Blockchain and Accounting
When it comes to accounting, blockchain can usher an industry-wide accuracy revolution not experienced since a group of 14th century Genoan treasurers introduced double-entry bookkeeping into their financial archives. While digitalization provided significant improvement to modern accounting, industry consensus is that its disruption is still in its infancy, especially when compared to how areas such as marketing, or recruitment have benefited from digital insights and global reach that internet provides. As opposed to printed receipts, the centralized, digitized nature of most financial disclosures makes them ripe for tampering and outside interference. Fail-safe designs such as mutual control mechanisms, or checks and balances have significantly decreased the risk of fraud. However, most of these exercises are still manual and labour-intensive. As well as this, spreading isolated data across multiple databases and analog archives provides huge barriers for effective examination, while financial audits of individual companies are expensive and time-consuming. Within the context of accounting and blockchain, it’s easy to envision how companies can disclose their financial information directly onto a joint register, kept encrypted on a public ledger. The secure nature of blockchain will also further diminish the risk of falsification or evidence destruction and increased transparency within this essential aspect of everyday business.
Blockchain for Accounting as Source of Trust
Using the blockchain as a source of trust within accounting can have many beneficial effects on the accounting processes as a whole. The snowball effect of integrating many aspects of modern accounting such as audit trails and integrity assurance of individual records heralds the future of fully automated audits. Timestamping on the blockchain can be introduced at every atomised point of a financial documents’ life cycle. The trustless nature of a decentralized ledger would significantly decrease the need for any organizational or manual process to be audited for its authenticity. A particular document of interest can even be timestamped at the point of creation in order to ensure no unwanted tampering has happened between its inception and the transfer to the receiver.
By doing so, the immutability of an accounting blockchain can ensure that a particular document is transparent and accurate throughout its entire life-cycle. Similarly so, documents can then be stored in a chronological fashion on the blockchain for easy access and retro-analysis. This process can be repeated for multiple departments, companies or even industries. Introducing this radical level of transparency into a particular country’s financial regulation system could have a positive effect on proper corporate taxation or financial investment fraud.
Additionally, technological phenomena such as smart contracts could introduce a new method of documenting and meeting contractor invoices in order to streamline multi-entity cooperation and decrease the reliance on the legal system for professional disputes. For example, a smart contract could only be made available for the contractor to interact with if it deems the company has enough liquidities in order to pay for the goods or services delivered.
To conclude, blockchain and accounting go hand in hand. They provide a level of transparency is not only beneficial to a business - it is a top priority necessity with irregularities resulting in law enforcement action and legal consequences. Nonetheless, streamlining the accounting process could be valuable for corporate industries as insights are more easily generated about proper taxation policies. Within the context of a single business, blockchain can help an organization save previous hours of manual labor and fact-checking, by providing a secure, immutable alternative.