Blockchain technology, one of the biggest technology developments in years, has the potential to transform the accounting and audit (A&A) industry. The potential benefits are numerous, but so are the challenges. Although A&A professionals do not need to be experts in this area, they should be aware of the opportunities and risks associated with widespread implementation of this technology. This article will focus on blockchain basics, benefits, challenges, and potential changes to the A&A industry.
First, let’s define the term, “blockchain.” A blockchain is a continually updated ledger of economic transactions hosted on a peer-to-peer network. A distributed ledger is designed to exist in the cloud, so it can be accessed by all members of the chain and updated subject to a set of agreed-upon rules. Since the ledger is decentralized, no single member can manipulate the chain without the agreement of all other members. A blockchain processes, encrypts, and stores transaction data, allowing members to have one transparent record for every transaction—all in real time. Rather than each member maintaining and reconciling his or her own ledgers, he or she, and all other participants, can instantly access the data.
Accuracy, security, and efficiency are among the most important of the potential benefits of blockchain technology. Increased accuracy is the result of all parties verifying results prior to adding them to the chain. The confirmation process will reduce the need for reconciliations, duplicative ledgers, and disputes over the stated terms of a contract. Security benefits include easy verification of vendors and transaction documents from a single set of immutable records. Efficiencies are gained through real-time fund exchange and continuous updating of information, eliminating the need for intermediaries in most transactions.
However, the challenges facing implementation are worrisome. For instance, even the basic setup of a blockchain requires all members to join simultaneously when the ledger is implemented. Joining the chain entails halting the recording of all transactions during the period when members are added, which can prove difficult. The perceptions and general lack of knowledge about blockchain are also slowing widespread adoption. Compliance personnel are not yet comfortable with the related control structures to provide assurance that controls will operate effectively and leave an auditable trail.
Accounting professionals would be some of the first to realize the benefits of implementing blockchain. The time saved from reconciliations alone would significantly reduce expenses and afford time for activities of higher value. Auditors could rely more heavily on transaction data since it is recorded in real-time and cannot be altered once approved by all parties. Payables and receivables would be updated instantly, leading to time and efficiency benefits. The scope of, and expenses related to, audits should also be reduced.
The A&A industry would be well-served to establish itself on the forefront of blockchain governance. Being aware of the many benefits and challenges ahead is critical to preparing for the future. The financial opportunities would be plentiful for those who are prepared to take advantage of them.
If you would like more information about blockchain, or would like to request a speaker on this topic for your organization or event, contact one of our PYA executives below, (800) 270-9629.