Blockchain Accounting: The Evolution of Financial Transparency

23 May Blockchain Accounting: The Evolution of Financial Transparency

It’s clear that technology is changing the way organizations do business across all functions and industries. But there are particular pairings of tool and team that carry game-changing form 3800 instructions potential. Learn how our auditors work with Deloitte COINIA to help address blockchain. ConsAccountancy practitioners routinely make adjustments to financial records.

It also records every transaction that passes through a computer, and, just like with double-entry bookkeeping, it does so in chronological order. However, blockchain uses a system of numerous computers communicating with one another to record the transaction. MintBlue challenges the status quo blockchain thinking and believes consolidation into a single chain needs to happen before more significant adoption can occur. Consolidation of data into a single blockchain enables tracing of the entire lifecycle of data with ensured integrity and without dependencies on trusted middle-man. Accountants can create custom algorithms and deploy them on the blockchains for specific functions. As a result, they can use different sets of algorithms for different clients based on the accounting requirement.

In fact, three were published in the Journal of Emerging Technologies in Accounting. Additionally, the topics cited match the topics revealed by the LDA analysis, particularly new challenges for auditors, opportunities and challenges of blockchain applications, and the regulation of cryptoassets. Against this background, the present study is timely, as it aims to review the existing literature on the use of blockchain in accounting practice and research and to define potential opportunities for further investigation. However, the skills required of accountants are likely to change, and there may be a need for fewer entry-level accountants (Kokina and Davenport, 2017; Marrone and Hazelton, 2019). There may be a shift towards notions such as creativity, innovation, holistic thinking, complex decision-making and sense-making. The ability to adapt to keep pace with an increasingly evolving business environment and technological context will also be important.

The blue line includes all 346 research products assessed for discussion. The green line represents all 127 research products that belong to the “Accounting and Auditing” topic. The yellow line depicts articles published in journals ranked as “ACCOUNT” by the ABS AJG2021 journal ranking. Figure 1 shows a considerable increase in interest since 2016, in which year accountants and practitioners began to seriously consider blockchain as an accounting tool (Kokina et al., 2017).

One related research question for the future involves whether blockchain-based instant tax allocation helps to decrease the cost of tax compliance for companies or not (Karajovic et al., 2019). As the role of external contexts and legal frameworks is highly important to blockchain development (Allen et al., 2020; Stratopoulos and Calderon, 2018), researchers may study the differences in blockchain implementation in environments that are (and are not) “crypto-friendly”. Fourth, in our SLR, we underline that the impact of this technology on accountability remains relatively unexplored. In particular, the impact of blockchain on the broader concept of accountability, which includes financial, social and environmental data, is overlooked. Therefore, the issue of accountability based on blockchain represents a tremendous opportunity for future research. However, the recent past and the near future of blockchain are firmly anchored to the development of financial instruments and cryptoassets (second cluster).

This level of immutability is why blockchain technology is commonly referred to as a “trust machine”. This paper provides a compact snapshot of the state of blockchain papers in accounting research. The trends and identified research directions may help predict future citation impact and informed our suggestions for future research. They may also help journal editors decide on calls for special issues as interest in this topic grows.

1. EBSI can act as a certificate authority for identity but will depend on highly scalable secondary networks to process data exchange and storage needs to serve use cases and not inhibit innovation.
2. As discussed earlier in this article, organisations, including the EU Commission, tend to pull the trigger on a technology choice followed by a ‘not-invented-here’ syndrome whenever a new solution architecture is proposed.
3. In a double-entry accounting system, you record a debit and a credit of the same amount at the same time.
4. It is also important to understand all the advantages and disadvantages of joining a public or a private blockchain (O’Leary, 2017).
5. Storing public blockchain data creates a global reference to any piece of information, and it keeps everyone in sync and on the same page as to current state affairs.

The clustering technique used by VOSviewer is discussed by Waltman et al. (2010). The weight of a node is based on the number of occurrences of the corresponding keyword. We opted not to exclude papers that were published in journals with moderate- to low-impact factors. Moreover, as blockchain is a recent topic, we decided to include conference papers and book chapters. These judgemental elements often require context that is not available to the general public, but instead require knowledge of the business, and with blockchain in place, the auditor will have more time to focus on these questions. Ablockchain solution, when combined with appropriate data analytics, could help with the transactional level assertions involved in an audit, and the auditor’s skills would be better spent considering higher-level questions.

3 Opportunities and challenges of blockchain technology application

In this process, which is called “mining,” every single node updates in real time with the result of every bitcoin transaction. Once a block is “mined” and its transactions are verified, auditing work isn’t necessary. Terms like “Bitcoin” and “cryptocurrency” have made a huge impact in the financial world.

Strengthening trust in the profession

Unfortunately, many of the proposals for the use of blockchain are aimed at automating existing processes, typically in an approach to leverage the immutability and digitisation of paper, but generally do not propose or use changes in the processes. The authors wish to thank Warren Maroun and the two anonymous reviewers for their insightful and constructive suggestions that helped to strengthen our contribution. The authors are also thankful to Filippo Zatti and the research unit Blockchains and Artificial Intelligence https://intuit-payroll.org/ for Business, Economics and Law (BABEL) for their expert insights into the complex topic of blockchain technology. (2019), “Establishing the representational faithfulness of financial accounting information using multiparty security, network analysis and a blockchain”, International Journal of Accounting Information Systems, Vol. Moreover, our SLR allows us to highlight potential future developments related to the use of blockchain for accounting and, more broadly, blockchain in business studies.

The potential of blockchain

Accountants’ skills will need to expand to include an understanding of the principle features and functions of blockchain – for example, blockchain already appears on the syllabus for ICAEW’s ACA qualification. The parts of accounting concerned with transactional assurance and carrying out transfer of property rights will be transformed by blockchain and smart contract approaches. The move to a financial system with a significant blockchain element offers many opportunities for the accountancy profession. Accountants are seen as experts in record keeping, application of complex rules, business logic and standards setting. They have the opportunity to guide and influence how blockchain is embedded and used in the future, and to develop blockchain-led solutions and services. Blockchain technology reduces the possibility of disputes by fraudsters and scams.

Financial information is encrypted using two layers (A256GCM, A128CBC-HS256), and every piece of information is sharded and obfuscated by the terabytes of data processed by the blockchain. This makes it nearly impossible for attackers to identify which data blob to attack and requires the attacker to crack two layers of encryption. Leveraging the public blockchain, it is a straightforward multi-party encryption technique to allow your local government to tap in and ‘listen’ to invoices your organisation is exchanging with externals. Centralising data in a distributed ledger also streamlines data exchange securely and competently. The integration of blockchain led to the decoupling of data and software. Today the software has turned into a tool that interfaces with your data stored on the blockchain and can direct this information to your needs.

Improvements in blockchain’s operational efficiency mean that much of the work accountants do, such as collecting and inputting data, sampling, and proving provenance, can take place automatically. In today’s time, every industry is adopting technology to simplify its process and enhance efficiency. Similarly, in the accounting industry too, major technological changes are seen, and blockchain technology is being integrated with the accounting systems for recording transactions. Many accounting firms are using it to record double-entry systems, and some organizations have started recording transactions in triple-entry systems via blockchain. Similarly, the Hyperledger Fabric blockchain—a joint project by Linux Foundation, IBM, Intel, Microsoft and many other enterprises—is a permissioned blockchain that maintains public attributes commonly employed in the open-source software ecosystem. The challenges of blockchain regarding sustainability and environmental issues should also be a focus in future research.

Accounting information may be verified by different actors thanks to the assurance abilities of blockchain and because companies can continuously share information. Moreover, there is the possibility to automate some external auditing functions over the blockchain to improve audit quality and narrow the expectation gap between auditors, financial statement users and regulatory bodies (Rozario and Vasarhelyi, 2018). Some authors call for the appearance of a new brand of auditor that can offer attestation services for independent evaluations of blockchain controls (Canelón et al., 2019; Sheldon, 2019). Since blockchain is just such an emerging topic in the accounting literature (Schmitz and Leoni, 2019; Bonsón and Bednárová, 2019; Yu et al., 2018), we decided to add papers not yet published in the accounting journals but uploaded to the SSRN. SSRN is the leading social science and humanities repository and online community that provides “tomorrow’s research today” (Gordon, 2016).

Dyball and Seethamraju (2021) highlight that auditors consider clients that use blockchain applications as riskier because there is no accounting consensus about how to address their needs. Therefore, the essential benefits perceived by practitioners are unclear but seem to include reductions in time-consuming activities and the need for additional opinions. At Deloitte, our people work globally with clients, regulators, and policymakers to understand how blockchain and digital assets are changing the face of business and government today.

And I thank you both for taking something that can seem kind of nebulous and scary to accountants who haven’t been following it, and really giving them an idea that it’s starting to come into shape more and more, and it will be something that they can see and understand. And in some ways even the, you know, the bitcoin drop was probably a good thing overall for the marketplace. Because you want to get the speculators out, and you want to see what value bitcoin can provide to its different use cases. Just for the audience if anyone owns bitcoins, they’re all, is built off of a blockchain database, just like the stablecoins are.

Here are some facts about the blockchain ecosystem and how it will influence accounting in 2021 and beyond. Blockchain has the potential to enhance the accounting profession by reducing the costs of maintaining and reconciling ledgers, and providing absolute certainty over the ownership and history of assets. Blockchain could help accountants gain clarity over the available resources and obligations of their organisations, and also free up resources to concentrate on planning and valuation, rather than recordkeeping.