7 ways blockchain will change accounting
Blockchain, being a distributed ledger technology, is improving the management and sharing of records, payments, and controls, as well as improving efficiency and financial reporting. And with its continued implementation in procurement, supplier management, and other fields, its adoption in the accounting field will match.
Here are a number of ways blockchain will change financial accounting:
1. Near instant transactions
The time required to close books at the start of the months for the monthly accounting cycle is shortening with the coming of new technologies. A major issue affecting the time taken to close a financial cycle is the lag in transaction completion times and various transactions are caught up between various steps in the billing, invoicing, and payment cycle at the end of the month.
It is known already that blockchain does facilitate instant transactions, therefore, eliminating the delays in the processing of transactions and the related follow-ups and reporting at the close of the month.
2. Improved tracking of assets
With blockchain, asset tracking becomes much easier and faster. This has experimented in the supply chains and logistics. Once a transaction is recorded on the local ledger, it is shared across the network accessible to multiple parties and copies of the same ledger stored by many computers around the world.
For instance, a record created about a share of stock when it is bought, sold, bought and sold again, will be shared across all parties involved and that copy is immutable and undisputed and even the histories of the transaction exist on the blockchain and it is much easier to track the transaction back to origin. Even financial digital transactions on the blockchain are very easier to track this way.
When compared to other methods of tracking, blockchain-based one is easier to track or audit an asset all without phone calls, emails, and other detective skills. The immutable permanent records are viewable with a click of buttons.
This account tracking helps reduce fraud and asset theft.
3. Automated reporting and reconciliation
When transactions are recorded and shared on distributed ledgers with all of their details, it becomes easier to program computers to automatically sort and record journal entries. The delays involved in verifying of transactions are reduced or eliminated with the use of blockchain.
4. Saving costs on audits and compliance
While double entry bookkeeping revolutionalized financial accounting in the renaissance period and solved the problem of managers knowing whether they could trust their own books, companies still require to do independent public audits in order to gain the trust of outsiders and investors. These audits are a very expensive costly exercise, binding the company’s accountants for long time periods.
Recording of transactions on blockchain minimizes errors for now and future even as a result of record alterations, which means audits are more accurate. That means there is less chance for the need to redo audits due to differences in results.
Again, the fact that blockchain helps cut down the time it takes to do reporting and close books means a lot is saved in terms of costs whether you are talking about requiring smaller audit teams or lesser labor. Teams are able to accomplish these processes with better efficiency.
Second, storing records on cryptography secure ledgers reduces the possibility of falsifying and destroying them in order to conceal the activity. Due to transparency, which gives visibility to transactions for approved users, auditors do not spend lots of work sampling and validating transactions. Thus, they can spend more time on controls and investigating anomalies.
Also, standardization of information would help auditors to automatically verify a large portion of the most important data behind financial statements.
5. Monitoring budgets in advertising, marketing, and other fields
Another way blockchain is helping firms is ensuring that marketing and advertising executives can reach target markets with minimal click fraud. Just the same way it can be used in preventing fraud in banking, blockchain can also be applied in media buying.
Firms can better monitor and govern budget spend and track investments and increase ROI. They can track investment from the initial transfer of the media budget to the final publication of creative with the media owner hence reducing the risk of overcharging and under-performance.
6. Improving the integrity of records
It is difficult to achieve proof of immutability when using both papers and even with digitized paper records without blockchain. The fact that both can be altered calls for additional preventive measures and blockchain comes in as a good suit for this.
By simply generating a hash string (digital fingerprint) of a given file and immutably time-stamping the fingerprint by writing it into the blockchain via a transaction, it is very easy to prove the integrity of that file by generating the fingerprint and comparing it with the one stored on the blockchain.
Proof of immutability is achieved if both of the fingerprints are identical, showing the document was unaltered since first writing. Hashing also secures the original information against alterations by third parties.
7. Use of smart contracts for custom conditions
Smart contracts can help automate payment processes for instance on goods and services delivery or as per other specifications and conditions agreed between both the parties to the contract.
For instance, in the area of payments, companies can automate invoicing and payments to their employees. For instance, each employee can have their own identifiable block that is private and secure for receiving their salary or to select changes to their payroll elections.
Companies can also submit an invoice to a client through a singular and identifiable block that is unique to that client and the client blockchain can validate the invoice and allow processing of the transaction seamlessly.
Accounting firms are using blockchain
PwC launched a blockchain auditing service that allows clients to view, test and monitor transactions on the blockchain in near real time. For instance, it helps stock exchanges and digital wallet providers who need to verify blockchain based payments.