Blockchain in Accounting: Exploring the Potential for Transparency and Security

As more and more business organizations adopt cryptocurrencies, blockchain accounting, and blockchain audit are hot and important topics. Leading technology and accounting companies including Deloitte, and other accounting firms, have already started educating their staff on blockchain accounting and technology.

Blockchain has the potential to radically improve the audit, control, and accounting activities and thus the professionals of the industry are paying close attention to it.

What Is Blockchain Technology?

A blockchain is a digital mechanism and framework that creates a distributed ledger. Participants of the peer-to-peer network of the ledger can exchange information, assets, and information freely and securely on a blockchain digital ledger, and do not require an intermediary for that.

All the records of a blockchain and the digital ledger and network are time-stamped, unchangeable, and encrypted. Also, These features of the block chain technology make it a viable, secure, and potent accounting tool as well, among other business purposes..

Evolving Business Interest in Blockchain Technology

The new devices including smartphones, mobile devices, internet-of-things sensors, and others can generate large amounts of data that are captured in the network environment. Blockchain technology can deal with all the new assets.

Cryptocurrencies and other digital assets can traded in the digital markets but cannot monetized by the existing infrastructure. Cryptocurrencies and blockchain technology have the appropriate transparency for the participants, as well as the efficiency to handle huge amounts of data and microtransactions safely and securely.

Blockchain in Accounting

Blockchain technology can result in the replacement of the double-entry system of accounting and popularize the more efficient and secure triple-entry digital accounting system. All the financial transactions are record in a general ledger.

The ledger includes the assets, liabilities, expenses, equity, and income data. For ensuring accuracy, the double entry system of accounting used, where a “debit” and a “credit” entry are made. In the triple entry accounting, a third entry is also record, apart from debit and credit. This third entry is located on the blockchain.

Benefits of Blockchain for Accounting

Blockchain can reduce errors, enhance transparency, and even provide for automation of accounting processes. Some of the noteworthy blockchain technology impacts on accounting include:

Smart Contracts

The feature of smart contracts can ensure that the accounting transactions can be accomplished and recorded automatically (after a certain set of conditions are met). Therefore, jobs including reconciliations and payroll can be automated by accounting professionals with the use of blockchain technology.

The technology can ensure that manual entries are not required and manual errors are reduced. Reduction in errors can help organizations save on administrative expenses. Thus blockchain improves efficiency while reducing costs for business organizations.

Decentralized Ledgers

One of the main benefits of blockchain technology is that it does not require intermediaries, including banks or credit card processors when participants of peer-to-peer networks want to send money to each other.

However, blockchain retains the benefits of the intermediaries related to security. Blockchain includes the miners, or the public witnesses, that can verify the transactions. It is a highly secure process based on a consensus protocol.

Security

The paper receipts were the earliest proof of transactions. The later evolutions were the digital receipts that were more prone to be tampered with. However, blockchains are highly secure, and the “decentralization” feature ensures that they can provide proof of a transaction. Once a transaction on the digital ledgers and blockchain has validated by a public consensus, it cannot be deleted or altered.

The blockchain contains hash values for added security. These hash values can protect the sensitive data of all the transactions and are made up of character strings. The hash value or the codes are affect when anybody alters the blockchain transactional data. It raises red flags automatically and shows that data tampering has taken place. The passwords used on the blockchain also contain hashes.

Blockchain for Accountants

A blockchain does not replace accountants or traditional accounting processes but adds more layers of security and transparency to it. Blockchain can easily verify the transactions as well as the accuracy of all financial records automatically.

Apart from accounting professionals, blockchain technology also assists and helps auditors perform their job efficiently and in an error-free manner. Blockchain provides accounting benefits including:

• Immutability- no change can be made without a consensus.
• Programmability- through secure smart contracts.
• Universal Propagation- all the participants of the network possess identical copies of the digital ledger. No single party controls the ledger and the new entries are propagated rapidly throughout the system.

Blockchain may elevate the financial accounting and auditing profession as it can provide more value-added services and subjects. For instance, blockchain can utilized for integrated analysis, valuation, planning, and the interpretation of the outcomes. It is also a secure way to assess the data systems. 

Further, blockchain technology can provide for improvement in timeliness and transparency in the accounting and auditing profession.

Blockchain Helps Managers and Business Owners

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Blockchain accounting software for companies can ensure that scams and fraudulent practices are reduced. Futuristic aspects of blockchain technology, including secure invoice scanning, can ensure that all parties face lesser risk in accounting.

Businesses can also save time and effort and do not have to deal with fraud or spend even more money collecting money from dishonest parties and organizations. Furthermore, blockchain is immutable and transparent, which further reduces the cost of compliance including regulatory compliance. It can provide efficient audits for auditors and accounting firms.

Blockchain can reduce the time required for accounting as well as auditing and can provide hassle-free, secure, and transparent financial records.

Businesses can also save on other costs, such as mundane jobs including those of reconciling transactional data. Such jobs won’t be require as there will no need for manual entries in the ledger.

Conclusion

New technologies including machine learning and blockchain have enhanced the efficiency of business processes, reduced errors, and saved both time and money for business organizations.

Blockchain can prove to be revolutionary for the accounting industry. Blockchain accounting can used for all kinds of assets and currencies including US dollars. An understanding of the technology can provide for better business opportunities, growth, and transparency.