Technology

Blockchain Unleashed: A New Era for Accounting

Blockchain, the distributed electronic book-keeping technology on which cryptocurrencies such as bitcoin are based, has been the subject of much interest in many industries because of the realisation of its ability to enhance processes into organisations, improve productivity, and decrease costs. Currently, the finance and accounting industries are in the process of increasing computerization, and it is thought that the blockchain may affect the accounting profession dramatically. Here is a brief understanding of the concept of blockchain and how its evolution may impact or shape the next generation accounting and financial reporting.

What is Blockchain Technology?

Blockchain enables the creation of an open and distributed ledger by decentralizing the control and record of transactions. It is recorded in a database of chronological blocks or ‘‘chain’’ that contains a digital record of all the transactions which have occurred since the inception of the system and each block is linked with another block in the chain by using a cryptographic hash algorithm. This means that it is very hard for any one party to modify the records existing in the chained blocks. Blockchain technology has its strengths and priorities reflected in attributes such as transparency, security, decentralization, and “smart” contracts.

Contrast with Traditional Accounting

Today, there is a reliance on auditors and reconciliations to arrive at trust in financial reporting in accounting. When it comes to the preparation of accounts and ledgers, it is easy for some people in an organization to fudge some figures, and even though auditors will go through the work done and affirm that it is correct, auditing is also a process done by people and can therefore be wrong at times. Another advantage of using blockchain for record keeping is that since the distributed record keeping prevents manipulation, there is less chance of reporting errors or fakes. Some drawbacks like the requirement for manual verification and outside auditing may decrease as faith in blockchain’s ability to produce accurate and autonomous financial records grows.

Possible Benefits of Adopting Blockchain Technology

  1. Reduced time and efforts required for each transaction and least costs involved since they are processed through system.
  2. Increasing the level of transparency and data quality
  3. Improved reporting and security within audit trails of financial information
  4. Real-time availability of the updated financial data that eliminated the need in the acceleration of the reporting and analysis.
  5. This oral settlement type is addressed as the “smart contracts” that perform the business activities such as payment once specific conditions are fulfilled.

Possible Challenges or Disadvantages

  1. These costs relate to the expenses incurred during the integration of the new system with the current accounting systems.
  2. New accounting standards and protocols that are still under construction and in the process of being created for use in the blockchain environment
  3. The automation of some tasks, including the traditional accounting jobs such as bookkeepers and auditors.
  4. Exposure to new forms of fraud and cybercrime that may be unseen in the industry at the moment

In this context, this paper aims at discussing the outlook for accounting professionals in the following subtopics:

In this process, accounting as a profession will probably have to shift in response to the increasing development of blockchain solutions. This might result in accountants taking up more analytical roles through utilizing better and more timely data to offer business intelligence. New opportunities in fields such as the development, implementation, analysis and fraud investigation of blockchain, could also be created. Therefore, while some accounting activities may be rendered obsolete, blockchain should create brand new consultative and regulatory opportunities related to this innovative medium.

Key Takeaways

Over the course of the next few years, blockchain technology has the potential to revolutionize the aspect of financial reporting and accounting as a whole by enhancing security and accountability, as well as enhancing the speed and efficiency of data analysis and eliminating many time-consuming steps that are currently still done manually. The advancement in the technology is can be seen as a strength, on the other hand it can also be perceived as a weakness. This way, accountants must be at the forefront of embracing this technology, especially with regards to its impacts and uses, to ensure that they are able to align themselves with the technology and find ways in which they can offer value as the technology continues to grow.

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