Blockchain in Accounting & Auditing Benefits, Usage & Future

The decentralization inherent in blockchain technology transforms data security. Unlike traditional centralized systems, a decentralized blockchain network doesn’t rely on a single point of control, making it highly resilient to attacks and data breaches. This decentralized nature ensures data remains secure, maintaining accuracy and trustworthiness even in the face of potential vulnerabilities. However, challenges exist, including the need for standardization, data privacy considerations, and adapting to the technical complexities of blockchain. As the technology matures and industries embrace its potential, the integration of blockchain into accounting practices promises to streamline processes, enhance data accuracy, and ultimately elevate the trust and reliability of financial reporting. Blockchain’s ability to create a secure, shared, and synchronized digital record of transactions means that all parties involved in a financial transaction can access the same information in real-time.

This transparency minimizes discrepancies and disputes, as everyone is operating from a consistent set of data. Additionally, the decentralized nature of blockchain reduces the reliance on intermediaries, which not only streamlines processes but also lowers costs. In the realm of auditing, future research could explore how different types of blockchain (public, private and permissioned) https://www.online-accounting.net/ could be used in accounting and Audit 4.0 to improve the quality of the data collected (Dai et al., 2019). The dilemma of adopting blockchain in accounting and auditing is in finding the right trade-off between information confidentiality and transparency. The simultaneous protection of data privacy and maintenance of data accuracy is an important area for future research.

Understanding how blockchain distributes the power of transaction verification and how data are stored and managed to prevent any unauthorised data changes in ecosystems are also key questions in need of investigation. A more fundamental area of future research is the role of financial intermediaries and how their role might change. In the future, we expect to see competition and cooperation among traditional and new intermediaries, and research needs to explore these phenomena to provide guidance to all participants such as incumbents, new entries and regulators (Cai, 2018). The influence of blockchain on risk management and companies’ performance indicators is another promising area for future research as there is a need to identify how stakeholders’ value creation may be affected by implementing blockchain (Cai, 2018). It would also be worth examining whether the response of managers towards blockchain varies in different industries (Cao et al., 2018).

Why a career in chartered accountancy?

(2017), “Toward blockchain-based accounting and assurance”, Journal of Information Systems, Vol. Bolici et al. (2020) analyze discussions https://www.quick-bookkeeping.net/ about blockchain and tourism on Twitter. They highlight that the public interest in this specific topic is strong and positive.

Crafting regulation and standards to cover blockchain will be no small challenge, and leading accountancy firms and bodies can bring their expertise to that work. The move to a financial system with a significant blockchain element offers many opportunities for the accountancy profession. Accountants are seen as experts in record keeping, application of complex rules, business logic and standards setting. They have the opportunity to guide and influence how blockchain is embedded and used in the future, and to develop blockchain-led solutions and services. Alongside other automation trends such as machine learning, blockchain will lead to more and more transactional-level accounting being done – but not by accountants. Instead, successful accountants will be those that work on assessing the real economic interpretation of blockchain records, marrying the record to economic reality and valuation.

Professional conduct and complaints

Therefore, the time spent on recordkeeping can be utilized for other productive works. Here the blockchain network ensures the data safety of all financial transactions. How cryptoassets and cryptocurrencies should be taxed is also open to question (Ram, 2018). Once clarified, researchers https://www.kelleysbookkeeping.com/ will be able to study the taxation policies applicable to this new class of assets in detail. One related research question for the future involves whether blockchain-based instant tax allocation helps to decrease the cost of tax compliance for companies or not (Karajovic et al., 2019).

1. We believe that a specific theory to explain accounting blockchains could be drawn from the papers of Cai (2021) and Carlin (2019).
2. In Section 2, we discuss the concept of blockchain as an accounting technology.
3. In contrast, blockchain technology offers an innovative solution by providing a transparent, tamper-proof, and distributed ledger that enhances the accuracy and efficiency of accounting practices.
4. This paper provides a compact snapshot of the state of blockchain papers in accounting research.
5. A smart contract is one of many blockchain applications that can streamline tedious tasks in today’s accounting.

Further, the ways of creating effective smart audit contracts and smart reporting contracts should also be studied with a special focus on executing traces and enforceability (Schmitz and Leoni, 2019). As discussed in Section 5.1, most papers on the changing role of accountants are normative. They talk mainly about various assumptions over how blockchain may influence accounting. One of the main changes frequently discussed is how blockchain will change the way accountants collect information.

Strengthening trust in the profession

The purpose of blockchain, namely, to facilitate trust without intermediaries, has raised concerns about the future of auditors and their role in society. However, thus far, these worries are not justified because some aspects of the auditing process still require professional judgment (Turker and Bicer, 2020). Some audit procedures, such as sampling, confirmation letters, payroll examinations, invoice evaluations and reconciliation, will become less expensive or obsolete (Turker and Bicer, 2020). Others, such as systemic evaluation, risk assessments, predictive audits and fraud detection, will attract new and significant interest (Bonyuet, 2020).

Polasik et al. (2015) find that the price of Bitcoin is influenced by the number and tone of related newspaper articles and Google searches. Polasik et al. (2015) highlight that in countries with large shadow economies and low gross domestic product per capita, Bitcoin can work as a substitute for PayPal, payment cards and cash on delivery. However, according to Senner and Sornette (2019), cryptocurrencies cannot replace fiat currencies because they do not entirely address the complexity of monetary politics. Furthermore, decentralized systems entail governance issues that pose challenges when urgent decisions are needed (Zachariadis et al., 2019). Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited, a UK private company limited by guarantee (“DTTL”), its network of member firms, and their related entities.

(2018), “Auditing with smart contracts”, The International Journal of Digital Accounting Research, Vol. (2019), “NFTs in practice – non-fungible tokens as core component of a blockchain-based event ticketing application”, Paper presented at the 40th International Conference on Information Systems, ICIS 2019. If buying and selling cryptocurrencies was part of the ordinary business of an entity, then it would be possible to account for cryptocurrencies as inventory. 9 states, “Inventories shall be measured at the lower of cost and net realizable value,” and if a company is a broker-trader, then it can value cryptos at fair value less cost to sell (Procházka, 2018; Morozova et al., 2020). We could consider accounting for cryptos as financial instruments, taking into account the speculative nature of the motivation underlying companies’ decisions to buy and sell these items. According to IFRS9, this classification would allow valuation at fair value.

In industries like financial services, where rapid transaction execution is vital, blockchain ensures timely settlement, minimizes processing delays, and strengthens security. Smart contracts offer revolutionary potential for automating intricate accounting processes. These self-executing agreements execute predefined actions when specific conditions are met. For instance, a smart contract could automatically trigger revenue recognition when a product is delivered to a customer, reducing the need for manual intervention. This automation streamlines processes, minimizes human errors, and accelerates financial reporting, allowing accountants and auditors to focus on higher-level tasks. While blockchain streamlines many aspects of auditing, challenges such as understanding complex blockchain systems and interpreting smart contracts arise.

Immutable storage for financial documents

As the copies of data are available to multiple users, there is no room for accounting errors. Also, each block is verified and validated by multiple users with network access. Strong cryptography safeguards the blockchain network from external attacks.

This enhances accountability and reduces the risk of financial discrepancies or fraudulent activities. Blockchain holds the potential to significantly support accountants by transforming traditional practices. Its transparent and tamper-proof ledger enhances the accuracy of financial data, reducing the risk of errors and fraud.

The integration of blockchain technology into accounting and audit processes has opened up a realm of possibilities for reshaping the way financial data is managed, audited, and reported. The integration of blockchain technology into accounting practices also has a profound impact on the role of auditors. Auditing, a cornerstone of financial accountability, is poised to undergo a transformation with the advent of blockchain. Each account in the double-entry system will have a corresponding blockchain account.

Categorised in: Bookkeeping

This post was written by James Habib