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Blockchain technology and its impact on accounting and auditing
Post By: admin May 29 2021

Impact of Blockchain Technology on Accounting and Auditing

Any new technological opportunities have been perceived as challenges initially and the blockchain led solutions are also not different. Opening more scope for advisory services in its developing stage, the new perspectives that have been brought about by this digital transformation are enormous and yet to be mined. Consultants, especially accountants and auditors are expected to be prepared and equipped to adopt the blockchain related changes in their respective zones which will be setting off soon in near future. Here we are attempting to reflect on the possibilities of blockchain technology and its implications on services and solutions in the fields of accounting and auditing.

What is meant by blockchain technology?

A blockchain can be referred to as a digital record of transactions maintained and distributed over a network of digital platforms such as computer systems which are active on that particular blockchain. This way of recording data by blockchain systems is becoming more prevalent due to their exquisite feature that prevents changing of the maintained information or hacking of the network. Call it a digital ledger of data or chain of information, blockchain technology has been popular for some time mainly due to the emergence and recognition of cryptographic assets such as bitcoins. Each blockchain has its own set of rules, unique format of digital language in which information are stored (hash), allowed set of systems in the network (distributed peer to peer network), controls for creation of new blocks (proof of work), facility for versions/variants etc. which all are intended to safeguard key elements of this technology such as reliability, security, transparency and decentralization.   

What is the significance of blockchain technology in accounting?

The blockchain technology puts forward a new way of storing and accounting for transactions which removes the need of efforts involved in the maintenance of conventional ledgers. The entire approach of book keeping can be digitized using the concepts of this technology. Another aspect of this transformation in accounting is the benefit of saving time, efforts and resources otherwise currently required for various reconciliations of ledgers. Each block in this new technology is having information about its previous block and in that way all the blocks are interconnected and they are themselves capable of validating the digital data in them, which will avoid the duplicative work of reconciliations performed by the accountants. Again the validation of occurrence of historical transactions and rights or obligations over assets or liabilities respectively, becomes automatic in the blockchain way of accounting and saves a lot of effort in that direction. Easy access to information and quick retrieval of data are other attractive factors of this type of accounting, which will facilitate informed and timely decisions by the management of the companies. The advantages of the new technology in accounting are various in that it is certain to give more flexibility to the parties involved to engage more in the business operations instead of mere record keeping.

How blockchain technology can bring changes in the field of auditing?

The majority of the external audit work revolves around the validation of assertions with respect to each amount or disclosure in the financial statements under audit. With the help of blockchain technology and increased focus on data analytics, audits can be performed with more efficiency and ease. To a great extent the checks relating to the validity of transactions and their authenticity can be reduced, considering the in- built controls for data security which are available within the blockchain way of recording transactions. For example, obtaining external party confirmations are one of the major audit procedures carried out nowadays, which in future, may not be required to the same extent with the onset of blockchain accounting applications, as the underlying transactions for any financial amount will be easily accessible and verifiable by the auditors.

Do you have further queries on blockchain technology and its implications? Feel free to contact CDA

CDA has always put on view its potential in supporting its clients across various industries by providing bespoke consulting services. We are happy to help you in embracing the possibilities of blockchain technology and its reforms with an array of supporting activities including the following services:

  • To analyze the impact of blockchain technology on your business and operations
  • To assess the cost-benefit analysis of the new digital transformation projects which will be triggered by this new technology
  • To provide accounting and auditing insights for developing blockchain led solutions and services 
  • To assist in interpreting standards and regulations with respect to the usage and applications of blockchain technology
  • To perform the advisory role in the design and implementation of new and improved financial systems driven by this digital transformation