The blockchain is set to revolutionise the infrastructure underpinning financial services and many other industries, including the audit and accounting profession.
While many people associate the blockchain with digital currencies such as bitcoin, its potential is being realised across many sectors, including financial services, health, property, energy, trade and government.
What is blockchain technology?
Blockchain technology is a system based on distributed ledgers – a database of assets or transactions that can be shared across multiple nodes in a network giving each participant their own copy, with any changes reflected in every copy almost simultaneously.
Every transaction is recorded as a ‘block’ of data, and each new block has an encrypted copy of the previous block included within it. Blocks are then linked using cryptographic signatures to create a ‘chain’ of activity or transactions that are time-stamped, distributed and tamper-proof.
Therefore, the blockchain creates an incorruptible ledger of information, where falsifying or destroying the entries to conceal activity is practically impossible.
Impact on company operational and financial environment
The blockchain enables companies to record both sides of a transaction simultaneously in a shared ledger in real time rather than having to keep reconciled records of financial transactions in separate, privately-managed databases or ledgers. It is poised to end traditional methods of invoicing, documentation, contracts, registries, inventory systems, and payment processing for businesses.
Therefore the need for traditional double-entry bookkeeping will become obsolete, as the verification of the integrity and compliance of a company’s accounting will be fully automated within the blockchain.
This will also have a knock-on effect on the audit process. Antonis Polemitis, CEO of the University of Nicosia, a leader in the blockchain field, says: “Blockchains will ultimately revolutionise auditing. They can provide machine-readable, continuously-synchronised accounting records between counterparties, something that will increase transparency and allow for ongoing automated audits.”
Pace of change
There is great scepticism about the pace of change and the extent of the disruption that the blockchain may cause.
Many in the business community believe that due to the complexity of the technology and the fact that it is still in its infancy, the blockchain still has a long way to go before its true capabilities can be understood. Others believe that the huge hype and investment into the technology mean businesses will start feeling its impact within the next few years.
Regardless of the precise pace and extent of change, the blockchain will undoubtedly alter the relationship between companies and their accountants and auditors. In the future, accountants and auditors are likely to focus increasingly on areas requiring judgement, such as complex transactions, internal control mechanisms, analytics, forecasting, IT audits and controls, valuations and other matters on which they can add real value.