The future is calling: blockchain's impact on the accounting profession

The misunderstanding of blockchain technology

As blockchain technology has quickly become a topic of conversation on social media, podcasts and with your friendly neighborhood barista over the past few years, a common misconception about the technology has become apparent – the belief that blockchain technology is dependent on cryptocurrency. Blockchain technology is the underlying technology that traditional decentralized cryptocurrencies are built on, which allows for a secure and transparent form of digital currency. Crypto has been receiving some negative publicity as of late. However, it is important to note that while cryptocurrency relies on blockchain technology, the relationship between the two is not mutually exclusive. Blockchain technology is not dependent on cryptocurrency and has many other potential applications that could significantly disrupt many industries, including the accounting profession.

So what is blockchain?

In short, blockchain technology is a decentralized, distributed ledger that allows for secure and transparent record-keeping. It is composed of a network of computers that work together to validate and record transactions on a digital platform. For the accounting profession, the intrinsic functionality of blockchain technology’s security, immutability, transparency, traceability and automation is particularly significant. Also, the prospect of having direct access to trusted records and removing intermediaries is a proposition that could provide immense value. Furthermore, blockchain is continuously being developed with innovative applications. For example, smart contracts that facilitate the automation of self-executing contracts based on predetermined terms and conditions.

Potential impact on the accounting profession

Blockchain technology and its key attributes have the potential to affect the accounting profession in numerous ways, some of which are already beginning to be realized and others will quickly follow broader adoption. Here are some ways in which experts in the field are anticipating the profession will evolve:

• The immutable record: This is one of the most intriguing aspects of blockchain technology and the future evolution of accounting. In the current state, tasks such as bookkeeping, reconciliation and financial statement auditing are completed manually to verify data by two or more entities based on their transactions. In the future state, the potential of a triple entry (e.g., record the debit, record the credit and record on the blockchain (verified)) eliminates much of the manual work involved with verification.
• Secure and transparent record-keeping: In the field of accounting, this could mean more secure and transparent financial records, contracts and other documents. In the fields of assurance and audit, this could help to reduce the risk of fraud and errors and increase trust and confidence in the work being completed.
• Continuous auditing: This could be the standard instead of just-in-time auditing (i.e., annual or semi-annual audits) since blockchain technology has access to verifiable, trusted records in real time. Therefore, the possibility of continuous audits frees up time for high value-add tasks such as proactive advisory services.
• Automation of processes: Blockchain technology can automate many processes and reduce the need for manual work, which could lead to increased efficiency and cost savings in the fields of accounting, assurance and audit. For example, smart contracts built on top of the blockchain could be used to automate the execution of contracts and other legal documents, reducing the need for manual review and approval.

Above, some overarching potential impacts of blockchain technology are highlighted, but there are more nuances and detailed research that can be found in research papers by experts in the accounting profession, including:

• Blockchain technology and its potential impact on the audit and assurance profession from the American Institute of CPAs (AICPA) in collaboration with the Chartered Professional Accountants of Canada (CPA Canada)
• Blockchain technology and implications for accounting practice from the Academy of Accounting and Financial Studies Journal
• Blockchain and the future of accountancy from the Institute of Chartered Accountants in England and Wales

How might the accounting profession change?

The accounting profession may require a shift in skills, with an emphasis on technology, advisory and value-adding activities rather than reconciliation and provenance assurance. Auditors will need to focus on how blockchain transactions are recorded and recognized in financial statements in addition to how critical elements like valuations are determined. While a deep technical understanding of blockchain may not be necessary for accountants, it will be important to grasp its principles and functions as well as advise clients on adoption and its impact. Furthermore, in the long term, there is a strong potential for an accountant to be an intermediary between experts in blockchain technology, artificial intelligence (AI) and machine learning (ML) in order to form a symbiotic system to analyze and advise client data proactively.

How to prepare for what’s to come

Although blockchain technology has been around for decades, there has been a strong uptick in developers and adopters in the space. Many experts believe we are years away from mainstream adoption, while others claim with the advent of AI and ML, the prospect of blockchain technology will be exponential. But what can we do as individuals and as organizations to prepare for a change in “the way we work”? From an individual perspective, having an awareness of the technology through available self-study could help set a foundational understanding. Furthermore, keeping up to date with industry publications and guidance surrounding blockchain technology will help bridge the learning curve for when this technology gains mass adoption.

A unique opportunity for accounting industry

ISACA said blockchain technology is likely here to stay, the only question is when is the tipping point of adoption. The association said, “Using blockchain technology allows users to integrate accounting into business activities rather than separate accounting from business activities.” Blockchain technology presents an opportunity for accounting professionals to adapt to a new way of working and to exhibit a unique but vital value proposition to clients.