What Blockchain Will Mean for CPA Firms
You may have heard the term “blockchain” popping up more and more in the news lately. Many analysts predict that blockchain technology could revolutionize the accounting industry, completely changing how CPAs approach auditing, tax reporting, and bookkeeping, among others.
In this post, we’ll break down exactly what blockchain is and what changes you can expect as it becomes more commonplace.
What is blockchain?
In essence, blockchain is a database of records where entries are listed in chronological order and publicly displayed. What makes blockchain distinct from traditional database technology is threefold:
It’s decentralized—any data contained within a block is not stored in one place, but instead is spread throughout the network, existing in several places at once.
All entries in a blockchain are linked together, making it next to impossible to falsify or hack individual records without breaking the entire chain.
Blockchain operates on a peer-to-peer network—entries are powered by the individual users who add to the chain, eliminating the need for a main host or central server.
Blockchain was created by a person (or a group of people) who goes by the pseudonym “Satoshi Nakamoto,” the same enigmatic developer responsible for creating cryptocurrency. In fact, blockchain was developed specifically with cryptocurrency in mind. All cryptocurrency transactions are recorded as “blocks” in a “chain” (hence the name), creating a public ledger of every cryptocurrency transaction that has ever occured.
And while blockchain was created to facilitate cryptocurrency transactions, the technology isn’t limited to digital currency. Blockchain can be used as an authentic and secure record of any exchange of data, like communications, written agreements and contracts, or even votes in an election.
How blockchain will change accounting
Already, blockchain’s proliferation has started to raise questions from CPAs like you as to how it will affect day-to-day practice. You may even be concerned that blockchain could potentially handle your client’s bookkeeping for them, making your profession obsolete.
The reality is, however, that you have little to fear when it comes to blockchain technology. On the contrary, blockchain could actually make your life much easier and take your service to greater heights than before, and you won’t need to become a savvy computer programmer to do so. Below, we’ll highlight three aspects of blockchain that can have a positive impact on the accounting industry.
As mentioned before, data within a blockchain is decentralized. Because of this, blockchains are considered well protected from cybersecurity threats, as a single location can’t be attacked to steal the information. As CPA L. Gary Boomer told The Journal of Accountancy, “in theory [blockchain] cannot be hacked because that would require overpowering all the computers that contribute to and update the ledger network—a feat akin to hijacking the entire internet.”
Imagine using blockchain technology to store your clients’ transactions, tax information, or other sensitive digital data. Both you and your clients could rest easy knowing this data is stored in a way that’s significantly more secure than other technologies.
Thanks to blockchain’s peer-to-peer design, all the entries on a blockchain are instantly verifiable. No entry can be placed on the chain until the two parties involved have confirmed that the entry is valid. Because of this, you can be absolutely certain every block has accurate data within it. Such confidence in data can make auditing and bookkeeping that much easier.
“A major issue with fraud and attestation reporting is that these transactions and information are possibly influenced by employees working for the organization,” wrote Sean Stein Smith for Accounting Today. “Since blockchain requires all information uploaded and included in the blockchain environment to be verified and confirmed by existing members of the network, this reduces the chances that data will be recorded and reported erroneously.”
Blockchain’s irreversible and irrefutable nature makes it a fantastic platform for tasks like auditing, tax reporting, account reconciliation, and account verification. Blockchain technology could not only make these tasks easier (by eliminating time spent on authenticating data), but also potentially automate these tasks altogether. This would allow you to increase the scope of your practice and tackle bigger-picture issues.
Writing for AccountingWEB, Craig Lebrau of Lebrau & Partners Pty. Ltd. noted, “Since the data on the blockchain is unchallengeable and absolute it will mean a great deal of time and money will be saved in auditing those transactions. Through the use of artificial intelligence and the blockchain, future auditors will be able to crunch through huge volumes of data and since the transactions themselves are already confirmed by the blockchain they will concentrate their auditing resources on detecting fraud and internal and external collusion.”
Of course, this would also likely cause a bit of a paradigm shift for accountants across the world, but these changes will result in better accounting practices in the long run.
All in all, it’s wise to educate yourself about blockchain technology sooner rather than later. We’re only seeing the beginning of how blockchain could impact the way service professionals conduct business. The more you know about blockchain, the stronger your practice will be when the technology becomes widespread.
To learn more about how new technology can help keep your practice secure, download our e-book, “Building a Secure Practice: A guide for CPAs.”