like immutability, decentralization, and transparency makes this a versatile platform which can help in developing Blockchain-based applications for various industries.
Just like blockchain itself, the answer is complex. But one thing is clear though; blockchain is here to stay and has the believable to revolutionize accounting in ways that have never been seen before. In this post, we’ll discuss how blockchain will impact on accounting.
The Future of Accounting
In fact, by directly using the blockchain to carry out or save transactions, the probability is much wider.
In exclusive, by storing the register itself on the blockchain, rather than its hashes, the verification could be at least partially automated. The potential transparency of such a system could be a potential solution to the underlying problem of how to account audits work.
With such a system, data alteration would be impossible. Furthermore, the most exacting part of the process would be automated, leaving the less repetitive parts to the accountants.
A less transparent variant of the system would be possible by implementing a system with two private keys similar to the one implemented.
Blockchain Vs the Current State of Accounting
In the current accounting, records are maintained and stored in a centralized location, typically in the database of an accounting software application. This model of accounting is based on a double-entry system.
When accounting information is needed by the client or the regulator, the accountant will retrieve the data and avail it to the requesting party.
Enter the DLT. Unlike conventional accounting, DLT takes a different, more modern approach. Blockchain thus employs a triple-entry bookkeeping model.
How Blockchain Is Changing Accounting
There are several specific use cases where Blockchain technology can prove to be useful for a company’s accounts department. Some of these are listed below:
- Budgeting and Forecasting — Allowing transfer of value/cash between departments, as indeed IBM is doing, using the Stellar cryptocurrency. The use of Blockchain also creates better transparency and internal responsibility.
- Inter-company reconciliations — Blockchain technology can potentially replace double-entry book-keeping systems, as it creates single records for all transactions. The immutable nature and the historical record maintenance enable accurate consolidation of financial reports, enforcing documentation of intercompany transactions.
- Financial Audit — All financial records are maintained in real-time, so potentially enabling daily, not monthly, management accounting. As there is one record which does not need to be verified by third parties, costs can be removed (such as audit) whilst also offering greater transparency of a company’s, and potentially a supplier’s, financial records.
- Vendor Management — Smart Contracts allow one to create requisitions and manage vendors. Smart Contracts can be created to automatically make and receive payments, thus improving cash flow and eliminate the need for reconciliation.
- Shareholder voting — As reported by the FT, Santander was the first public company to use Blockchain technology to allow its shareholders to vote. Making voting digital using Blockchain technology, enables people to vote via mobile devices, reduces errors from manual-paper based systems and allows real-time analysis and updates of whom and how votes have been cast.
How Accounting for Bitcoin Works
Today also some accountants still face problems trying to work with Bitcoin and other cryptocurrencies, experienced professionals have figured out how to work with this type of currency in their own systems. Most treat them as assets, and it’s interesting to note that many jurisdictions – such as the United States – don’t recognize Bitcoin as currency for taxation purposes, but rather as property.
That’s also how accountants usually list cryptocurrencies owned by their clients, and so far, the system appears to be working out fine. There’s one caveat though – any fluctuations in the value of the cryptocurrency have to be treated as capital gains or losses, and therefore reported on a tax return. It’s not too different from store credit cards with bonus programs – one just has to know how to describe them as taxable assets.
How the Future Might Look
Blockchain and cryptocurrency are two terms that keep popping up more and more often in the world of finance, and it’s likely that they are going to lead to genuine changes in the way accounting works in common. The popularity of these tools can’t be underestimated anymore, and their impact on the global financial market is going to be significant once their adoption rate reaches appropriate levels.
Accounting for Business down the Road
This will also have an effect on the way accounting works for businesses, although it’s a bit difficult to predict faithfully how this could play out at the instant. Some business owners are apparently attending about the prospects of having to declare entirely new types of possessions on their returns, but thankfully, any experienced accountant should be able to sort these issues out without complicating the company’s financial matters.
On that note, it’s going to become increasingly more important to know that you can trust your accountant, but on the bright side, it’s also noticeable that many accounting specialists are now becoming more knowledgeable in this field and related ones.