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Blockchain is already impacting CPA auditors of those organizations using blockchain to record transactions and the rate of adoption is expected to continue to increase. However, in the immediate future, blockchain technology will not replace financial reporting and financial statement auditing. Financial statements reflect management assertions, including estimates, many of which cannot be easily summarized or calculated in a blockchain. The secured audit trail and verification created by a blockchain system and real-time capturing of transactions creates the possibility of continuous auditing by both internal and external auditors.
The implication for both accounting and auditing is whether reliance could be placed on the integrity of the blockchain system and not on the trust of intermediaries and related regulators. The extent to which reliance could be placed on the integrity of the blockchain system depends on the discussion of the other characteristics of blockchain technology. The Bitcoin developed by Nakamoto was a form of electronic cash referred to as cryptocurrency based on blockchain technology. Cryptography is the process of ensuring that information transferred from a sender to a receiver is secured. Since the development of Bitcoin in 2009, more than 2000 other cryptocurrencies have been developed all around the world.
Improved Efficiency and Cost Reduction
From an audit perspective, a blockchain provides a more secure audit trail (Dai & Vasarhelyi, 2017; Rozario & Thomas, 2019; Smith & Castonguay, 2020) and real-time access opens the door for continuous audit procedures (Dai & Vasarhelyi, 2017; Cong et al., 2018; Kinory et al., 2020). The literature therefore suggests that the current audit or assurance paradigm might change significantly (Dai & Vasarhelyi, 2017). Smith & Castengauy (2020) state that timely and reliable audit evidence must be balanced against the testing of the blockchain-related internal controls, which could be costly the first time the blockchain system is applied. A proper assessment of the internal control system and information technology controls is still needed (Gomaa et al., 2019). They, however, caution that the real-time access might not provide all evidence needed for audit purposes and that management assumptions and estimates will still need to be assessed. Blockchain application will also not prevent all fraud and errors (Yu et al., 2018).
One such industry that stands to benefit greatly from this technology is accounting. With blockchain, accountants can improve the accuracy and transparency of financial reporting, reduce costs, and provide their clients with a competitive advantage in the market. You can use blockchain as a transaction method to encapsulate your transaction information.
Polasik et al. (2015) find that the price of Bitcoin is influenced by the number and tone of related newspaper articles and Google searches. Figure 6 shows a cooccurrence heatmap of the main authors’ keywords (more than five occurrences) in this cluster. Table 3 provides some quantitative data (total citation and CPY) regarding the studies with the highest impact on this topic.
Private keys could also be stolen or hacked outside the blockchain system; thus secure safekeeping and storage of the private keys by holders and other participants is needed. Senior Manager and CPA with over 20 years of experience in accounting and financial services, specializing in risk management and regulatory compliance. However, there may be concerns about how to integrate blockchain into existing systems and navigate the complex regulatory landscape. Polasik et al. (2015) highlight that in countries with large shadow economies and low gross domestic product per capita, Bitcoin can work as a substitute for PayPal, payment cards and cash on delivery. However, according to Senner and Sornette (2019), cryptocurrencies cannot replace fiat currencies because they do not entirely address the complexity of monetary politics. Furthermore, decentralized systems entail governance issues that pose challenges when urgent decisions are needed (Zachariadis et al., 2019).
- The middle man plays a large role in protecting both parties in the exchange of assets from fraud.
- One of the first popular blockchain applications was that it cut out the middle man when transferring money.
- The IIRC proposes that entities should appoint a Chief Information Officer (CIO) who should be responsible for the capturing, analysing and providing of information for internal decision-making and external reporting.
- Using a personal home computer in 2015, it would take about 98 years to mine just one Bitcoin.
- To create the Merkle root, hashes of two records are hashed together to produce a hash of the combination, and then the process is repeated moving up the tree until all the records in the block are represented in one hash.
Also, Add-ons that will cut-short on accounting focuses on a decentralized control on accounting activities with operations like ‘hashing’ and ‘time stamping’. However, the recent past and the near future of blockchain are firmly anchored to the development of financial instruments and cryptoassets (second cluster). Some authors (Chang et al., 2019; Kumar et al., 2020) suggest that future supply chain systems will be formed through integrations of blockchain into current systems, and a hybrid system with public on-chain data and private off-chain data will be used. Furthermore, major complementarities emerge between blockchain and RFID (van Hoek, 2019), IoT and ERP (Kayikci et al., 2022).
Blockchain Accounting Software System
We believe it is urgent to fill this gap with systematic insights into the potential of and challenges facing blockchain technologies in accounting practice and research. Not to be lost out on, DLT also offers a time-stamp feature that allows for the network to become auditable, which leads to it being ‘tamper-proof’. In the coming years, the finance teams would use distributed ledgers, along with artificial intelligence, for automating multiple processes, ranging from payments to foreign exchange to tax returns fillings[5]. In Free Profit and Loss Form Free to Print, Save & Download, data or records are entered in a shared or distributed ledger, which can be made available to all the concerned members.
- Therefore, there is no evidence that the financial reporting system that we currently use will move away from a double entry system to prepared financial statements.
- Moreover, some of the relevant minor issues are related to latency, scalability and energy consumption (O’Leary, 2019).
- The adoption of blockchain technology along with artificial intelligence technologies and, more specifically, machine learning is happening at a fast rate.
- Thus, apart from protecting the record from corruption and eliminating the chances of errors, the process makes a concrete traceable audit trial.
- Firstly, a blockchain can be used in combination with big data so that it can serve the purposes of data analytics and data management (Zheng et al., 2017).
Yes, you have heard it right, accounting for the cryptocurrency reflects stock shares. With virtual accounting glueing the cracks that traditional accounting proved to fall back upon, ‘cryptocurrency’ is making rounds in accounting platforms. Well, nothing can tamper digital currency with the intervention of cryptography.
Secondly, the blockchain-based cryptocurrency is said to be a modern value transfer system being operated through a public ledger platform. In a fiat currency-based economy, value is transferable through the currency (money) while in the crypto economy, value is transferred by means of an internet-based or virtual value containers referred to as coins or tokens. Thus, the primary function of a coin is to convey value between participants in the crypto economy. As blockchains allow recording and settlement of transactions to occur at the same time as the transaction itself, auditors can obtain data in real-time and in a consistent, recurring format. Monitoring what happens in real time rather than testing (selectively) and reconciling what happened in retrospect is a substantial departure from contemporary audit techniques.
How Blockchain Implementation will Impact Accounting
Bolici et al. (2020) analyze discussions about blockchain and tourism on Twitter. They highlight that the public interest in this specific topic is strong and positive. In the long term, blockchain could increase disintermediation, reducing the power of companies such as Uber, Lyft and Airbnb, which currently create value by ensuring the reliability of their drivers or apartment owners (Rashideh, 2020). Researchers have worked to build a theory to explain how blockchain will change accounting.
Blockchain technology can also create a decentralized ledger that is accessible to all parties involved in a transaction. This can eliminate the need for intermediaries or middlemen and reduce transaction costs. 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.
Blockchain Technology: Shaping the Future of the Accountancy Profession
As blockchain is a new technology, the first research area aims to discover which accounting and auditing problems blockchain can solve and whether accountants see it as an opportunity to leverage their capabilities or a threat that can make their job obsolete. Many second-generation blockchains like Ethereum have provisions for adding computer code into the network protocol that allows the network to execute tasks when specific conditions are met automatically. This feature has been the backbone for smart contracts, but its applications in accounting are not to be ignored.
Hojckova et al. (2020) study the success factors of blockchain-based P2P electricity trading. This area is undeveloped because blockchain is a recent technology, and there are few use cases to study (Pimentel and Boulianne, 2020). According to Karajovic et al. (2019), blockchain for accounting information systems will reach a critical adoption mass within the next three years and will become mainstream in 2025.
Accountants needs to be alerted that other disciplines will become more involved in reporting information and that an integrated reporting system needs to be developed in each entity. The distribution of information is not only for the consensus mechanism of the validation of information, but also for the distribution of information between different stakeholders for faster and more efficient decision-making. The distribution of information among stakeholders creates new corporate governance and internal control considerations. Therefore, Smith & Castonguay (2020) respond that the governance and control procedures should not only protect the integrity of the entity’s own data, but also how other stakeholders involved in the blockchain protect the data. Because blockchains are resistant to modification and can efficiently and permanently record information between two parties, it is an excellent system for audits, which are basically dominated by large accounting firms.
Blockchain can improve information timelines and accounting reliability because of its decentralization and transparency, but it will also require new competencies, attention to scalability and accounting standard reconciliation. This study aims to review the academic literature on the utilization of blockchain in accounting practice and research to identify potential opportunities for further scientific investigation and to provide a framework for how accounting practices are impacted by blockchain. Unlike traditional accounting systems and ERPs having well-established accounting modules, blockchains are still new to many users. Onboarding accountants onto a blockchain system to learn ledger entry processes and process codes requires intensive training by experts. To increase the efficiency and value of the accounting function, professionals need to understand data analytics, machine learning, blockchain, and other modern technologies. Sub-fields of accounting, such as transactional assurance and transfer of property rights, can be transformed by blockchain and smart contract approaches.
However, the ability to trust that both parties are recording the same base transaction information and the real-time availability of this accounting data offers immense benefits for the efficiency with which accounting data can be reconciled and analyzed. Currently, financial reporting typically involves compiling data from multiple sources and reconciling it to create a snapshot of an organization’s financial position at a specific point in time. With blockchain technology, financial transactions can be recorded and verified in real-time, allowing for more accurate and up-to-date financial reporting not to mention that most blockchain platforms already offer automated reporting features. This can help businesses make better-informed decisions and provide regulators with more timely and accurate information. Today, the use of blockchain in the financial field is still largely in an investigative stage. From what I’ve seen, nearly all major financial organizations are exploring how to best implement blockchain technologies into their infrastructure, with tech giants who have traditionally been tied to the financial industry beginning to roll out various products.
Thirdly, the decentralized public ledgers such as Bitcoin involve great efforts from miners and their computer powers, which are rewarded with coins for these efforts (Evans, 2014). Rosenfeld (2011) conducted a study on the various incentive systems that could be used to reward miners in relation to their efforts. Lastly, the most distinguishing feature of blockchain technology is immutability, which means that the data are verifiable externally and cannot be easily changed by the participants or outsiders (Coletti, 2015; Derose, 2015b). This important feature has made cryptocurrencies stand out as a means of virtual exchange of value to date. The literature identifies blockchain technology as a disruptive technology (Smith & Castonguay, 2020; Watson& Mishler, 2017).