Blockchain technology is changing how the accounting profession operates. As an accountant, you need to stay current on changes in the industry and what opportunities and challenges you will face because of blockchain.
1) What Blockchain Is
Blockchain technology is an open, distributed ledger that records and verifies transactions without any trusted central authority. The technology exists as a file that maintains a continuously increasing list of ordered records called blocks. Each block has a timestamp and link to a previous block using a “fingerprint.” Because blockchains do not allow data to be modified, they cannot be retroactively altered.
2) Accounting in Real Time
Using blockchain technology lets accountants monitor financial performance in real time. Because blockchain is based on an internet-based, decentralized platform, inflows and outflows from a business are easily tracked. Since blockchain records transactions in real time, the technology is altering traditional methods of invoicing, documentation, contracts and payment processing. Combining blockchain and the use of cloud computing technology helps accountants stay current on changes in a business and remain trusted business advisors.
3) Impact on Audit Practices
Blockchain technology affects how audits are performed. Because every transaction is encrypted, participants are identified by a string of characters. After a set period of time has passed, all transactions become part of the block. Once the block is finalized, it is broadcast to all participants associated with that chain. If the block is altered in the future, reviewers can use timestamp functionality to identify when. This technology creates traceable audit trails, automated audit processes, authentication of transactions and tracking ownership of assets. Blockchain also aids in the development of smart contracts and drastically reduces the amount of time required to verify or confirm certain balances.
4) Effect on Accounts Payable and Accounts Receivable
Blockchain technology will enhance functions for accounts payable and accounts receivable. Blockchain identifies the participants in a specific transaction, verifies the time and date the transaction occurred and secures the associated data. As a result, the potential for errors substantially decreases. The number of transposition corrections, verification of payments and other lower-value activities may be automated by blockchain and replaced with higher-value activities.
5) Embracing Disruption
Because blockchain technology is disrupting the accounting profession, accountants and firms should be finding new ways to add value for their clients. Because some accounting functions may become automated, professionals need to remain current on updates in the industry and take advantage of technology to create new opportunities. Firms that rely on their audit services should consider diversifying their services and cultivating new clientele. For example, firms may move toward strategic advisory roles that help clients run a better company, improve their personal financial situation or assess potential risks involved with making business changes.