What the CPAs need to know


84% of executives say their companies have at least some involvement in a blockchain project, according to PwC's Global Blockchain Survey 2018.

Blockchain has evolved beyond the distributed register for cryptocurrency transactions alone. It has become a powerful and coveted technology that maintains property and property rights and disrupts operational structures in all sectors.

Large companies are incorporating it into their infrastructure to protect and store digital assets, accept and process direct payments, gain greater visibility into the supply chain and execute contracts faster, at a lower cost and without intermediaries. Although they are moving more slowly, smaller companies are starting to use blockchain-based solutions for investments in digital assets and for operations where blockchain can improve transparency and security.

What does this mean for accounting and finance professionals who support these small businesses?

Double-entry accounting has revolutionized and become the standard of accounting. By definition, it recognizes the interaction between organizational resources and liabilities and equity to create an accurate fiscal vision of an entity. Blockchain is based on fundamental accounting principles so that financial assets are shared and transmitted quickly to counterparties through a shared and trusted ledger. All transactions are recorded in a distributed, public or private accounting register that can not be changed, resulting in a reliable audit trail. In addition, multiple participants can validate all transactions with identities and digital rules in a blockchain network, eliminating the challenges of validity and reconciliation between multiple parties.

This does not mean that blockchain will eliminate the need for CPA services. However, the nature of their work will change. CPAs will have to master the blockchain to complete their work, like spreadsheets before it.

Accounting knowledge and tax advisor remains critical, but will require an understanding of software networks that attest to transaction integrity. Accountants must focus on valuation, market volatility and regulatory compliance to help customers invest in digital assets stored on blockchain-based systems. They will also have to demonstrate the existence of the account and test the customer's ability to access and control the resource.

For example, if a company retains the custody of its digital assets, problems may arise with internal controls, as well as evidence of existence and access. Holding private keys, which are full-phrase strings of random digits, the company can initiate transactions from an account or send the balance elsewhere. To safeguard these keys, accountants can recommend risk mitigation approaches, such as dividing the string at the top and separating access, using portfolios that require multi-party signing and using encrypted hardware to put them in a physical "cold" archive. These are fundamental changes compared to traditional approaches to checking accounts and signing authorizations. CPAs will need to understand the significance, strengths and weaknesses of digital resource custody approaches when they emerge.

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