Thomas Friedman, the international best-selling author and three time Pulitzer Prize winner, in his 2005 book, The World is Flat: A Brief History of the Twenty-First Century, wrote of a time in which technology would “flatten” the world, leveling the playing field for all citizens to download and upload information on the Web. He imagined a world where all global inhabitants would have a connection to the same information and, consequently, provide for a flattened opportunity for personal economic success.
Blockchain, on the surface, is the epitome of that vision. Undeveloped countries, and even underprivileged communities in developed countries, often lack access to basic societal infrastructure, including bank accounts, personal identification cards, health records, and hundreds of other limiting factors. With full integration, blockchain seems capable of solving those problems without the capital intensive investment that other solutions require.
Blockchain technology is a digital distributed ledger, capable of eliminating intermediaries, and automating the process of verification. It is the ultimate “digital flattener.” Unfortunately, parts of Friedman’s premise are, and always have been, inherently flawed. Top-down development often precedes equal access. In relatively new technologies, particularly foundational technologies (a term coined by Marco Iansiti and Karim Lakhani from Harvard Business Review) where the technology creates new foundations for economic and social infrastructure such as blockchain, that developmental gap is often more pronounced. To illustrate: we have never lived in a time with more technological advancement, and yet, since the Great Depression we have never lived in a time with more income inequality. This chart shows the percentage of U.S. income that has gone to the top ten percent in terms of aggregate wealth since before the Great Depression:
Source: World Wealth and Income Database
The inverse relationship between technological development and income equality, discussed in detail in a 2016 report by the International Monetary Fund (IMF), is nowhere more apparent than in the relationship between blockchain and the reimagined accounting profession. The underlying technology responsible for the cryptocurrency explosion (Bitcoin, Ethereum, etc.) may someday alter the world, but as it always has, change will start at the top. You already know what that means for the accounting universe. The “Big Four” shall lead.
For decades, a small number of firms have cornered the public accounting market, including everything from tax and audit services to advisory and consulting. How? By leveraging their immense size to secure contracts with the world’s largest firms, recruiting the best talent, investing the most capital in technological development, and building training facilities to ensure the efficiency of the entire system. Blockchain technology threatens to reboot that system, and with it, upheave a century and a half of progression. In some sense, no one in the accounting market has more to lose than the Big Four public accounting firms by the evolution of blockchain technology. However, while the foundation of accounting may be flattened by blockchain, the playing field won’t be leveled.
“I think the next five to ten years are probably going to be bigger in change in uprooting and disruption than at any time we have had in the accounting profession period,” said Rick Richardson, CPA, CITP, CGMA, who is the CEO and Founder of Richardson Media and Technologies, on a Journal of Accountancy Podcast.
As a result of technology transforming the accounting profession, “If you look at the breakdown of the profession over the next five to eight years you are going to see much more consolidation than we have seen in the past. The top four are going to be acquiring some of those in the next twenty firms. Auditing is going to be done by firms with far more technical ability than we have seen in the past. I think a large number of firms are going to disband,” said Richardson.
Translation? Regardless of your firm’s aggregate technical knowledge in auditing procedures and regulatory guidance, if you don’t have the technology systems in place, or are shortly behind in development, you simply won’t be able to keep pace with those who do.
As the accounting profession migrated from a paper and pen to fingers and spreadsheets, there was a element of instability that rocked the industry. The transition to nodes and blocks will be even more uncomfortable, but the ultimate beneficiaries will remain the same. Expect another generational wave of "Big Four" dominance in the accounting sector, even in a blockchain disrupted universe. If anything, it is another layer of concrete on top of a foundation that never seems to crack.
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