Blog

Blog Details

Blockchain and Accounting

Blockchain is a secure way to record transactions that are distributed across a network of computers. It is a distributed ledger, which means that all the computers in the blockchain network have their copy of the ledger. Transactions are recorded as blocks, with each block referring to previous blocks (hence the name "blockchain"). Blocks are secured by cryptography, which provides mathematical proof of authenticity and ensures that no one can alter them after they're added to the chain. Each block contains a cryptographic hash of the previous block, which is linked to all the others, making it impossible to change the transaction history or tamper with your account information. This is what makes blockchain so secure: no one can change it. The result is a decentralized recordkeeping system that's virtually tamper-proof. The most well-known application of blockchain technology is a cryptocurrency (Bitcoin, Dogecoin, etc.); however, it has applications beyond crypto as well.

Accounting

Accounting, a language of its own, is understood by the accountants, who use it to communicate business information to the users of said information. It helps users make business decisions by providing relevant financial information in accessible formats and helps companies comply with the law through its strict regulatory structure. Accounting provides a reliable record of monetary transactions that enables people to analyze and report on a company’s operations, enabling them to respond quickly and appropriately as changes occur.

Accounting Use of Blockchains

The application of blockchains to the world of accounting is still a way off. It's safe to say that few in the field are even aware of what this technology is, let alone how it could apply in their daily workflow. But there are several companies, such as BlockVerify and BitFury, who are using blockchain technology to develop solutions for the field.
BlockVerify aims to ensure that financial transactions within a company are accurately recorded and audited. It is more interesting than other accounting software because it relies on an immutable ledger that stores each transaction on its chain—a public record of all past transactions. Thus, there can be no double-counting or underreporting by either party; the software simply can't falsify the data stored within its chain. By using this technology, companies will be able to have complete transparency when doing business with one another—there will be zero doubt about whether funds are being received as promised or if everything is being accounted for accurately by both parties involved. Because they are so secure and resistant to tampering, blockchains are ideal for recording financial transactions. Blockchains also allow you to track assets throughout your supply chain by using tokens to identify each item. These tokens can also be used to record the ownership of assets as part of equity management and for internal accounting purposes such as contract settlements. For example, if a company issue 100 shares and sells 20 of them for $50 each the ledger would automatically update its records for total issued shares (100) and the number sold (20).

Blockchain has applications in external audits. Performing confirmations of a company’s financial status would be less necessary if some or all the transactions that underlie that status are visible on blockchains. This proposal would mean a profound change in the way that audits work. A blockchain solution, when combined with appropriate data analytics, could help with the transactional level assertions involved in an audit, and the auditor’s skills would be better spent considering higher-level questions. For example, auditing is not just checking the detail of whom the transaction was between and the monetary amount, but also how it is recorded and classified. If a transaction credits cash, is this outflow due to the cost of sales or expenses, or is it paying a creditor, or creating an asset? These judgmental elements often require context that is not available to the general public but instead requires knowledge of the business, and with blockchain in place, the auditor will have more time to focus on these questions.

Companies Using Blockchains in Business

Even though Blockchain technology is still in its infancy, many organizations have started using blockchain in their business processes. Let us know about some of them: -

  1. FedEx: - Using Blockchains to track high-value cargo and are soon planning to extend the functionality to almost all their shipments.

  2. IBM: - IBM is shaping up to be one of the giants in the cryptocurrency space by providing the backbone of Blockchain-related services to businesses. Using the Hyperledger Blockchain creator tool, they can help the organizations to create their own distributed ledger and smart contract systems.

  3. Microsoft: - Microsoft has also secured some 40 patents related to the use of Blockchains as payment gateways and for secure storage.

  4. Mastercard: - Mastercard has filed over 30 Blockchain-related patents, some under the title of “Method and System For Instantaneous Payment Using Recorded Guarantees,” which seems to imply that they are building their Blockchain-based payment gateways.

  5. Bank of America: - Bank of America has recently applied for nine more blockchain-related patents, a sign that the bank is open to using Blockchains in its operations.

Challenges in Using Blockchain for Accounting

  • It's generally agreed that more training is needed for accountants to understand how blockchain could impact their work. Also, the users are needed to be aware of how it would benefit their work and save time.

  • As more organisations become aware of blockchain's capabilities for streamlining processes, there has been an uptick in investment in developing solutions that allow businesses to integrate blockchain into their daily operations. However, this investment is still relatively small compared with other technologies; if companies want to use blockchain in accounting sooner rather than later, they need to invest in it now.

  • There also needs to be a push for organizations such as Accounting Standards Boards to develop standards for blockchain-based transactions. This will help ensure consistency across accounting firms and industries.

  • More research needs to be conducted on blockchain technology and its applications in accounting, both by the industry and academia. The research will help build awareness of this new technology and provide factual information about its uses, benefits, limitations, costs, etc.

Share: