If accounting professionals picked a word of the year, there’s no question that 2018’s would be “blockchain.”
The disruptive technology at the heart of cryptocurrencies like bitcoin promises to shake up our world in the coming years, but no one knows just yet what the blockchain revolution might look like for accounting firms.
Whenever the subject of blockchain comes up in conversation, it seems like a race to make the boldest proclamations about how it will change accounting for ever.
It’s fun to make these speculations, but it’s much more important that you understand exactly what the technology does — and some of the ways big firms are already innovating with it. That way, no matter what shape the future takes, you’ll be prepared.
What is blockchain?
Some people, even those who should know better, tend to use blockchain and cryptocurrency interchangeably. While the two concepts are related, they are not one and the same. Blockchain is the base technology that allows cryptocurrencies to function without a centralised authority.
Harvard Business Review defines blockchain as “an open, distributed ledger that can record transactions between two parties efficiently and in a verifiable and permanent way.”
Essentially, it’s a way of storing information across a vast, decentralised network in such a way that the information cannot be corrupted by any one party. Cryptocurrency may have been blockchain’s first wide application, but there will be many more forms to follow.
The biggest game-changer when it comes to accounting is the possibility that blockchain will make the traditional double-entry method, in place since the Renaissance period, obsolete.
Theoretically, because all blockchain transactions are publicly recorded and unalterable, there would be no need to have each party verify information independently. In this context, you can think of the blockchain as a notary. The implications for audits and other financial due diligence procedures are equally monumental.
How the Big Four are using blockchain
Due to their immense amount of resources, it’s no surprise that the Big Four accounting firms (Deloitte, EY, KPMG, PwC) are leading the way when it comes to blockchain research.
Each of them is experimenting with the technology in some capacity. EY and PwC both already accept bitcoin as a form of payment for certain services.
Just last month, all of the Big Four announced that they’d be running a trial in Taiwan using blockchain as part of the audit process. The goal of the trial is to cut down on the time-intensive process of external confirmation during the audit.
The trial will include up to 1,400 public companies, making it the largest-scale test of its kind. If it succeeds, you can expect widespread adoption very soon.
As established players and upstarts alike continue to conceive of applications for blockchain technology, you can expect to see it pop up in many aspects of our lives.
Our careers are no exception, especially in accounting, so it’s better to learn now than have to catch up later.