"Blockchain is an accounting system and we are accountants".
The CPAs and consultants Masotti and Masotti LLC, a nearly 60-year-old CPA company, have recently registered as a brand of newly launched Blockchain consulting services. He says almost everything about why Blockchain is redefining the accounting and the new opportunities that leads to the profession.
What is Blockchain?
Blockchain is a distributed and secure ledger (database) that uses cryptography on a peer-to-peer network technology to group transactions in BLOCKS and store them in a tamper-proof interconnected CHAIN.
For accountants, the two important keywords in the above description are "ledger" and "technology". Accountants have master books deeply understood for centuries. They have been taking advantage of the technology for decades. Therefore, Blockchain, is not a challenge or a threat to the profession, but it is a phenomenal new opportunity that accountants must prepare for the fact that the purely transformative – and therefore disruptive – impact of this technology is far too important to ignore for any accountant .
Blockchain and accounting profession:
The key things to keep in mind regarding the blockchain are:
- Blockchain allows you to exchange transaction data securely without going through a third central part
- Unless there is (enough) verification and consent by the participating entities, no transaction enters Blockchain
- It is enormously expensive and difficult to tamper with the data on Blockchain
It means that the time, effort and cost of creating books for each company and reconciling them can be drastically reduced to a minimum. At the same time, the need to check the data of commercial transactions can be almost obvious. These two fundamental impacts of Blockchain are of extreme importance for the "work" that accounting and accounting firms will do in the future. The Blockchain will therefore require a "de-qualification" and a "redevelopment" of the traditional accounting, the CFO and the roles of the auditors.
Accountants must evaluate the impact of Blockchain on its internal processes and, more importantly, on how their clients and prospects are adapting / adapting to Blockchain's opportunities in their industries / professions.
Blockchain to activate changes to the immediate horizon
- Cryptocurrency + Smart contracts: Four large companies are leading the way in the run for the adoption of Blockchain. Accepting Bitcoin as a payment method was just the beginning that kicked off the Big Four. Blockchain's consultancy and auditing services are already a reality, although so far it is not a professional experience. Smart contracts are already demonstrating their ability to minimize "managing payments and reconciliation" work.
- IoT + Blockchain: Internet of Things (IoT) is revolutionizing production, supply chain and other sectors. The IoT combined with Blockchain is leading to what is called the "Internet of Trusted Things" (IoTT). The difference is subtle but immense. It is because IoT is not yet a network interconnected within or between sectors and therefore expensive to establish the identity (trust) between the "in transit" parts and the exchange of data (interactions) in trusted ways. IoTT reduces these expensive requirements of "trust, transaction, interactions" from the company. Imagine the speed with which accounting data will be available for accountants.
- Cybersecurity: Although Blockchain technology itself potentially increases cyber defense capabilities, it does not address the proven weaknesses in "access" to any technology / network exploited by cyber criminals. The IT security services and accesses to the Blockchain system – including the control of which "value" has been tokenized to represent it on Blockchain are two new promising emerging income segments for the accounting profession.
Daily accounting and Blockchain
Essentially, customers in these sectors working primarily with digitized values, e.g. capital markets, financial services, etc. they will be the first to implement Blockchain. Other sectors will follow sooner or later the example.
At a minimum, CPAs and accounting firms need to know Blockchain and try to figure out which customers could implement Blockchain in their businesses. When CPAs want to adapt their accounting and audit processes to Blockchain, some of their current skills will be Less useful in the future and will need to learn new skills, e.g. how to correctly implement the steps, terms and actions of the company contract in smart contract programs.
If a significant part of the auditing firm's revenue comes from the audit, the CPA would like to evaluate the entire time and costs of collecting and organizing the information / data on transactions for control purposes. Blockchain can (and will) address this need, potentially reducing the revenue and profitability of accounting firms. At the same time, if CPAs establish processes to be tested in real time – because Blockchain data is created securely in real time, they offer their businesses a new way of generating revenue. The key to identifying threats and opportunities is to "think about Blockchain" when you think about your processes and workflows.
What will happen to the cloud software?
In essence, cloud software means that CPAs access the accounting and tax information of their companies or customers that are saved or hosted on a remote computer, using a browser or an application over the Internet. There is no automated and reliable data exchange possible in the cloud unless an "authorized human permission" does not allow / processes.
Blockchain has the potential to kill the cloud. Yes. Kill the cloud. Blockchain will probably eliminate the need for cloud accounting software centrally hosted in some data centers. Blockchain will use the Internet to enable smaller and individual business accounting and other databases to interact with those of other similar smaller (or even larger) business entities. It's like delivering door-to-door mail without going through a central collection and distribution agency like the post office or a courier. "Disintermediation" will be activated by Blockchain. But it can only kill the cloud in the way the cloud is defined now. A company with entities in the supply chain and in the supply chain / delivery of products can use private Blockchain authorized. This is known as "private cloud".
The suppliers of accounting, tax and audit cloud software will obviously adapt to this huge change that Blockchain brings. It took several decades for current accounting software programmers to build knowledge of accounting rules and processes in the software code. It is not easy for Blockchain-based accounting systems to instantly replicate that profound knowledge. But it will be much faster. It is likely that accounting-centric software solutions will adapt more quickly because such software can retrieve real-time data from Blockchain networks to continue processing them with in-depth knowledge of accounting processes, in order to automatically create books and generate insights on demand for accounting officers.
Hitendra R. Patil is the director of the practice development at AccountantsWorld and the author of Accountaneur: The Entrepreneurial Accountant.