The Financial Accounting Resource Center™ is a comprehensive research service that provides the full text of standards, the latest news from the Accounting Policy & Practice Report ®,...
Disruptive. Revolutionary. Evolving. Those are just some of the terms used to describe blockchain, the digital technology behind bitcoin that’s dominated headlines and promises to transform how accountants work the same way email has.
Bloomberg Tax turned to three financial technology and accounting pros to help explain what all the buzz is about and what accountants need to know about blockchain.
A blockchain is essentially the same thing as a ledger: a record of transactions between two parties, said Will Bible, audit innovation leader and partner at Deloitte LLP.
But what is different about blockchain ledgers, versus traditional ledgers, is the way they are maintained. A blockchain ledger is “distributed” or shared among multiple users who keep redundant, but interconnected copies of the ledger, Bible said.
John Jacobs, executive director of the Center for Financial Markets and Policy at Georgetown University who also happens to be a CPA, likens blockchain to double-entry bookkeeping on multiple ledgers. But those multiple ledgers all update simultaneously as financial transactions—the date, payee, and amount—are entered and verified by the ledger’s users.
These distributed ledgers are built off of open-source software allowing for custom uses of the technology—from paying bills to transferring property deeds to trading currency, Jacobs said.
Each group of transactions on the blockchain are encrypted and linked to the group, or block, before it, said Ron Quaranta, chairman of the Wall Street Blockchain Alliance.
The intent is to provide a database that is resistant to modifying the data. Once a transaction is entered on the blockchain, it can’t be changed or deleted, even by the user who created the entry, Quaranta said.
Users of the shared ledgers could be a group of companies buying and selling products or materials to one another. Those users will assign roles—who will create and enter a transaction, who will verify that the transaction occurred, and who else will be able to view the ledger—like external auditors or even one day regulators, they told Bloomberg Tax.
“What if the regulators were already part of the blockchain network?” Quaranta said. “It sounds like science fiction but that’s some of the conversation that’s happening right now.”
The technology also could be used to help root out accounting fraud as well by setting up the framework to reject bad or illicit transactions, he said.
He said that’s part of an ongoing conversation and that regulators, like the Securities and Exchange Commission, are beginning to see the opportunities such a tool could provide.
Auditors already need a complete analysis of the systems their clients use as part of their risk assessments. Blockchain will become part of that data landscape, Bible said.
But for accountants, it may not matter. Quaranta described the technology as part of the plumbing of the industry, a tool that will be used to enhance how data and assets are exchanged.
“You’ll know blockchain’s arrival when we stop saying blockchain,” Quaranta said.
“Do not fear the blockchain,” Jacobs said.
Jacobs said accountants will have no problem adapting to the new technology, and that they will quickly understand blockchain once they start working with it. But he encouraged accountants to know their customer’s needs and what type of blockchain product they might be using.
Bible described blockchain as a nascent technology. Lots of companies are beginning to experiment with blockchain, even handling some transactions on a blockchain to test out the possibilities, he said.
Accountants will likely come across blockchain over time as companies start to use them to maintain records, Bible said.
Staying informed will be crucial for accountants who will need to be able to both guide and work with clients as they adopt this new technology, Quaranta said.
The alliance is working with the American Institute of CPAs to determine how this technology could change the workflow of auditors and accountants. Some common tasks today may be completed automatically by a blockchain—reconciling accounts, for example, may no longer be necessary, Quaranta said.
To contact the reporter on this story: Amanda Iacone in Washington at email@example.com
To contact the editor responsible for this story: S. Ali Sartipzadeh at firstname.lastname@example.org
Copyright © 2018 Tax Management Inc. All Rights Reserved.
All Bloomberg BNA treatises are available on standing order, which ensures you will always receive the most current edition of the book or supplement of the title you have ordered from Bloomberg BNA’s book division. As soon as a new supplement or edition is published (usually annually) for a title you’ve previously purchased and requested to be placed on standing order, we’ll ship it to you to review for 30 days without any obligation. During this period, you can either (a) honor the invoice and receive a 5% discount (in addition to any other discounts you may qualify for) off the then-current price of the update, plus shipping and handling or (b) return the book(s), in which case, your invoice will be cancelled upon receipt of the book(s). Call us for a prepaid UPS label for your return. It’s as simple and easy as that. Most importantly, standing orders mean you will never have to worry about the timeliness of the information you’re relying on. And, you may discontinue standing orders at any time by contacting us at 1.800.960.1220 or by sending an email to email@example.com.
Put me on standing order at a 5% discount off list price of all future updates, in addition to any other discounts I may quality for. (Returnable within 30 days.)
Notify me when updates are available (No standing order will be created).
This Bloomberg BNA report is available on standing order, which ensures you will all receive the latest edition. This report is updated annually and we will send you the latest edition once it has been published. By signing up for standing order you will never have to worry about the timeliness of the information you need. And, you may discontinue standing orders at any time by contacting us at 1.800.372.1033, option 5, or by sending us an email to firstname.lastname@example.org.
Put me on standing order
Notify me when new releases are available (no standing order will be created)