If you are aware of the term Blockchain, you probably only associate it with crypto currencies like Bitcoin. For the most part the trading of electronic currencies is the main purpose of Blockchain today, however, it has the ability to significantly impact how companies record financial data and correspondingly the accounting profession. In general terms, Blockchain is a web based ledger that has some interesting and unique characteristics.
Many companies have expressed interest in using Blockchain as their accounting ledgers, and for good reason. As it is web based, there is no centralized version or master copy of the ledger to leave it susceptible to be corrupted or hacked. The ledger is also constantly updated in real time. This eliminates the current lag between transactions that require bank processing, waiting for invoices or for checks in the mail. Blockchain has similarities to google docs where many users can be in a single file at the same time and all changes are shown immediately. Current versions of Blockchain are public and transactions cannot be altered after they are posted to the ledger. Each company or person that initiates a transaction is given an identifying factor or number that can be used to track specific user activity. It is speculated that, as popularity grows, companies will be able to set up blockchains for major accounting departments such as accounts receivable and accounts payable. Each respective Blockchain will be restricted for use of the company’s customers or vendors and all transactions will be immediate. There are implications on the audit and tax side of accounting as well. Clients will no longer have to provide documents to auditors or tax preparers and all transactions are visible and verified, no underlying support is necessary. Transactions could essentially be monitored continuously by a company’s audit or tax firm.
Concerns have been raised as many users state that competitors will have access to their financial information and identifying factors will not be hard to figure out. If a user’s identifying information is compromised, the public would essentially have access to every transaction that user has made on the Blockchain. Many users would face serious negative implications if competitors were able to recreate their cash flows, sales and purchases data, and more. It is also worrisome to many that outside parties such as auditors or the government would have access to transactions at any given moment.
Using Blockchain for accounting purposes is still in its infancy, but it is clear to see the interest in making the transition. Whether the benefits outweigh the risks is still up for debate, but it is apparent that Blockchain has the potential to drastically change the accounting profession.
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