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Despite the increasingly complex regulatory environment surrounding the accounting industry, the core ideas behind the profession have remained largely the same for centuries. Since the 1400’s the double-entry system of bookkeeping has defined how transactions are recorded, and how their material impacts are assessed. By analyzing the corresponding debit and credit balances involved in transactions, managers and auditors alike are able to verify the integrity of financial information underlying businesses.

However, with the introduction of blockchain technologies this age-old system may be on its way to obsolescence.

What Is the Blockchain?

Blockchain is a globally distributed ledger which is used to record and independently verify the particulars of any digital transaction.  Credit and debit entries on the distributed ledger are recorded in real-time with the profits and material losses of each transaction linked together in a joint register. Each of these entries is processed piece by piece through a series of equations which must be decrypted using specialized computer software. Once an equation is solved it is added to the blockchain, and instantly updated across all computers connected to the public ledger.

To replicate or alter a transaction an individual would have to painstakingly recreate the complex mathematical equations involved in each block of the chain. Additionally, each equation would have to be approved by every other party on the blockchain before being committed to the record. Essentially, this guarantees the veracity of any financial transaction recorded on the blockchain.

How Blockchain Will Affect Accounting

Although blockchain technologies are primarily associated with much-vaunted cryptocurrencies like Bitcoin, the possibilities surrounding the distributed ledger are numerous.  From the exchange of property contracts and medical records to global trade, Blockchains could be used to create a permanent, unaltered record of any transaction. With this system in place individuals could assign value to any digitally transferred asset.

Impact on Auditing

If organisations begin to implement blockchain technologies to track the movement of assets (stocks, bonds, mutual funds) to and from the enterprise, this will significantly reduce the amount of audit work required to confirm the integrity of financial records.

Accounting errors will also become a thing of the past as the specific details of each transaction will be independently verified through the distributed ledger system. Each participant in a transaction will be identified by a unique non-falsifiable code, the time and date of the exchange will be recorded to the Blockchain in real-time, and any related data will be checked through rigorous mathematic equations.  Each subsequent transfer of the asset will simply add another block to this chain of related transactions, so the history and current ownership of any asset will be all but guaranteed.

Emerging Opportunities

While it will be far simpler to track the inflow and outflow of assets from businesses with the blockchain, many cloud technologies already provide similar functionality. As stated repeatedly the future of accountancy doesn’t lie in simple reporting and reconciliation any longer. To succeed in a world of distributed ledgers, professionals must move towards providing more valuable services to clients.

Accountants must gain a comprehensive understanding of blockchain technologies so that they can shape how these systems are implemented within organizations. Many blockchain applications are still in their infancy and will require a great deal of development in line with prevailing industry regulations before they’re ready for market. An accountant with a strong grasp of the technology will be able to provide indispensable advice to firms looking to automate.