By Charlie Flamand
Blockchain has a lot more utility than most people who had watched Bitcoin explode in late 2017 think it might have. Its growing popularity has applications that go beyond person-to-person or person-to-business currency transactions. The other applications such as traceability, increased audit efficiency, and foreign transaction benefits of blockchain, have always been what interests me the most. This blog focuses on these applications from an accounting perspective and considers the safety and efficiency of blockchain over traditional currency.
Even though many modern-day businesses have made the transition from manual accounting processes to software or cloud-based systems, accounting processes is still one of the areas that’s most susceptible to fraud. In today’s world, financial bookkeeping is based on the double-entry system. In other words, for every debit, there’s a corresponding credit, and this principle has been around for hundreds of years.
Blockchain could be the next step forward from this old accounting principle and could create a safer, more transparent, and more efficient system. Every time a cryptocurrency is transferred, a digital path is left behind that makes every transaction transparent. Blockchain makes falsifying records and transactions that travel this traceable path nearly impossible. This can benefit companies and funds that are susceptible to fraud. Especially with companies and funds that have fewer employees, the separation of duties can be difficult to implement when there are only one or two employees in an accounting department. The transparency and permanence of a blockchain system helps to mitigate these types of risks.
Shifting to the decentralized ledger of the blockchain could save time and money on financial statement audits and reduce the risks associated with fraud, as well. With every transaction being posted on the blockchain, auditors could automatically assess the existence of the financial data behind the financial statements using machine-learning software. This could save auditors a significant amount of time that they could use elsewhere during the audit which ultimately improves other aspects of the audit. This also improves the audit trail and increases a company’s financial security.
Another way blockchain can increase the productivity of financial accounting is through foreign currency transactions. These transactions can sometimes take several days to process but with cryptocurrencies they can be executed almost immediately. In addition to speeding up the transaction time, this method reduces the risk of arbitrage and the need for foreign currency hedging. It also makes the transactions more cost-effective because instead of paying a transaction fee to multiple parties, you only need to pay a one-time fee or, sometimes, no fee at all. This can help save multinational funds that make frequent international transactions a significant amount.
The shift over to the decentralized ledger of the blockchain system might be slow, or even for some industries, might not happen at all. But new technology is changing how many industries conduct their business. It may be only a matter of time before we see blockchain altering how accountants conduct their day-to-day work. This is something we should all look forward to witnessing in the years to come.