Blockchain and What it Means in the Accounting Profession
July 10, 2018
Everyone is asking, “What is blockchain and what does it mean for me?” The answer is neither a simple nor straight forward one. The impact of blockchain is likely to be far-reaching, affecting suppliers, manufacturers and end users. The key is adapting.
Blockchain is a shared, decentralized ledger with a history of transactions that cannot be altered. Blockchain removes third parties and allows for peer-to-peer communication. It is a new way to store, share and search for information with applications that interact with the ledger. In essence, it’s become a platform for sharing information and a network of trust and value. The network is a chain of computers that all must validate transactions before they can be posted to the ledger. Once transactions are approved and recorded, they cannot, in any way, be altered. Blockchain increases efficiencies and decreases costs because data is available in near real-time, eliminating intermediaries and the need to record transactions in a single ledger.
This technology still presents many unknowns — it has the potential to disrupt many industries. Here is what it means for the accounting profession:
When most people think of blockchain, they think of Bitcoin or other cryptocurrencies. Many CPAs were faced with questions and concerns this tax season about the tax impact of investing in these currencies.
However, what about auditing and back-office accounting? Should CPAs be concerned that their role in the business world will become obsolete since transactions are going to be publicly recorded and captured in an irreversible ledger? The answer is no. This is a world of opportunity for CPAs.
Verifying financial transactions is just one component of an audit. Although financial information is verified and transparent on a blockchain, it is not bulletproof. There still may be some uncertainties, such as with transactions that are unauthorized, amid confirmation of delivery, or with transactions that are linked to something off the chain as well as misclassifications within the financial statements. CPAs will still need to use professional judgement and skepticism and use blockchain as a means of standardization and an opportunity to streamline reporting and processes. And it has the potential for even greater standardization and consistency in reporting with more efficient data gathering. It should be viewed as a central location to obtain data. Consider the fact that audits may become more data driven, providing assurance on people, processes and systems. Thus, new risks will ascend, and traditional audit procedures may need to be tailored.
Roles and skillsets of CPAs may change as blockchain practices emerge. Blockchain will allow CPAs to have access to client data in real time, enabling CPAs to also react and advise in real time. Time can then be spent on more complex risk areas and focused analysis. CPAs must engage tools for predictive analysis and spend more time on analytics and forecasting to provide more strategic value.
A key development in blockchain is the evolution of Smart Contracts. Smart Contracts are stored within the blockchain, with codes to execute actions under specific circumstances. Therefore, CPAs will not only have real-time access to their clients’ financial information, they will also have access to their contracts, such as bank agreements, without having to make recourse to the client, which further increases efficiencies.
CPAs need to be up to date with block-chain technology and how this evolutionary breakthrough will apply to clients. It is not only an evolution in the way CPAs do their job, but the way clients do business.
Alisha A. Jernack
Alisha Jernack, CPA, is manager of entrepreneurial business services with Mazars USA LLP. She is a committee chair for the NJCPA Monmouth/Ocean Chapter and a member of the Student Programs & Scholarships Committee. She can be reached at email@example.com.
This article appeared in the July/August 2018 issue of New Jersey CPA magazine. Read the full issue.