As accountants, we live by ledgers and transactions. We should know, then, that an emerging technology has the potential to revolutionize these fundamental elements of our business — and, quite possibly, much more.
“Blockchain is a big mystery to many people in the accounting profession,” says Jon Baron, managing director of the Thomson Reuters Tax & Accounting Professional Segment. “They might have heard the term, but even some of the things they may have read in accounting publications recently are relatively vague.”
It’s time to unravel the mystery, Baron says. “I’ve been involved with accounting firms and technology development for a long time, and I’ve never in my career seen a technology that has so much interest so fast and is so rapidly changing. The tool set is changing on a daily basis, and blockchain has the potential to change everything.”
Baron stresses that learning the basics of blockchain is essential. Regardless of whether your firm will choose to implement it internally with tasks like audit, the technology is all around you and will begin to affect you. It will also change the way your clients do business, so as their advisor you’ll want to be able to speak to it, he says.
What You Need To Know
Blockchain technology is an open, distributed ledger that records and verifies transactions without any trusted central authority. The technology itself exists as a “chain” that maintains a continuously growing list of ordered records called blocks. Each block contains a summary of transactions time-stamped and linked to a previous block using a “fingerprint” built on a proven technology, called “hashing,” that has been used for three decades. The result is a “chain of blocks.”
Blockchains are resistant to modification of data and cannot be altered retroactively, which makes them ideal for tracking ownership of assets, creating traceable audit trails and authenticating transactions of any type. The concept of a single distributed ledger with a common view for everyone makes it indisputable.
Why You Need To Know It
Blockchain can be used in any process in any size firm — from verifying identity to developing and validating contracts — so once accounting professionals understand the concept, they can implement the technology for their business clients and for their own operations.
According to Baron, because blockchain can automate manual tasks, an auditing role can potentially move from checking data to testing audit assertions, since we know all transactions on a chain are valid and indisputable. Plus, while auditing used to happen quarterly or yearly, with blockchain it can be done in real time, anytime. “And the concept of sampling can go away, because you have access to all the data,” Baron says. “Now, we can add even more value from a human perspective in determining what the data actually means.”
Baron predicts that the accounting profession will change more in the next five to 10 years than it has in the last 100 if blockchain technology truly takes hold in the profession and converges with other technical breakthroughs like cognitive computing.
He recommends having one or two people in your firm study up on blockchain and think about processes that it could help automate and where and how it could affect your clients.
To get more insights from Jon Baron on blockchain and other technology developments in accounting, visit his blog at tax.tr.com/author/jonbaron.