Blockchain technology has the potential to increase the efficiency and value of the accounting function by reducing the costs of maintaining and reconciling ledgers. This is according to ICAEW’s (the Institute of Chartered Accountants in England and Wales) latest report: Blockchain and the Future of Accountancy. According to the report, the reduction in the need for reconciliation and dispute management, combined with the increased certainty around rights and obligations, will allow for a greater focus on how to account for transactions. This will also enable expansion in what areas can be accounted for.
A revelation from the report is that currently many accounting department processes are busywork that can be optimized and reduced through blockchain. Other modern technologies that can be employed include data analytics and machine learning. Optimization will consequently increase the efficiency and value of the accounting function.
The report also provides a snapshot of how blockchain will impact other businesses. Land registry, for example, is an area that is likely to benefit from the technology especially in provenance and transfer of ownership of assets. According to David Lyford- Smith, technical manager for ICAEW, “Creating a clear and permanent record of ownership and transfers of ownership will help create additional liquidity in the economy. This will not only increase security but also help fight corruption by distributing the maintenance of records to all parties involved rather than just to some. By allowing participants to see who owns, sells, and divides land, the technology will enhance the verifiability aspect and help to add transparency where needed.”
Research is currently being conducted on how blockchain technology will help in distribution of ledgers for interbank reconciliations and other financial applications. This will save companies the millions spent annually in reconciling ledgers between banks.
The popular system bitcoin uses blockchain technology. Bitcoin is an online cash currency, created to send electronic cash peer-to-peer without the need for a central bank or other authority to operate and maintain the ledger, much like physical cash. Blockchain is the engine that runs the bitcoin ledger, and the name is now used to refer to all similar distributed ledger technologies. Blockchain has the potential to be a disruptive technology and perhaps grow to be a bedrock of the worldwide recordkeeping systems.
In conclusion, the report presents the key rewards of blockchain to businesses as trustworthy records and reduced reconciliations. The accounting, for example, profession will increase in efficiency from both the increased trust in the information available and the reduced time spent in reconciling and disputing records with other parties. This will lead to greater focus on the ultimate aims of accountancy – interpreting the economic meaning of transactions, and providing information to support better decisions. Despite the transformation blockchain will bring to businesses, the report notes that it will take years – perhaps even decades – for it to be fully developed, standardized and bedded into the architecture of the internet and the financial system.