Blockchain technology, invented in the year 2008, is perhaps one of the hottest technical buzzwords making waves across industries, including the accounting sector. Accounting firms across the globe are increasingly taking advantage of Blockchain technology for boosting accountability and minimizing operational expenses to a great extent.
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Before we delve deeper into the realms of Blockchain technology, let’s take a quick look at the meaning of this rapidly advancing technology.
What is blockchain technology?
Blockchain, popularly known as DLT (Distributed Ledger Technology), is a robust and tamperproof technology that leverages cryptographic hash functions and decentralized ledger for storing financial records safely and securely. In simple words, Blockchain is a shared database that does not require any centralized ownership.
Gone are the days when the scope of Blockchain technology was limited only to Bitcoin (also known as cryptocurrencies). Nowadays, banks, marketing agencies, educational institutions, real estate firms, financial institutions, healthcare sectors and industries that need to store huge volumes of data are counting significantly on Blockchain technology to keep pace with digital transformation.
Since Blockchain technology has the potential to disrupt businesses across industries, the scope of Blockchain is growing worldwide by leaps and bounds. The accounting industry is also reaping the benefits of Blockchain technology because of its reliability and open-source attributes. In this post, we will shed light on a few practical applications and uses of Blockchain in accounting sector.
Role of Blockchain in the Accounting Industry
Blockchain technology is making fast inroads into the accounting industry. Considering the advantages of Blockchain technology, a lot of forward-thinking accounting firms are nowadays incorporating blockchain for streamlining time-consuming accounting procedures.
Blockchain is revolutionizing the accounting sector by leaps and bounds. Now let’s shed light on the significance of Blockchain in the accounting sector:
- Boosts Efficiency: Blockchain-based accounting software is more efficient compared to traditional accounting systems. Blockchain’s robust database enables you to maintain data integrity seamlessly. Additionally, it helps you gain a competitive edge in the market by allowing you to serve your clients with speed and accuracy.
- Enhanced Security: Because of its immutable nature, Blockchain is considered a highly secure technology. Once you store your accounting details in Blockchain’s decentralized network, it becomes difficult to modify the data. Even if you try to modify a record, you would have to make similar modifications to each copy of the distributed ledger at the same time, which is practically impossible.
- Keeps Frauds at Bay: Since data stored in the Blockchain network can hardly be tampered with, it keeps hackers and accounting frauds at bay. Additionally, the merger of Artificial Intelligence (AI) with Blockchain can help accountants create a more secure environment for data sharing. What’s more, the merger will also revolutionize the way of planning and conducting fraud investigations.
- Minimizes Errors: Blockchain technology automates accounting processes, thus, minimizing human error to a great extent. It streamlines the process of data entry by building an encrypted pattern of time-validated blocks.
- Reduces Expenses: Blockchain for accounting enhances efficiency and minimizes errors, thus, reducing the operational cost of accounting firms. That’s the reason why more and more accounting firms are switching from traditional accounting tools to blockchain-based accounting software.
- Saves Time: When you use Blockchain for accounting, you can significantly minimize audit cycle time. Blockchain leverages automated programs called smart contracts for automatizing auditing processes, which in turn makes the process swift and simple. Moreover, its inherent transparency and traceability also play a pivotal role in reducing the time required for inspecting accounting books.
- Quick Dispute Resolution: Since Blockchain enhances trust, efficiency, and transparency in financial transactions, it facilitates quick dispute resolution.
- Integration Capabilities: Blockchain can be easily integrated with your existing accounting tools to streamline audits completely.
- Real-Time Reporting: Blockchain technology gets the accounting data recorded in distributed ledgers authenticated by multiple parties. It also continuously updates the data stored in distributed ledgers by getting them authenticated by multiple parties. Thus, it enables accounting teams to work seamlessly with external auditors by providing them with real-time reporting.Additionally, the combination of AI and distributed ledgers can also streamline a wide array of accounting procedures, including tax filing, and foreign exchange trade.
- Helps Accounting Firms Stay Compliant: Blockchain’s role in compliance management has been garnering a lot of attention from insurance agencies that operate in a highly regulated environment. Blockchain technology is capable of assuaging several impediments that accounting firms experience in order to keep pace with ever-changing regulatory environments.
- Triple-entry Bookkeeping Model: Generally modern accounting firms adhere to the double-entry bookkeeping system, wherein financial transactions are entered in the account ledgers twice as (i) credit, and (ii) debit.
However, double-entry bookkeeping models, founded during the Renaissance period, are quite prone to discrepancies. Thus, to combat the discrepancy issues, Blockchain has introduced triple-entry bookkeeping to strengthen its security features. Triple-entry bookkeeping model adheres to an additional step to make sure all financial transactions are cryptographically secured by the third entry.
These are some reasons why accounting firms are increasingly embracing Blockchain-based accounting software in accounting with open arms. Blockchain accounting software has been specially designed to help you manage and track your accounting firm’s ledgers in a highly secure manner. It also adheres to transparency for managing your accounting data.
Will blockchain for accounting software replace accounting professionals?
Blockchain is certainly disrupting the accounting sector in several ways. Now the million-dollar question is- “Will Blockchain technology also eliminates the role of accountants and bookkeepers?”
The answer is NO!
Though Blockchain is disrupting the accounting industry, it won’t make accounting and bookkeeping jobs obsolete. Nevertheless, it will definitely make the work of accountants and bookkeepers simpler and faster.
Despite technological advancements, Blockchain technology will still need the help of accounting experts for interpreting and categorizing accounting data before it is inserted into the Blockchain software. Similarly, it will need the help of bookkeepers for managing invoices and accounts receivables, and for keeping tabs on income and expenditures. Thus, in simple words, the role of accountants and bookkeepers will undergo a drastic change; however, Blockchain won’t make them redundant.
Though Blockchain technology plays a game-changing role in the accounting industry, it also faces its share of challenges because of its decentralized attribute. Because of these challenges, the adoption of Blockchain in the accounting sector is still lagging behind.
Some of the most common challenges affecting the adoption of Blockchain technology are cited below:
- Lack of awareness about Blockchain technology;
- Blockchain consumes a huge amount of energy;
- It suffers from regulatory uncertainties and implementation issues;
- Absence of clearly defined standards and practices; and
- Lack of scalability prevents the technology from supporting ever-increasing transaction volumes.
Addressing these constraints will go a long way towards establishing Blockchain as serviceable software. Blockchain developers, service providers, regulatory authorities, and accounting industry’s largest players should work in tandem to tackle the challenges listed above.
The Bottom Line
Despite the challenges, Blockchain technology is all set to make a big impact on the accounting industry on a global scale. Though Blockchain for accounting firms is in a nascent stage, it still has a bright future. Thus, it is high time the accounting sector prepared itself for Blockchain adoption by creating awareness about the technology. At the same time, the accounting sector should regularly consult blockchain accounting software developers to keep itself abreast of Blockchain technology developments.
Accounting firms that are quick to embrace this revolutionizing technology are likely to stay relevant and gain the upper hand over their competitors. Even accounting giants such as Ernst & Young, Deloitte, PwC, and KPMG have adopted Blockchain technology for minimizing fraud, enhancing efficiency, and redefining the way they use their accounting system. Therefore, if you want to position your accounting firm for future growth, you should consider investing in Blockchain technology without further ado.
At the same time, you should enlighten your employees and clients about the advantages of Blockchain in the accounting sector so that they can get rid of their apprehensions about the technology. Last but not least, you should also take preventive measures to safeguard your accounting agency from the vulnerabilities of this technology.