Since Bitcoin first exploded onto the scene towards the end of 2017, blockchain has received quite a bit of attention.
But what are the real implications of blockchain for the accounting profession? While cryptocurrencies may have received most of the coverage and analysis as it relates to blockchain technology, the underlying technology itself may hold more significant potential for the accounting profession. In other words, the cryptocurrency market, platforms, and options may have brought the potential of blockchain to the attention of accountants, but understanding what choices are available is a vital first step toward realising its full potential.
Being able to understand, articulate, and communicate the key components of blockchain technology will allow accountants and CPAs to raise their work products and services to the oft-mentioned level of strategic partner.
What is blockchain and what makes it unique?
Blockchain technology has several qualities that set it apart from other market solutions, especially those using centralised ledger technology. At the core of the blockchain, ideally, are immutability, verifiability, instantaneous transmission of information, and the anonymity that can be granted depending on the organisation in question.
On top of these characteristics are specific use cases and implementation steps that are already differentiating blockchain from existing market options.
The following three implications and insights are not only exciting from a forward-looking perspective but, in fact, are already being implemented in the marketplace.
- First, and perhaps most importantly, is to understand that blockchain is not an accounting system, finance system, or bookkeeping platform. Any information can be batched and uploaded for approval by blockchain members, which take the form of computers or servers that have downloaded and installed the appropriate software. Blockchain platforms are cloud-based networks that allow people and groups to share, verify, and communicate information.
- Second, the actual approval process by which information blocks are added to previous blocks to form the blockchain can be customised depending on the needs of the organisations in question. That said, there are several options available for organisations and networks, including the Proof of Work methodology utilised by the most well-known blockchain platform that underpins Bitcoin.
- Third, and essential for the conversation as it relates to accounting and other financial services professionals, is that just because different organisations are part of the same blockchain network does not mean that all data is available for review by all members. Practically speaking, this means that if your firm has 20 clients as part of the blockchain network, you may be able to see different classes of information, but the 20 different clients do not have to have access to each other’s data. This differentiation, between what data is available in general, and what information is available for members to review, report, and analyse, leads to the next conversation that every accounting professional should be having.
Blockchain as a technology is often spoken about, especially in practitioner publications and conversations, as if it was just one option, tool, or application. This may make for simpler conversation and debate, but it demonstrates an imperfect understanding of how blockchain technology actually works.
Specifically, there are two broad categories that should form the basis for any comprehensive blockchain discussion: public blockchains and private blockchains.
Practical blockchain examples
So, what can blockchain do for you? What impact will it have on your practice? And how will it change the face of your profession?
With regard to accounting-specific software, there are three primary areas where blockchain will have the greatest impact.
- The future of accounting is continuous
As it becomes more widely available (and secure), accountants will have access to – and be able to use – a larger amount of data, including financial and operational information. As it stands, organisations produce information in volumes that are practically inconceivable, but most accounting methods still rely on periodic examination and analysis. As information is secured, encrypted, and transmitted to network members, accounting professionals can provide real-time advice and guidance.
- The way we audit will change
There will always be a need, and market expectation, for human oversight and review of automated processes. It is important to note that even as accounting becomes more automated and continuous in nature, periodic review and analysis of automated results will always be necessary. Even with this human oversight and occasional intervention, large chunks of the audit process will become significantly automated, augmented, or replaced entirely. Market evidence of these changes are already evident at larger firms, and all indications point to continued technology integration going forward.
- New lines of service will become available
This is the most significant benefit that blockchain will provide to our profession. Increased access to your clients’ data and more efficient audits will pave the way for higher-value and more intelligent advice. This is where blockchain will help drive the change in the profession and enable you to provide true value to your clients.
Although blockchain may seem like a difficult-to-understand concept, it also presents an opportunity for CPAs and accounting professionals to embrace an innovative and disruptive technology.
The accounting profession will undoubtedly be impacted by changes in the corporate sector, particularly with regards to blockchain. Now that you have a better understanding of what blockchain is, you can concentrate on the three ways it will transform the profession and be ready for the changes ahead.
Editor’s note: This article was originally published June 14, 2018 as “What is blockchain? Back to the basics.”