Last updated on July 18th, 2022
Blockchain is a familiar term among those who have been maintaining a close watch on Bitcoin. The advantage of Bitcoin in delivering ‘no central authority or banks’ transactions is empowered by Blockchain. It adds transparency and security while bringing down the cost of auditing to an almost negligible amount. Many finance and accounting experts have claimed that in the coming time Blockchain is going to add a new shape to the accounting to an extent that existing accounting methods might no more be in use.
Introduction to Blockchain
Blockchain is a way of maintaining and proving the integrity of the digital accounting reports. The process involves the writing of hash strings on the original accounting books. This hash string represents the timestamped fingerprints of the books. Blockchain verifies the fingerprints at any point of time with the original book and the auditor’s copy. If these fingerprints match, Blockchain is able to the verify that the books are unaltered and true.
Blockchain and Accounting
Blockchain practice relies on triple-entry accounting, which has mostly remained a mere concept since some decades while double-entry accounting is being practiced in the major markets. Among the digital bookkeeping and accounting operations, double-entry accounting balances the financial statements at maintaining that the debit equals to the credit.
The equation that it satisfies is that Assets must be equal to the sum of Liabilities and Equity. Riding on this, the accountant can check the financial statement for the company is correct. Most accounting software ensures that this consistency is maintained with statement preparation. But when an independent auditor is involved in the verification, double-entry accounting has a number of shortcomings in the form of expenses and time consumed.
Blockchain eliminates the need for independent public auditor by providing a common verification platform for the accounting manager and the outsider (government regulatory, etc.). It verifies the hashing of the financial data with timestamped fingerprints in a very secure and fast manner without asking for hefty expenses. So, implementing Blockchain will mean that every transaction is efficiently notarized.
Benefits of the Blockchain with Auditing and Accounting
- Eliminated the Conflict of Interest: In the usual case, the interest of the auditor can depend on the factor that they are hired by the manager or any other party. Blockchain offers an independent, automated and standardized way of auditing to mitigate the chances of any favor or interest.
- Instant Auditing: Manual auditing has a number of issues to deal with, such as – redundancy and other accounting complexities. By integrating Blockchain technology as per the internal mechanism of the business to pace up the operations.
- Lower Auditing Expenses: As the need for manual auditing is greatly reduced, a significant amount of cost cutting can be introduced in your accounting. Moreover, the auditors will be able to integrate the auditing actions of Blockchain technology in a more beneficial way.
Accounting has seen a number of changes in trends from the paper-based accounting to desktop software to cloud solutions. However, compared to most of the industries, accounting has not gone with the digital methods in the best of flows. Divided party duties, greater security needs, and lack of trust among the users are some of the major reasons of it.
As Blockchain seems to be promising tech advancement that suffices a number of accounting challenges, it is likely that it will be able to gain the mainstream status soon. A major factor that can add to the backing of Blockchain technology is the success of Bitcoin, which depends on the technology quite heavily. Given that Bitcoin is still at the infant stage, the adoption with Blockchain may be a slower process before being a sought-after accounting trend.
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