The blockchain technology has been making rounds of the global market for quite some time now. When you first heard of the blockchain technology, it must have been in relation to cryptocurrencies, especially the Bitcoin. Blockchain gained momentum as the underlying technology behind Bitcoin. If we were to look at the basics, blockchain is essentially a financial technology. The technology basically concerns itself with the maintenance of a distributed accounting ledger that is openly available and can be shared with many individuals, but it cannot be duplicated, thereby ensuring more security.
Digitalisation of the accounting business function is still in its stage of infancy, which can be attributed to the extremely strict regulatory mandates and compliances in the global market. The existing accounting system is built in a way that ensures forgery or fraud of any sort does not take place. For achieving this, it depends on stringent checks and mutual control mechanisms that involve labour-intensive manual tasks. The use of blockchain is expected to ease this process, right from simplifying compliance with government regulations to improving the existing double entry bookkeeping system.
If there is an industry that should expect to be completely disrupted by the blockchain technology, and we are not talking in terms of a deleterious disruption, then it should be the accounting industry.
Blockchain is essentially an accounting-based technology. It resembles an impenetrable and incorruptible ledger that offers accountants a new way of storing and sharing data, with both the processes being simultaneously interoperable. This reduces the necessity of storing data in disparate locations. The technology has taken the accounting industry by such storm that accounting professionals are now pursuing blockchain-specific certification courses to get well-versed in the field of blockchain cryptocurrency. From auditing to bookkeeping, the blockchain technology has the power to completely transform day-to-day accounting tasks by improving reporting, efficiency and information access in ways never imagined before. Let us see how blockchain can help accountants save resources and make more from what they already have.
Near-real time transactions:
One of the biggest benefits blockchain will bring is speedy transactions. Every accountant, in the beginning of the month, gets busy with book closing, which involves closing transactions from the previous month. This entire process can take anything between one to two weeks, depending on the volume of transactions. However, with the advent of new financial systems that are replete with advanced technologies, the book closing time is shrinking significantly. With blockchain, transactions from the previous month won’t be dangling in limbo. The time consumed by delays in processing will be eliminated, as near-real time transactions will not need separate closing in the month end. For the matter of fact, the entire month-end book closing ritual will become obsolete with financial transactions being made instantly. With the blockchain technology, accountants will not have to worry about verifying that transactions are sorted and included in the correct month, as transaction reporting will be done automatically when the month ends, and once all transactions will become complete, they will be recorded and saved forever.
Secured information and reduced errors:
The entire blockchain technology is based on encryption which secures every transaction and record on the blockchain. Each transaction using the blockchain technology is encrypted, and every individual participant in the transaction is assigned a unique string of characters for easy recognition. After some time, all the transactions become a part of a larger block, and when this block is finalised, everyone in the concerned network/block is notified about the same. If any record on the block is altered or changed, reviewers can identify when the change was made, due to the time stamp feature available on the block. This type of encryption will not only secure critical business data but also transform the way audits are conducted. Moreover, since every transaction identifies its participants and also has a time stamp, the chances of errors decrease considerably. Reduced mistakes not only during the auditing process but also in ongoing operations, adds more business value in a quantifiable way.
Blockchain can greatly help companies that have to manage large volumes of assets, such as stocks, funds, bonds, deeds and inventory. The disturbed ledger technology can track these assets in a secure manner. With blockchain, transactions are recorded in a ledger and then shared so that multiple copies of the same ledger are stored in the computers of all the involved participants. Every time an asset transaction is carried out, details are shared with the multiple ledger copies on the blockchain. With such a system in place, each participant has the same copy of the ledger, along with complete history of the assets. If shares are bought or sold, records are created for the same, and their origin can be tracked down to the beginning of their existence on the blockchain. This helps drastically reduce asset frauds and thefts and simplifies the entire process of auditing, as all historical records and entries are readily available on the blockchain.
Automated reconciliation and reporting:
With blockchain’s automatic update feature, reporting and reconciliation become extremely hassle-free and convenient. As and when transactions are made, all the related details are automatically recorded on the blockchain, which makes it easier to automatically sort and register journal entries. Details and information can be viewed in the real-time as transactions are conducted, and every detail is simultaneously recorded or updated across all the live copies of the ledger. Whenever any new blockchain is developed, its information can be stored in the transaction details. Enterprises can also develop unique frameworks to make the blockchain technology work seamlessly as per their specific business requirements. The accounting and auditing teams will reap maximum benefits from these detailed and thorough fraud-resilient transaction records.
Cost-effective auditing and compliance:
Auditing professionals should expect to benefit the most from the blockchain technology. With blockchain-powered data, companies can conduct audits in a faster, more precise and better automated manner. Projects that earlier required weeks and months for completion, with the help of blockchain can be completed in a few days. While conducting audits, officials can find complete details of transactions right on the blockchain, which will make it really hassle-free to confirm and verify the financial status of the companies being audited. This will have a profound impact on the way audits have been done till date. Blockchain solutions can also be integrated with data analytics to help auditors with transactional-level assertions, so that more time is available for higher-level inspections.
Should accountants be worried?
One of the biggest misconceptions about the blockchain technology is that the accountant’s role will become obsolete, which is not going to happen anytime soon. Blockchain is in no way going to replace human accounting, it will only assist it. The distributed ledger technology will significantly impact all accounting functions, right from auditing to security, and help companies store, retrieve and interpret data in a systematic and an automated manner. Its role will be more of a support assistant rather than the mission pilot, and accountants do not have anything to worry about.
Accountants should consider blockchain to be a wave of change that will only offer better opportunities. They should leverage these opportunities to realise and understand how blockchain will impact and can be used in future applications to create blockchain-powered accounting solutions and services. Accountants, basically, are experts in records management, and all the blockchain technology does is facilitate a simple and an interoperable records keeping system, which can be easily accessed by auditors and other authorised officials. Blockchain, therefore, will only reduce the burden for accountants by offering a helping help.
The main thing to consider here is how accountants respond to the blockchain wave, and yes, it is not going to be easy, in fact it may also seem very intimidating. Accountants should be willing to update their knowledge as per the nuances of the blockchain technology. They will have to gain a complete understanding of what blockchain is and how the technology works, which is why various accounting firms and even educational institutes, these days, are offering specialised courses on the blockchain technology. This is also because the market demand is growing, slowly but surely, and companies are increasingly incorporating the blockchain technology in the development of their products and services.
It actually isn’t surprising that claims are being made about the blockchain technology replacing accountants because that is usually the first thing everyone says about any new technology that hits the market. We need to realise that technology in no way can replace human reasoning and comprehension. Sure processes will become automated, but that doesn’t mean monitoring will not be required. Even these automated processes will need close monitoring, which cannot be done without human involvement. The blockchain technology, therefore, will surely change the way accounting has been done till date, but we don’t foresee this distributed ledger technology to completely eliminate human involvement anytime in the near future.
In the world of outsourcing bookkeeping and accountancy services, introduction of Blockchain will be a huge boon, as it will help establish trust and track all assets between the accounting firm and an outsourced accounting firm like Outbooks.