Blockchain Technology in Financial Accounting: Enhancing Transparency, Security, and ESG Reporting

Accountants’ mix of business and financial nous will position them as key advisers to companies approaching these new technologies looking for opportunity. Blockchain is a decentralized, distributed ledger that focuses on the ownership and transfer of assets. In this post, we’ll focus our attention on how blockchain affects the accounting industry and what impacts this technology can have on your small business finances. As blockchain technology continues to advance and new and different uses are found, it will be up to the accountancy profession to ensure that its promises of transparency and accountability are fulfilled. Blockchains and their almost immediate provision of an immutable record of transactions provides for shared transaction information, automatically synchronized across each location.

Strengthening trust in the profession

1. Additionally, using blockchain means anyone can review all transactions, even those that may be suspicious or related to conflicts of interest.
2. Asmussen and Møller (2019, p. 16) highlight that applying LDA to even small sets of papers provides “greater reliability than competing exploratory review methods, as the code can be rerun on the same papers, which will provide identical results”.
3. It is unlikely that small firms would want to make their transactions publicly available or that they would benefit from blockchain accounting as much as big companies.
4. Digital technology has long influenced accounting, but most digital technology has involved replacing analog tools with similar digital counterparts.

Each of the papers on this topic discusses ideas about how the role of accountants and accounting treatments would change if/when blockchain becomes a mainstream technology. For example, several authors discuss the advantages of using blockchain to record transactions on a real-time basis (Yermack, 2017; Dai and Vasarhelyi, 2017). Routine accounting data would be recorded permanently with a timestamp, preventing it from being altered ex-post, which Alles (2018) argues would further ensure the reliability of current accounting information systems. Real-time accounting would also reduce the potential opportunities for earnings management (Yermack, 2017). Additionally, using blockchain means anyone can review all transactions, even those that may be suspicious or related to conflicts of interest. Irreversible transactions also mean accountants could not backdate sales or report depreciation expenses in future periods when they should be expensed immediately.

Auditing With BlockchainAuditors view financial statements of both public and private organizations what is a lessee definition meaning example and audit them to provide the users assurance that those statements fairly present the financial position and results of operations of the company. Prior research points to a growing trend in the topic of new skills for teams when implementing blockchain and using this technology in day-to-day work (Changati and Kansal, 2019). Fang and Hope (2021) indicate that blockchain is more effectively implemented in teams comprising accountants, managers and experienced analysts as opposed to teams consisting only of highly experienced analysts.

Industries and sectors

The tool is compatible with multiple public blockchains and digital assets, including Bitcoin, Bitcoin Cash, Ethereum, Ethereum Classic, Litecoin, Ripple, Dash, and all ERC20 tokens, with more being added on demand. Deloitte’s 2019 Global Blockchain Survey found that 53 percent of respondents say blockchain has become a critical priority for their organizations (up 10 points from the prior year), and 83 percent see compelling uses for blockchain. Thus, the uncertainty on measuring cryptoassets leads to the problems of comparability, verifiability, timeliness and understandability in financial accounting (IASB, 2018, p. 6). Therefore, in line with Smith et al. (2019, p. 166), we conclude that for now, “this innovative technology has the potential to change internal management systems …; however, lack of regulation and information makes investment planning for cryptoassets complex and forbidding”.

Deloitte COINIA and the future of audit

In December 2017, SEC Chairman Jay Clayton stated that ICOs are vulnerable to fraud and manipulation because there is less investor protection than in the stock market (Clayton, 2017). As such, a literature review on the status of blockchain in accounting is both topical and timely. The insights provided into this emerging technology will have implications for the accounting ecosystem–some beneficial, others challenging.

Today, we are racing toward yet another inflection point that holds tremendous promise and potential for the future of audit. Digital technology has long influenced accounting, but most digital technology has involved replacing analog tools with similar digital counterparts. However, blockchain, a relatively new technology, is poised to change how accounting is done on a more fundamental level.

Moreover, Australian journals such as the Australian Accounting Review and Meditari Accounting Research are among the top tiers of those who welcome such research. It is also important to understand all the advantages and disadvantages of joining a public or a private blockchain (O’Leary, 2017). There are many different configurations of blockchain, e.g. peer-to-peer and public, cloud-based, private and these all need to be analysed before they can be soundly implemented in different settings. Further, those investigations must include analyses at the accounting, auditing and supply chain levels. For example, O’Leary (2017) argues that public blockchains are not the best approach to capturing accounting or supply chain transactions.

Here are some facts about the blockchain ecosystem and how it will influence accounting in 2021 and beyond. (2018), “Designing confidentiality-preserving blockchain-based transaction processing systems”, International Journal of Accounting Information Systems, Vol. (2019), “Implementation of blockchain technology in accounting sphere”, Academy of Accounting and Financial Studies Journal, Vol. Academics, together with practitioners, should work on specifying how these regulatory dimensions need to be developed, what type of disclosures are relevant to cryptocurrencies and how disclosure costs may further impact market uncertainty (Cao et al., 2018).