How Will Blockchain Change Accounting?

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Blockchain is a digital register in which transactions are recorded in chronological order and can be viewed by everyone with access.

Representatives of fintech, the sector of high-tech enterprises competing with suppliers of traditional services of the financial sector of the economy, most often speak about the blockchain. At the same time, at the household level, the blockchain is closely associated with cryptocurrencies, in the first place, the most famous of them – bitcoin. Indeed, blockchain is the technological basis of cryptocurrencies, but its scope is much wider. And one of the most suitable for the implementation of blockchain business processes is accounting.

In the scientific literature, the media and the blogosphere, blockchain is rarely associated with accounting, so this thought may sound unexpected and strange. However, if we discard the issues of cybersecurity and understand the essence of the blockchain, it will become clear that it is based on the long-known accounting technology. A transaction is recorded twice: in the same amount for each of the parties to the transaction. Doesn’t resemble anything? The cornerstone of classical accounting is double entry. The fact of economic life is reflected in the same assessment of the debit of one and the credit of another account. This is one of the first truths that future accountants have been studying for more than 500 years.

Accounting problems and distrust of credentials:

1. “Double entry” in accounting is controlled by one person;
2. There is a threat of under delivery of account transactions to the accounting system (erroneous or intentional);
3. The threat of a change in transactions in the accounting system (conscious or erroneous);
4. Concealment of transactions in the accounting system.

International accounting corporations, in particular the Big Four companies, are already seriously exploring the possibilities of using the blockchain in accounting and auditing. They can be understood – in the near future, many predict a serious crisis. Who needs an intermediary who expresses an opinion on the reliability of accounting when accounting is reliable? Nevertheless, most experts agree that it is unlikely that the profession will be threatened with extinction – rather, the emphasis in the work of auditors will shift from confirmation of events to confirmation of their classifications in accounting. The work of the accountants themselves will go to the plane of forming an accounting policy, the correct classification and interpretation of events, and the application of professional judgment.

Blockchain principles applied to accounting:

1. Decentralization (all data is stored by everyone);
2. Accessibility and transparency (data is available to all participants in a private blockchain within the framework of access rights);
3. Trustless (there is no need for trust of blockchain participants to each other);
4. Security (changes to the private blockchain cannot be added externally);
5. Irreversibility (irreversibility of a transaction, impossibility of change);
6. Consensus (data added by participants is checked by the system).

It is unlikely that deep discussions on this subject should be read to anyone except professionals in the field of accounting. But business representatives may be interested in the possible areas of application ofblockchaintechnology in accounting, which will reduce the cost of maintaining it and increase the value of accounting information. We tried to outline the most obvious.

• Settlements with external counterparties. When implementing the blockchain, the need for reconciliation of calculations is eliminated. The formation and cancellation of receivables and payables of the parties to the transaction will occur simultaneously in the same valuation at the time of the transaction. There is no need to confirm the details of the transaction and its evaluation. The accountant will only have to correctly classify the acquired / transferred asset and the corresponding income / expense.
• The movement of assets within the enterprise. If you represent any fact of economic life within the enterprise as a transaction, then you can get information about the movements of any assetsin real time. The work of the accountant here will be reduced to the correct classification of the received values and the formation of the value of the accounting object. You can organize a local blockchain within one enterprise or group of companies: the release of any assets from storage locations is accepted by the recipient, after which the asset is automatically debited to the appropriate accounts.
• Real-time operational accounting. Thanks to the blockchain, there will be no need to wait for the accountant to process the primary document. The primary, in principle, will not be needed either in paper or in electronic form. Instead, it fixes a transaction in the blockchain.

To take full advantage of the blockchain, you need to change the law. As long as the facts of economic life are recorded by primary accounting documents, which must be issued in paper form or signed with electronic digital signatures, discussions about the use of blockchain in accounting work will be abstract in nature. But for managerial accounting, the benefits of the blockchain need to begin to be implemented now. The company, which was the first to propose integrating blockchain into its management accounting product, can find its own blue ocean. We have already thought about it.

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