Since its inception, blockchain has seen a growing need for use in several industries. From logistics to digital identities and building decentralized apps, the ideas being born from blockchain are outstanding. The use of blockchain in accounting presents the possibility of a new type of accounting ledger — one that provide a transparent environment that creates immutable records of transactions, continually reconciled and linked to the previous one, without the threat of being altered or corrupted. Some of these inherent features of blockchain technology align seamlessly with the fundamental requirements and principles of accounting. Blockchain technology could greatly simplify the accounting audit process and reduce the need to store data in multiple locations with no way to consolidate and validate it all, helping accountants to streamline the way they reconcile accounts. This would result in increased efficiencies and reduced operational and maintenance costs.
It is no surprise, then, that other industries such as automotive and the real estate industry, are already using blockchain to track ownership of assets and all the necessary data points associated with the transactions such as the value at which the assets were bought and sold.
That being said, blockchain is perfectly suited to also benefit the accounting profession and proper implementation of the distributed ledger technology could prove extremely valuable for enterprises and accounting firms, which are seeking transparent and durable applications to track and measure assets. Because all transaction data is stored directly to the ledger, blockchain-based accounting software could make it easier than ever to reconcile transactions and monitor the availability of assets in real-time, as well as their values and other indicators that can impact cash flow forecasts.
Transaction validation and Sarbanes-Oxley Act
Apart from the obvious benefits of incorruptible, real-time information, financial institutions see the appeal of blockchain as a solution for better reporting with data published simultaneously, fewer reconciliations, and easily updated data. As Deloitte notes, “blockchain enables complete, conclusive verification without a trusted party.” While in essence, an accountant would rely on a bank to authenticate all transactions, blockchain makes it possible to authenticate these transactions in real time.
And of course, blockchain ledgers would enhance transparency and help fight fraud, which can only be good news for all parties. Rather than going through the cumbersome process of searching through paper trails to determine whether an individual or corporation is telling the truth on their tax returns and books, auditors could simply verify the information using the distributed ledger records. If blockchain technology had been available in the early 2000s, the Enron and WorldCom accounting malpractice scandals could have probably been prevented and the Sarbanes-Oxley Act (SOX) may not have been necessary. However, as blockchain is being increasingly adopted in the enterprise world and as the technology becomes more mature, the costly compliance requirements associated with SOX such as building and maintaining extensive internal controls and reporting could be greatly decreased.
Big Four firms experimenting with blockchain
As you can see, blockchain technology possesses tremendous potential to disrupt the accounting industry. Major accounting firms that have started to apply the concept for practical needs and to offer blockchain related services. For instance, PricewaterhouseCoopers (PwC) offers strategic and implementation services to financial institutions, technology companies, and startups that want to leverage blockchain technology.
Just recently, Deloitte partnered with Waves Platform to make ICOs and blockchain solutions easily accessible as well as working towards legal mechanisms for regulating ICO projects, something which is much needed. Also, PwC announced the first ever blockchain auditing service this April to help companies ensure that they are properly using blockchain technology and that transactions are processed as intended.
Although the potential of blockchain in accounting open new frontiers for professionals and firms in the industry, the expected benefits that the technology offers justify the investment needed to adopt it. More importantly, the increased transparency the technology brings will add considerable value to clients and service providers alike, and will also help weed out companies who are cutting corners or using subpar accounting practices as well as fraudulent players.