What exactly is Blockchain Technology and how does it affect the world of accounting?
Article by CIMA
You’ve likely heard the term before, perhaps in connection with Bitcoin or another digital currency. But it is blockchain, the technology behind Bitcoin, that has the potential to change the way the world does business.
BLOCKCHAIN & ACCOUNTING Blockchain could transform accounting entirely. This sounds dramatic, perhaps, but the technology has the potential to upend the double-entry system, which forms the bedrock of modern-day financial reporting. Using blockchain, corporations and consortiums are able to create immutable but continually-updated financial records that are easy to verify and difficult to tamper with; thus, enabling them to build more secure, transparent frameworks for monitoring transactions and assets20. And because blockchains are living, secure records, they eliminate much of the manual labor involved in traditional financial reporting. BLOCKCHAIN & THE AUDIT Adistributed, immutable ledger of all transactions, blockchain technology could disrupt the audit process21. While today, auditors comb through randomly selected samples from financial statements, on the blockchain, financial data could be audited in its entirety. What’s more, instead of performing audits at the end of a financial quarter or year, audits could occur on a close to real-time basis. Such a robust and up-to-date system would provide a higher degree of assurance, making it far more difficult for mistakes, anomalies, and fraud to slip through the cracks. In lieu of the foureye principle, “on a blockchain you have hundreds of thousands of eyes looking at every transaction,” says Libra’s Brennan. As blockchain technology evolves and is integrated into more operations, the audit could become a fully automated, continual process. As a result, the costs associated with sampling and validating transactions would fall significantly (if not dissipate entirely), as would the time partners need to spend on the process, freeing them to focus on other areas 22, such as managing complex transactions and investigating anomalies.