Blockchain in accounting practice and research: systematic literature review

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blockchain in accounting

This human-technology collaboration will lead to more efficient, effective and perceptive audits, ultimately contributing to greater trust and transparency in the financial markets. Popularly represented by IBM’s Watson, the implications of AI are numerous for accounting are vast. Two critiques of traditional financial reporting are that commonly cite are that  financial or operational reports are backward looking and only relevant for a small number of recipients, and the process of producing a comprehensive report can take months. Artificial intelligence has the potential to address these issues in a systemic and comprehensive manner if accountants are flexible enough to adopt these tools. Drilling back down to real world applications, however, provides an example of how these implications are already influencing accounting at large. Currently, regulators monitor the field of cryptoassets on a case-by-case basis, but not to the extent that investors, or would-be-investors, could determine with certainty how cryptoassets may be treated (Smith et al., 2019).

blockchain in accounting

Nor are all market participants eager to treat cryptoassets as a security due to their volatility, making it difficult to ascertain an appropriate value to record for income statement and balance sheet purposes (Smith et al., 2019; Tan and Low, 2019). Finally, it is worth noting that financial accounting is characterised by accounting prudence and conservatism, which can lead to differences between a company’s market and book value (Dumay and Guthrie, 2019). As cryptoassets are often characterised as a potential future economic benefit, their acquisition may lead to even greater discrepancies between the market and book values of companies, especially in markets with optimistic valuations of intangible assets. Essential roles for auditors in the future will be assuring the reliability, credibility and authorisation process of blockchain transactions. In machine learning, there are many different text mining techniques, each designed to suit different types of data and different end purposes (see Wanner et al., 2014 for a comprehensive review).

When Chartered Accountants Save The World

Because blockchain is a distributed system, all changes to a ledger are transparent to all the members of a network. (2021), “The disruption of blockchain in auditing – a systematic literature review and an agenda for future research”, Accounting, Auditing and Accountability Journal, Vol. However, to be affordable for everyone, blockchain solutions need to be scalable to operate efficiently on a large scale. From this perspective, it is essential that blockchain solutions are integrated into ERP systems and with RFID, IoT and AI technologies to create fast, reliable and repeatable processes.

Blockchain can improve information timelines and accounting reliability because of its decentralization and transparency, but it will also require new competencies, attention to scalability and accounting standard reconciliation. It’s clear that technology is changing the way organizations do business across all functions and industries. But there are particular pairings of tool and team that carry game-changing potential.

The authors in the fourth area engage with empirical evidence and analyses, aiming to test how and why blockchain is implemented. Applying the exclusion and inclusion criteria, we detected 147 highly relevant studies and accessed 142 full-text items (5 were not available from our institution). We read and analyzed each item, and we present the key aspects of our analysis adopting a narrative approach and discussing them by topic.

  1. For example, due to the potential risks of disclosing information, we assume that blockchain will have a more restrictive effect on business entities than non-profit organisations, because non-profits tend not to hold as many commercial secrets.
  2. To help analyse the corpus, we enlist the support of machine learning as found in other studies (Cai et al., 2019; El-Haj et al., 2019; Black et al., 2020; Bentley et al., 2018).
  3. Tiscini et al. (2020) explore blockchain adoption as a sustainable business model innovation in the agrifood industry.
  4. The AICPA and are leading the accounting workgroups for the alliance.

Ferri et al. (2020) found that performance expectancy and social influence generally lead to blockchain adoption intentions. Kend and Nguyen (2020) found that auditors are skeptical of the usefulness of blockchain for auditing. Dyball and Seethamraju (2021) highlight that auditors consider clients that use blockchain applications as riskier because there is no accounting consensus about how to address their needs. Therefore, the essential benefits perceived by practitioners are unclear but seem to include reductions in time-consuming activities and the need for additional opinions. With Deloitte COINIA, hundreds of thousands of addresses can be loaded in bulk for a variety of crypto assets, and Deloitte can see 100 percent of the transactions and reconcile them to clients’ books and records.

2 Implications for accounting practice

Deloitte COINIA also assists with off-chain verification of private key ownership by using an innovative, custom-developed workflow to confirm the integrity of a signed message. The tool is compatible with multiple public blockchains and digital assets, including Bitcoin, Bitcoin Cash, Ethereum, Ethereum Classic, Litecoin, Ripple, Dash, and all ERC20 tokens, with more being added on demand. You know, I think in the early stages of blockchain we said this was going to really be massively disruptive because everybody was going to start doing transactions in blockchains.

It should therefore be unsurprising to consider that this revolution will start to change the nature of accounting and, in turn, the work of its practitioners and theorists (e.g. Yermack, 2017; Schmitz and Leoni, 2019; Yu et al., 2018). Blockchain could have use cases and drive innovation in many sectors, such as those of banking, financial markets, retail, supply chains, healthcare, manufacturing, governance and insurance (Gaur, 2020). In financial sectors, in addition to supporting cryptocurrencies, it offers an opportunity for entrepreneurs who want to create value-reducing financial exclusion (Larios-Hernández, 2017).

Imagine the power of this technology combined with Artificial Intelligence (AI) where the testing for discrepancies through analytical review could take place in real time and without the risk of missing transactions or the auditor having a blind spot in analyzing the information. Auditing requires the confirmation of transactions and balances on firms’ accounting ledgers at the end of the reporting period due to time-lags, reconciliations, and accounting entries. Academics, together with practitioners, should work on specifying how these regulatory dimensions need to be developed, what type of disclosures are relevant to cryptocurrencies and how disclosure costs may further impact market uncertainty (Cao et al., 2018). Clarifying the regulatory framework will probably also lead to more ICOs, as initiators will be better prepared and be able to respond to uncertainty in blockchain policy by increasing their voluntary disclosures (Zhang et al., 2021; Gurrea-Martínez and Remolina, 2018). Research on the efficiency and effectiveness of ICOs will be of high interest in the future.

blockchain in accounting

Researchers should analyse how blockchain ecosystems evolve and are applied (Benjaafar et al., 2018). Blockchain enables real-time, verifiable and transparent accounting, making it reasonable to assume that accounting information systems will become ecosystems. In a data ecosystem that progressively integrates a nearly infinite set of initially disconnected data, the ability to integrate coherently and apply software agents will be of high importance.

3 Opportunities and challenges of blockchain technology application

We thank our guests, Erik Asgiersson with and Ron Quaranta with the Wall Street Blockchain Alliance. And I thank you both for taking something that can seem kind of nebulous and scary to accountants who haven’t been following it, and really giving them an idea that it’s starting to come into shape more and more, and it will be something that they can see and understand. If this subject interests you, understanding closing your books will help you more easily see the promising value of blockchain.

Blockchain and the future of accountancy

As the role of external contexts and legal frameworks is highly important to blockchain development (Allen et al., 2020; Stratopoulos and Calderon, 2018), researchers may study the differences in blockchain implementation in environments that are (and are not) “crypto-friendly”. Although the LDA method helped us to identify past and current trends in the literature, Cai et al. (2019, p. 710) contend that “the human researcher is potentially better equipped to evaluate future trends in the literature”. Hence, we also manually reviewed the 15 articles identified in the LDA analysis as the most representative of each topic.

The disruptive potential of accounting technologies can only be fully realised with a similarly profound revolution in accounting thinking. Without an accompanying “mental revolution”, new technologies may result in incremental as opposed to step change. Lev and Gu (2016) argue that blockchain may reduce information asymmetry and lead to more effective decision-making. The LDA analysis unearthed ten topics, which we needed to find appropriate names for. First, we looked at the terms listed against each topic, then we read the most representative articles for each group identified by the model.

1 The research questions

The results indicate that the most widely discussed topics are the changing role of accountants, new challenges for auditors, the opportunities and challenges of blockchain technology application, and the regulation of cryptoassets. Each of the papers on this topic discusses ideas about how the role of accountants and accounting treatments would change if/when blockchain becomes a mainstream technology. For example, several authors discuss the advantages of using blockchain to record transactions on a real-time basis (Yermack, 2017; Dai and Vasarhelyi, 2017).

Routine accounting data would be recorded permanently with a timestamp, preventing it from being altered ex-post, which Alles (2018) argues would further ensure the reliability of current accounting information systems. Real-time accounting would also reduce the potential opportunities for earnings management (Yermack, 2017). Additionally, using blockchain means anyone can review all transactions, even those that may be suspicious or related to conflicts of interest. Irreversible transactions also mean accountants could not backdate sales or report depreciation expenses in future periods when they should be expensed immediately. As a tool for accuracy and transparency, blockchain places pressure on accountants to justify their accounting choices. It also creates a closer link between accounting and a company’s responsibilities to its stakeholders and makes it more challenging for financially-distressed companies to hide their situation (Smith, 2017).

Figure 6 shows a cooccurrence heatmap of the main authors’ keywords (more than five occurrences) in this cluster. Table 3 provides some quantitative data (total citation and CPY) regarding the studies with the highest impact on this topic. Although there are some proposals for the use of, thus far, none have been commonly accepted. Wang and Kogan (2018) extend the aim of Dai and Vasarhelyi (2017) to solve the trade-off between confidentiality and transparency and propose the use of zk-SNARK (zero-knowledge verification) schemes and homomorphic encryption. In this way, the data stored in a blockchain can be validated and summed without revealing any details. McCallig et al. (2019) propose a blockchain system that overcomes the privacy issues the use of multiparty security and modular arithmetic.

It also saves businesses a lot of time from having to deal with fraud or trying to collect money from dishonest organizations. A smart contract is one of many blockchain applications that can streamline tedious tasks in today’s accounting. Whatever your stance, it’s hard to ignore the growing number of organizations accepting cryptocurrency. This has made blockchain accounting a hot topic, especially for those in the accounting profession. Schools and big accounting firms like Deloitte are already educating on blockchain accounting. The sheer volume of data generated by businesses today presents both challenges and opportunities for auditors.

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