[ad_1]
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.
Similarly, when companies move from local servers to the cloud, relying partially on third party systems and security, custodians for private keys are now emerging. In this case, the work of CPA will not be so severely compromised, as custodial companies are generally highly regulated and accountable, but it may take some time before these offers reach the smallest segment of the market.
The discussion is more complex for those looking to exploit operational efficiencies, either by joining a network sponsored by others or by creating their own blockchain network. CPAs must review the rules in the form of a smart contract code, assess risks and governance regarding participation in the network, and evaluate internal controls of customer interaction interactions with blockchain networks. This means that the traditional work of many CPAs will begin to be integrated with software that ensures, monitors and manages internal controls and that is distributed among several parties.
Finally, as with any technology, the flaws are likely to be in blockchains. Errors in smart contracts and software such as wallets that exploit and interact with them could lead to erroneous or unexpected results. Therefore, CPAs must err on the side of caution.
The initial demands of CPA blockchain today see probably focus on accepting, holding or investing in bitcoins and other cryptocurrencies, and the tax principles that apply. According to the 2014 IRS Guide, virtual currencies should be treated as property in such a way that capital gains are taxable and losses are deductible. This means that those who use alternative currencies must keep a detailed track of the transactions that it detects when and at what value the currency was bought and sold.
To avoid compliance headaches, companies should maintain and negotiate digital assets on reliable exchanges with strong verification requirements, as challenges may arise with offshore platforms or taxpayers who do not report foreign bank and financial accounts.
As the blockchain permeates the SME market, customers will begin to seek advice on how to properly manage their fiduciary responsibilities while taking advantage of reliable and frills-free transactions. The way in which CPAs respond to these questions varies by customer sector, which makes it essential for accounting professionals and tax advisers to understand the basics of technology, its influence and the risks it presents.
============
David Deputy is Director of Strategic Development and Emerging Markets of Vertex Inc. and President of Accounting Blockchain Coalition.
