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Fearing the revolutionary blockchain
Blockchain is the new jargon in every industry – finance/banking, investing, healthcare, education, insurance, real estate, government, travel, etc.
The potential confusion surrounding this technology is somewhat threat as it will relatively automate large functions of the accounting profession. This technology is already disrupting the profession, but it will deliver both opportunities and challenges. Understanding the implications and possibilities of this technology is essential for accountants seeking to keep up to date and relevant in a rapidly changing marketplace.
To get ready for the blockchain revolution, accountants need to understand what exactly blockchain technology is, and what is might mean for the profession.
What is Blockchain in Accounting Industry?
Blockchain is also known as distributed ledger technology (DLT).
In traditional accounting, records are stored in a centralized location, be it a collection of spreadsheet files or the database of an accounting software application. The accountant enters each record, and performs whatever actions are necessary to serve the client’s needs. When information about the records is needed by regulators or clients, the accountant must retrieve whatever data is needed and provide it to the requesting party. Generally, only the accountant and auditors have direct access to the centralized ledger.
In blockchain, on the other hand, records are entered and stored in a distributed, or shared, ledger, which is generally made accessible to all concerned parties. In this case, the accountant, regulators, auditors, and clients would each possess an identical copy of the ledger at all times. Of course, each client would have access only to the portion of the ledger that contains their own records. Public and private keys are used to authenticate users.
What are some of the benefits of Blockchain in Accounting Industry?
- Reduced errors. Once data is in the chain, smart contracts will make many accounting functions automatic, reducing human error.
- Increases Efficiency. Blockchain is fast and powerful database.
- Reduces Cost. Blockchain will lead to increased efficiency and reduction in errors which will eventually lead towards cost reduction.
- Reduces Fraud. The immutable nature of blockchain makes it extremely difficult to perpetrate and difficult to manipulate.
How should Accounting Industry prepare itself?
Accountants can transform how blockchain will be used in the future and how the development of blockchain take place.
Because blockchain provides transparent record of all accounting data, it offers an opportunity for accountants and CPA firms to streamline their processes and audits, while ensuring that the records are accurate and truthful. This is an amazing improvement over traditional accounting procedures that can be fraught with errors and fraud.
There is almost no need to confirm the accuracy of blockchain transactions with external sources, but there is still a lot of works needs to be done on the part that how these transactions are recorded and recognized in the financial statements, and how judgmental elements such as valuations are decided.
Blockchain is a new frontier for the accounting and there is still a lot that needs to be figured out and lot that still needs to be figured out. It will be interesting to see how the industry develops itself soon.