Blockchain Adoption Accelerating in the Accounting Industry
Emerging technologies, including blockchain, may accelerate the transformation of the accounting industry and accountant roles.
Blockchain technology is gaining momentum in the finance and accounting sector as organizations realize the potential benefits that can be unlocked with the right applications. The global blockchain market is projected to reach a total market size of US$4.401 billion by 2022, increasing from US$0.297 billion in 2017, according to Blockchain Market - Forecasts from 2017 to 2022.
What Is Blockchain?
Blockchain is also referred to as distributed ledger and distributed database technology. Ledger entries and transactions are stored on a block that updates instantly and horizontally across the network, not vertically or from a central location. This puts everyone on the same-leveled information playing field. Entries are unchangeable, encrypted and embedded with a validating mechanism that ensures data authenticity and integrity. The validity of each transaction or entry is dependent on and validated against the prior transaction in a chain-linked manner all the way back to the point of origination, hence the term blockchain.
Gregory LaFollette, Strategic Advisor at CPA.com, explains that, "blockchain to the average practicing accountant is roughly analogous to electricity, where you walk into your office and flip the switch on and the lights come on, where you use the electricity to run all sorts of necessary things." In other words, the efficiencies happen behind the scenes to enhance processes that improve the end-user experience. "Blockchain allows big data to be reliable and immutable, so we know that all of the data in a particular stack are in fact correct and verifiable," LaFollette says.
The Big Business Is Paving the Way
In terms of early adopters, the accounting industry is one where the largest organizations are leading the blockchain adoption movement, rather than the more agile smaller independent shops, according to Nasdaq. Smaller organizations can leverage their size advantage to accelerate integration on a smaller scale leaving less distance to "catch up." With less resources, they'll find it prudent to let blockchain platforms, infrastructure and applications develop and gain stability before full integration, as long as prudence is not overshadowed by complacency. Here are a few of the key blockchain applications specific to accountants that can be leveraged to augment and improve bookkeeping and auditing processes.
Triple Entry Accounting
This embedded verification process is especially appealing for the bookkeeping and auditing function. Double entry accounting with debits and credits would also have a third entry on the blockchain enabling a notarized reconciling audit trail back to origination for immutable verification — bypassing a need for a third party. This is especially beneficial when involving outside auditors, and "would revolutionize bookkeeping," reports Forbes.
Real-Time Automated Verification Auditing
The immutability and transparency of blockchain bypasses the need for third-party validation, which augments the speed of validation — making the potential for fully automated real-time audits a reality, reports Forbes. This would be a boon for publicly traded organizations mandated to comply with regulatory procedures that require expensive audited financials. Speeding up the turnaround and reducing costs for audited financial statements may allow small businesses to even access these costly procedures to enhance credibility and transparency.
Virtual Currency Tax Implications
There are currently over 1,400 different cryptocurrencies, according to Cryptocurrency Market Capitalizations. Bitcoin has become "common knowledge" as the gateway product introducing consumers to blockchain. Purchasing with virtual currency consists of two transactions: the selling of the virtual currency which incurs a capital gain or loss depending on the cost basis and the actual transfer of goods for the currency. The IRS has deemed virtual currencies as property, not currency. Therefore, any transaction using virtual currency is a taxable event, which could incur capital gains taxes or losses when selling a position or buying a product or service, as noted by The Balance.
Commercial rollout of finance applications will likely be segmented to permissioned blockchains because of the sensitivity of the data. Purists may argue this goes against the essence of distributed ledger, but earning mainstream acceptance may require this. Blockchain technology is likely on the forefront, so organizations that want to remain competitive may need to adopt and embrace it to stay ahead of the field. The majority of enterprise POCs launching today are being enabled via industry consortiums. Savvy players should remain aware of the activity in their industry.
A Blockchain Future
Blockchain could eliminate the need for clients to submit receipts, documents and data to their accountants because every transaction will be posted instantly on the blockchain. Accountants could have the ability to forecast and quantify business metrics in real time. Solution providers such as ADP that have analytics and benchmarking capabilities can help provide additional insight.
Transformation of Roles and Industry
Emerging technologies, including blockchain, may accelerate the transformation of the accounting industry and accountant roles. As automation takes over most of the bookkeeping, reporting and auditing functions, accountant roles are shifting toward providing analysis and strategic solutions for clients.
"When something gets automated, it becomes commoditized, there is no value in that," says LaFollette. To extract the most opportunity, LaFollette says accountants need to "specialize or even super specialize." For example, "I'm going to become a CFO-in-a-box. I'm going to do everything for my clients, but I'm only going to deal with optometrists or florists or dentists." According to LaFollette, blockchain technology combined with specialization should enable this new breed of accountants "to serve clients all over the earth."