Blockchain and the future of accountancy

The transparency level at which blockchain operates also limits the chance of misunderstanding among accountants. For example, once new data is approved, it’ll be displayed on the network immediately. Here, the accountants and users of the same network can regularly verify the transactions inside the block. Traditional accounting uses a double-entry system for financial transactions.

  • Below, we help you make sense of it all so your business can reap the benefits of blockchain’s potential.
  • This effectively means that Person A has a copy of all of their information as does Person B, and as does the next person.
  • In 2018, the amount of electricity used to mine cryptocurrency can heat a home.
  • Three further risks are often raised, each surrounding changing business processes (Canelón et al., 2019; Coyne and McMickle, 2017; Kokina et al., 2017).
  • To enforce tax compliance in relation to exchanges of cryptocurrencies, authorities could regulate these exchanges in the same way as they do the banking system and give to the central banks law enforcement power (Volosovych and Baraniuk, 2018).

The authors identify current trends, analyse and critique the key topics of research and discuss the future of this nascent field of inquiry. Rozario and Thomas (2019) suggest the creation of a second blockchain owned by an auditor and connected to the accounting blockchain of the first client in a network. In this way, auditors could extract data from firms’ blockchains and perform smart audit procedures within these blockchains. Fatz et al. (2019) use blockchain technology to create a system that issues certificates of arrival for goods, which are relevant in the VAT context for transactions between two businesses located in different EU countries. Blockchain accounting is a new approach that some accountants fear could make the profession of accountancy obsolete. It is a transparent technology that offers a global digital ledger of financial transactions.

Blockchain within a single, siloed company.

Over the past years, many finance and accounting organisations have looked at blockchain’s impact on their business. Some organisations even have tried to launch pilots using the new technology. Accounting is the process that involves the recording and analyzing of all the financial transactions of a business. As a result, a smooth and convenient accounting system is necessary for the efficient functioning of a business. Let’s explore blockchain accounting and its impact on the financial sector. The added layer of encryption provided by blockchain makes sure that all transactions remain secure, while also providing an indisputable record of activity in terms of who initiated the transaction and when.

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. We agree that blockchain will impact how accounting information is recorded, but we do not expect that accounting functions will disappear. Rather, accountants will likely retain some old functions, either as-is or modified to suit the new paradigm, and find they have an entirely new set of responsibilities, some of which will require them to develop new skills.

1 Results of LDA analysis

Therefore, some challenges still exist in applying blockchain in accounting. As discussed earlier in this article, organisations, including the EU Commission, tend to pull the trigger on a technology choice followed by a ‘not-invented-here’ syndrome whenever a new solution architecture is proposed. An apparent downside of EBSI is the disbursement of the integrity network it causes, as EBSI holds a prominent position of trust. Still, if it depends on third-party networks to serve use cases, it breaks the immutable traceability of transactions that blockchain so effectively offers.

2 New challenges for auditors

Reach out to start a conversation, no matter where you are on your journey. In the past, we’d use paper receipts for proof that a transaction occurred. With the introduction of digital payments came digital receipts, which are easier to tamper. Blockchain has gained a lot of traction despite being a polarizing technology and an elusive concept for many.

Although auditing will continue to evolve (as it always has), auditing is likely to be around well into the foreseeable future. Using a personal home computer in 2015, it would take about 98 years to mine just one Bitcoin. In 2018, the amount of electricity used to mine cryptocurrency can heat a home.

What is Blockchain Accounting? A Primer for Small Businesses

This system has existed since the 13th century and uses two accounts for every transaction; credit and debit. Accounting is known as the “language of business” as it classifies, analyses, and records all business transactions. Blockchain technology has been a game-changer for the accounting industry, offering a plethora of advantages in cost savings, audit trails, and more. The uncertainty linked to valuing cryptoassets is affecting the development of proper regulations, as this issue affects the fundamental what is federal excise tax and when do you have to pay it qualitative aspects of financial accounting, such as relevance and faithful representation. Moreover, as highlighted in the Conceptual Framework for Financial Reporting, the principles of prudence, neutrality and conservatism continue to pose challenges for properly presenting cryptoassets in financial statements (FRC, 2018; The Interpretations Committee, 2019). The disruptive potential of accounting technologies can only be fully realised with a similarly profound revolution in accounting thinking.

To test the validity and reliability of this result, we applied several other types of analysis suggested by researchers working with literature reviews. For example, Dumay and Cai (2014) and Jones and Alam (2019) argue that citation impact factors are increasingly important because they identify the most influential articles. Highly cited articles represent a “corpus of scholarly literature” that can help “develop insights, critical reflections, future research paths and research questions” (Massaro et al., 2016, p. 767). To conduct a citation analysis, we use citation counts based on Google Scholar data, based on queries employing Harzing’s Publish or Perish software as of 5 March 2021.

VISMA pushes for e-invoicing innovation with one global public integrity network to compete and collaborate.

Therefore, we assume that automating data collection and storage using blockchain will not mean the auditing profession disappears. Rather, we see it evolving into a new role within companies and the ecosystem of blockchain accounting. Blockchain may also lead to more disclosures of non-financial information, such as that related to sustainability and corporate social responsibility. The transparency of blockchain might prompt companies to do more explaining. They may wish to quantify and make visible “feel-good” information as a counterpart to the financial (Smith, 2017). Additionally, blockchain provides opportunities to collect qualitative social and environmental data, which will continue to require assurance in the future.

Standard accountancy requires a significant time investment from all organizations in the supply chain. Businesses keep their own ledger to ensure business’ financial records are accurate and compliant. To have the suite of skills needed in 2021 and beyond, having an understanding of how blockchain technology affects audits is important.