Blockchain: the industry’s game-changer?

Blockchain technology is set to change everything for accountants and auditors. John Edwards, CEO of the Institute of Financial Accountants (IFA) looks at how blockchain technology is disrupting the sector and how firms can lead by seizing the opportunity it presents. The technology’s potential As an accounting technology, blockchain is being hailed as something of a game-changer. Cryptocurrencies and other digital assets are receiving a growing amount of attention and interest from consumers, corporations, and governments, which is driving demand for blockchain. While mainstream adoption hasn’t taken hold just yet, it’s becoming increasingly important to understand how blockchain technology can impact many aspects of an accountant’s role positively and negatively, particularly as it was recently highlighted as a major contributor to money-laundering, with $8.6billion laundered through cryptocurrency in 2021. While blockchain came under extreme scrutiny when Bitcoin went bust in 2017-18, it now appears as though the profession is seeing the promises of the past few years finally come to fruition. It is something that has already been implemented as a service by Deloitte as a means of helping enhance its competitive advantage. But what exactly is it? What actually is it? The CPA Journal defines blockchain as "a decentralised database that enables real-time verification and communication of information." At its core, blockchain technology is a database and ledger system which keeps track of all digital transactions and instantly flags any false transactions and potential mistakes. It negates the need to confirm accuracy or existence of transactions with external sources and it provides clarity over ownership of assets and existence of obligations, with the potential to significantly improve efficiency, as well as reduce the costs of maintaining and reconciling ledgers. The main advantage of blockchain is that it stores every single record on thousands of computers simultaneously, making it incredibly difficult to falsify, corrupt or steal without a trace. There are other benefits too. Gaining clarity over the available resources and obligations of their organisations frees up accountants to concentrate on other areas such as planning and valuation. Far from ‘taking over’ and replacing accountants, blockchain technology may well force them out of the back-office towards higher-profile advisory roles, which could see them aligning competitive intelligence with business strategy. It also paves the way to expand on other value-add functions. The benefits of blockchain According to one source, blockchain “will write a new era for the accounting industry’’. Moving to a financial system with a significant blockchain element offers many benefits, including: Automating many accounting functions - once data is in the chain - thereby reducing human error. Faster and more efficient addition or removal of data compared to current accounting software systems. Lower costs compared to more conventional accounting systems, as an efficient blockchain system reduces errors. A reduction in fraud owing to the difficulty in penetrating and manipulating blockchain. Faster and easier auditing due to the improved traceability of blockchain. The downside is that whilst it can reduce the likelihood of criminal activity and fraud through improved traceability, the current lack of understanding of the system is creating an exploitable loophole that is increasing fraud and money-laundering and leaving clients at risk of fraud by proxy. The opportunities for accountants For blockchain to become embedded as an integral part of the financial system it requires further development, standardisation, and optimisation of the technology – a process that won’t happen overnight. Creating blockchain regulation and standards will take some time, something which leading accountancy firms and bodies such as the IFA can lend its expertise to. This also offers an opening for accountants and firms, firmly positioned as experts in their field, to guide and affect how blockchain is embedded and used in the coming years, and to develop blockchain-led solutions and services. There is also the chance for accountants to take on an advisory role with companies that are considering joining blockchains themselves, offering advice on assessing the costs and benefits of the new system. With a combination of business and financial know-how, accountants are ideally placed as key advisers to companies looking to harness the advantages of adopting this technology, serving as the glue between those who develop and apply the blockchain technology and their business stakeholders. In the short-term, even without the appropriate systems, it is essential for accountants to have at least some understanding of the systems and applications, as individuals and businesses begin the process of accepting cryptocurrency and trading in non-fungible tokens (NFT) as a form of investment for example. Bridging the knowledge gap For firms to seize on the golden opportunity presented by blockchain, it’s crucial that they address the knowledge gap which currently exists around emerging tech in this area. The good news is that blockchains are becoming increasingly more user-friendly, with straightforward applications for transactions, logging, and transparency. While the system may sound complex, most blockchains ‘look’ like normal software and have a functional interface as most of the technicalities are hidden. While blockchain is poised to revolutionise the accounting profession, this serves as a timely reminder for accountants to expand their skill sets and to ensure the accountancy sector is prepared with the necessary know-how for the future.