Audit blockchain accounting today

The foundation of modern accounting began during the Renaissance period when Italian mathematician Luca Pacioli published a book detailing the benefits of a double-entry system for recording accounting transactions that provided greater transparency to shareholders. Technological innovations over the years have augmented the process, but even as high-speed computers and cloud-based networks have automated recordkeeping and largely replaced mainframe data storage, double-entry bookkeeping remains a closed system lacking visibility between companies. Blockchain technology, however, could change that. By simultaneously adding a third entry and then posting it to a shared ledger visible to all permissioned participants, blockchain is poised to enhance accounting processes and data storage. In a time when businesses are facing new challenges to improve data management and security, blockchain is emerging as a way to let companies make and verify transactions instantaneously without a central authority.

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Content:

• The PE Lifecycle Can Be Audited by Blockchain
• Where accounting really stands with blockchain
• Blockchain
• Future-Proof Your Accounting Firm’s Cloud Solutions Ahead of Blockchain
• Blockchain: Why tax and accounting professionals must get on board
• Blockchain and the future of accountancy
• News & Events
• Blockchain Technology and Its Potential Impact on the Audit and Assurance Profession
• Sikich ranks fifth on Accounting Today’s 2020 VAR 100 List
• Blockchain and its potential impact on the audit profession

WATCH RELATED VIDEO: Impact of Blockchain Technology on Accounting and Auditing - by CA Kushal Soni

The PE Lifecycle Can Be Audited by Blockchain

Citation Information: Adelowotan, M. Blockchain technology and implications for accounting practice. Purpose - The article discusses the possible implications of blockchain for accounting practice and what further developments are needed to create an integrated accounting system on blockchain technology. The focus is on both accounting and auditing.

Approach — The article follows a structure approach by identifying characteristics of blockchain technology to discuss the implications for accounting practice. Findings - The instant verification and immutability features of blockchain systems provide for the integrity of data for both accounting and auditing purposes. However, the intensive use of blockchain for accounting information purposes depends on different and cheaper validation processes.

The complexity of different accounting transactions with related estimates and uncertainty needs to be captured correctly on blockchain through use of interventions such as smart contracts without limited human invention to be successful. The so-called triple-entry accounting provides for the secure capturing of accounting information for use by different stakeholders, but currently does not change the double-entry accounting system to prepare financial statements. Confidentiality might become an issue with the real-time distribution of information among different stakeholders.

Therefore, entities might opt for the use of private or consortium blockchain systems. Blockchain creates an avenue for continuous audit, but the independence of the auditor might be compromised. Value — The article identifies the possible effect of blockchain on accounting practice and what further developments are still needed to create an integrated accounting system on blockchain technology.

Accounting, Auditing, Blockchain, Cryptography, Distributed ledger technology, Peer-to-peer networks, Smart contracts, Triple-entry accounting. Christenson distinguishes between sustaining and disruptive technologies. The first is an evolution of existing technologies, while the second advances existing technologies. Currently, the view is that it would be easier for new businesses to be created on blockchain technology rather than existing businesses due to the disruptive effect of blockchain technology Cong et al.

When Nakamoto created Bitcoin on blockchain technology, he created a specific peer-to-peer P2P payment system based on cryptocurrencies and not specifically a system that caters for the complexity of global accounting systems with multiple accounting transactions that are treated differently.

Pertinent questions are how blockchain technology will disrupt accounting practice and how the quality of information provided through the accounting system could change from both internal and external reporting and auditing and assurance perspectives. The objective of the article is to the discuss the possible implications of blockchain on accounting practice, both from positive and negative perspectives, and to identify what developments are needed to create an integrated accounting system on blockchain technology.

The focus is both on the reporting and auditing of accounting information. In achieving this objective, the article first provides a short overview on the development of blockchain technology, after which different direct and indirect characteristics of blockchain technology are discussed to provide a view of the implications of these characteristics for accounting practice. The concept of digital cash was first developed with the aid of a central server to prevent double spending about three decades before the idea of Bitcoin cryptocurrency was brought into the limelight in by Satoshi Nakamoto Chaum, Nakamoto explained that there is a need for a system that will facilitate digital transactions without the aid of third parties such as banks, financial houses and stock exchanges.

He further built his argument on the possibility of having a network of users that will be able to chain blocks of transactions with the aid of a computer network, internet technology and cryptography.

According to Nakamoto, this network is decentralized and could be publicly available so that the participants will be able to decide and agree on a historical order in which the transactions were done and accepted.

Some authors have identified blockchain technology to be a configuration of non-concrete data bonds together with an order of consistency conditions that identifies past events allowable on the distributed systems platform Anceaume et al.

Once the network validates a new block of transactions, it then becomes an addition to the end of the existing chain. Therefore, a blockchain could be referred to as an ever-growing list or ledger of transactions chain of blocks that have been validated by the trusted network users based on a single, agreed upon verifiable historical transaction.

Bitcoin came into the limelight in the global financial marketplace because it adopted blockchain technology to establish a consensus mechanism based on the evidence or proof of work Back et al.

The consummation of transactions and payments through fiat money will normally involve a third party aside from the payer and the payee. However, with the introduction of cryptocurrencies, the trusted third party is done away with because the inclusion of a transaction in a blockchain ensures its finality, as well as its verifiability by many other participants in the blockchain Dwyer, The Bitcoin developed by Nakamoto was a form of electronic cash referred to as cryptocurrency based on blockchain technology.

The security of financial transactions is ensured through cryptography. Cryptography is the process of ensuring that information transferred from a sender to a receiver is secured. Since the development of Bitcoin in , more than other cryptocurrencies have been developed all around the world. Bitcoin is at present the most famous blockchain-based cryptocurrency.

The applications of blockchain technology are nowadays not only used to effect online payments but also other transactions involving all types of digital assets captured as crypto tokens Peters et al. For instance, Ethereum launched a digital payment and other applications system in based on blockchain technology with the aim of capturing different types of business systems on blockchain, more broadly than only digital payments and digital assets.

In this way, Ethereum has extended the usefulness of blockchain technology beyond settlement of payments to commerce and industry as well as banking, finance and investment. The article focuses on this broader application of blockchain and the implications for accounting practice. In this section, we introduce the main characteristics or features of blockchain technology, such as: P2P networks; distributed ledger technology; cryptography; hashing and hash functions.

Technically, blockchain is a chain of blocks, with each block having fields such as the block number, data or information, hash value of the previous block, hash value of the current block and the nonce. Each main characteristic is derived from literature and then applied to accounting and auditing. As noted earlier, some form of digital money had existed before the advent of Bitcoin, resulting in several P2P networks being in existence for many years.

However, the emergence of blockchain-based P2P networks signified an advancement on the previously existing P2P networks because it makes it possible for a large group of individuals or organizations to do transactions without the involvement of any single authority or third party either to record or validate those transactions.

Nakamoto stated that digital signatures through cryptographical proof would replace the reliance on the trust of the financial and regulatory intermediaries.

Information and funds could thus be transferred without the need for such intermediaries Smith et al. Trust is thus placed on the integrity of the blockchain system for capturing both financial and other information.

The implication for both accounting and auditing is whether reliance could be placed on the integrity of the blockchain system and not on the trust of intermediaries and related regulators. The extent to which reliance could be placed on the integrity of the blockchain system depends on the discussion of the other characteristics of blockchain technology. In this case, transactions are recorded and applied through distributed ledgers on different computers as against a situation where transactions are recorded on a standard ledger domiciled on a computer or server of a specific organization.

For blockchain-based DLT, the distributed ledger is updated on a real-time basis on all the computers in the network. This means that every individual and organization in the network will also be able to see the transactions in real time. In simple terms, a blockchain is a form of decentralized ledger which operates on a P2P network. These distributed or decentralized ledgers are immutable because as a transaction gets registered on the distributed database, an immutable record of every transaction that occurs is kept, so that a complete audit trail of all transactions is created.

In summary, a blockchain enables the real-time recording and updating of transactions in the distributed ledger once there is a consensus among the participants, without intermediaries. Hence, costs and time for executing transactions are considerably reduced through blockchain technology. Generally, just as in other value transfer systems which existed before blockchain, there are established rules for sending, receiving and recording value, but blockchain technology has made it possible for a higher level of decentralization of the network.

Secondly, the blockchain-based cryptocurrency is said to be a modern value transfer system being operated through a public ledger platform. In a fiat currency-based economy, value is transferable through the currency money while in the crypto economy, value is transferred by means of an internet-based or virtual value containers referred to as coins or tokens.

Thus, the primary function of a coin is to convey value between participants in the crypto economy. Thirdly, the decentralized public ledgers such as Bitcoin involve great efforts from miners and their computer powers, which are rewarded with coins for these efforts Evans, Rosenfeld conducted a study on the various incentive systems that could be used to reward miners in relation to their efforts.

Lastly, the most distinguishing feature of blockchain technology is immutability, which means that the data are verifiable externally and cannot be easily changed by the participants or outsiders Coletti, ; Derose, b. This important feature has made cryptocurrencies stand out as a means of virtual exchange of value to date. These authors therefore see a blockchain as reliable, tamper-proof and authenticated.

The distribution of information is not only for the consensus mechanism of the validation of information, but also for the distribution of information between different stakeholders for faster and more efficient decision-making.

The distribution of information among stakeholders creates new corporate governance and internal control considerations. The distribution of information has specific accounting implications. The first is whether information is available to stakeholders and decision makers before it is captured and accumulated in the financial reports of the accounting system. Ultimately, both for internal management and external reporting, accounts will have to consider whether new ways of faster reporting of accounting information are available for better decision making.

A related issue is whether such information, especially for internal management reporting, should be based on the requirements of existing financial reporting standards. The IIRC proposes that entities should appoint a Chief Information Officer CIO who should be responsible for the capturing, analysing and providing of information for internal decision-making and external reporting.

Accountants needs to be alerted that other disciplines will become more involved in reporting information and that an integrated reporting system needs to be developed in each entity. The real-time distribution of information to both internal and external auditors also has major implications.

This opens the door to more continuous audit procedures discussed further below. However, the distribution of information amongst different computers and stakeholders also creates problems. The miners are being compensated for their work through the issuing of cryptocurrencies. If the majority of big businesses are moving to a blockchain system of compensating miners for their work through cryptocurrencies, the value of cryptocurrencies could decrease, making the sustainability of cryptocurrencies as compensation for mining and related consensus procedures questionable.

New ways of compensation for cryptographical validation might need to be developed before blockchain technology could become the norm for capturing and storing information.

The decentralized architecture of a blockchain involving a global network of computers running simultaneously on a software and validating a chain of transactions ensures that the record of transactions is not compromised and makes it difficult for unscrupulous insider players to beat the system and for outsiders to attack or break into the system. This has been referred to as the immutability characteristic inherent in the blockchain architecture.

The immutability characteristic of a blockchain provides for integrity of data and therefore more reliable information Kinory et al. The real-time nature of a blockchain results in faster availability of information. Rozario and Thomas mention an improvement in the effectiveness of reporting and related auditing thereof. Faster real-time reporting could be for both management and financial statement reporting.

The system should capture accounting procedures in the blockchain system for multiple accounting systems to achieve the correct treatment for all different transactions and the related presenting and disclosing of the accounting information correctly. Therefore, Dai and Vasarhelyi declare that, currently, a blockchain has the potential to play a part in the accounting information system or might be used in conjunction with it.

Several developments still need to happen before a blockchain will become the norm for an integrated blockchain accounting system for major businesses, if ever.

Transformation from current accounting systems might be slow and blockchain accounting systems might be used more by new businesses developed on blockchain system. Cong et al refers to both continuous assurance and monitoring functions. A proper assessment of the internal control system and information technology controls is still needed Gomaa et al. They, however, caution that the real-time access might not provide all evidence needed for audit purposes and that management assumptions and estimates will still need to be assessed.

Blockchain application will also not prevent all fraud and errors Yu et al. All blockchains have built-in cryptographic functions, which are capable of tokenizing and tracking any asset digitally in a secured manner Es-Samaali et al. The assets could then be traded interchangeably with any other assets across countries in real time. The private or public signature technology enables blockchains to be cryptographically secured and therefore the transactions created are not susceptible to fraudulent practices.

The science of cryptography, through cryptographic techniques, ensures the protection of sensitive personal, institutional or organizational information, which may be in the form of communication between parties or as storage of processed information Saper,

Where accounting really stands with blockchain

Citation Information: Adelowotan, M. Blockchain technology and implications for accounting practice. Purpose - The article discusses the possible implications of blockchain for accounting practice and what further developments are needed to create an integrated accounting system on blockchain technology. The focus is on both accounting and auditing. Approach — The article follows a structure approach by identifying characteristics of blockchain technology to discuss the implications for accounting practice. Findings - The instant verification and immutability features of blockchain systems provide for the integrity of data for both accounting and auditing purposes.

Blockchain

Practice Management. Follow Us In Real Time twitter facebook linkedin. RPA on the rise in accounting. Robotic process automation has become a necessary technology for many accounting firms that are trying to achieve more efficiency as the staff becomes harder to find during the ongoing pandemic. By Michael Cohn. Blockchain and the future of audit. Heather Paquette of KPMG talks about how digital ledger technologies are impacting business and the auditing profession. By Daniel Hood. Ask not what blockchain can do for you. Accountants will play a pivotal role in widespread blockchain and cryptocurrency adoption — if they lean in.

Future-Proof Your Accounting Firm’s Cloud Solutions Ahead of Blockchain

The advent of cloud-based accounting systems has proven to be game-changing. Even the cloud itself, however, could pale in comparison to blockchain technology, which is potentially one of the most disruptive technologies to affect the entire business world. A blockchain is a distributed, decentralized ledger that lets information be viewed but not copied or altered. Originally designed to facilitate transactions using the cryptocurrency Bitcoin, blockchain is a distributed database. There is no central version of blockchain: it lives across a network of computers.

Blockchain: Why tax and accounting professionals must get on board

Research aims : This study aims to provide a perspective on the professional ethics of a millennial accountant in applying blockchain technology to improve his professionalism, and discusses the issue of blockchain ethical challenges for an accountant's profession. Research findings : The study results indicated that a millennial accountant in the 4. Blockchain changes the task of millennial accountants who previously produced information into information evaluators. Millennial accountants must change their mindset to absorb the essence of the accountant's code of ethics and harmonize ethical values. It is the basis for acting ethically to avoid the moral dilemma of technological adaptation. Secondly, millennial educator accountants have not yet to be involved as interviewees.

Blockchain and the future of accountancy

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News & Events

In fact, very recently, more than 60 accounting firm leaders and innovators gathered for a symposium that was hosted by the Association of International Certified Professional Accountants and CPA. The focus was on the impact of the technology in accounting, auditing, tax, and finance. The rise of blockchain technology has led to a need for more understanding in the CPA profession, sparking the Blockchain in Accounting Symposium that took place on May 2.

Blockchain Technology and Its Potential Impact on the Audit and Assurance Profession

Blockchain offers a drastically new way to record, process, and store financial transactions and information, and has the potential to fundamentally change the landscape of the accounting profession and reshape the business ecosystem. In this article, we introduce two types i. We further discuss implications of blockchain to auditing and elaborate on opportunities and challenges of the two types of blockchain to auditors. We conclude by making specific recommendations for auditors to adapt, adjust, and elevate themselves to the role of strategic partners in blockchain implementation. Known as the underlying technology for cryptocurrencies such as Bitcoin, blockchain has been regarded as one of the most important disruptive technologies after the internet Swan ; Yermack

Sikich ranks fifth on Accounting Today’s 2020 VAR 100 List

Blockchain has gained popularity in the recent years and it is intriguing to see how it is being deployed in the real world. Today we shall discuss what role this new technology has in the auditing sector and should we really be concerned about the benefits it provides. But before we get ahead of ourselves, we need to understand the fundamental theory behind blockchain technology. Why has it gained such popularity? I have worked at a blockchain company and yet the technology still confuses me at some point. We have all been there.

Blockchain and its potential impact on the audit profession

So should their accountant. A CPA should have access to a powerful accounting system that enables them to access accurate, timely, verifiable accounting data that helps them make decisions and know financial statement effects immediately, 24 hours a day, seven days a week. The system should be as easy to use as online banking and be completely secure.