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Is Blockchain a threat to Accounting and Auditing?

With the aim of improving the ledger transaction and to provide transparency in the accounting and auditing, new blockchain technology has been launched to improve the accounting and to open up the probability of real-time audit. In recent times, the impact of Blockchain on auditing and accounting through distributed ledger arrangements, recording real-time transactions cannot be ignored.

Before knowing the potential uses of Blockchain in auditing and accounting are. Let us first know what is accounting, auditing, and Blockchain:

1. Accounting – Accounting is the process of recording transactions related to financial matters. It also refers to maintaining and summarizing financial transactions and reporting the results. Accounting primarily concerned with the methods for recording transactions and keeping the financial records. Further, Accounting furnishes information on the –
2. Information and resources are available to the Company/firm.
3. Ascertaining the financial affairs,
4. Maintenance of accounts in a proper way.
5. Auditing – Auditing is a process systematically done by an independent authority or a body corporate with the necessary qualifications. The process involves the examination of books of account and financial information of the company. i.e. it also includes a review of the internal system and internal control of the organization/Company. Auditing includes-
6. Internal Audit
7. External Audit
8. Blockchain – Blockchain technology is used by the government, banking sector, industries, and innovators for supply chain, financial services, healthcare to disrupt and transform traditional business models and also for exploring different ways of using Blockchain technology. Significant business benefits are achieved by the industrialists which resulted in greater transparency, High security, an increase in transparency and reduction in costs.

The Potential use of blockchain in Accounting and auditing

The potential use of Blockchain in the Accounting and Auditing are as follows-

• Better Transparency and Accountability

Blockchain is more transparent than when it is pushed through paper-heavy processes which result in accuracy and consistency. It allows permissible access to all the participants which maintains the transparency in the transaction histories. Blockchain helps in maintaining the historical data that helps in verifying the authenticity of the assets.

• Easy tracking and verification of transactions

Blockchain helps in easy tracking of the Audit trails which helps an examiner in the accounting process to verify the figures such as revenue. Further, it also helps in validating the accounting entry.

• Authentified transactions and Programmed audit process

Blockchain in accounting and audit has resulted in authenticity in transactions i.e. it has greatly reduced the potential for errors when reconciling complex information from multiple sources. Further, under blockchain accounting records are not alterable, even by the owners of the accounting system. Authentication of transactions are done in such a way that-

• Every transaction is recorded and verified;
• the integrity of financial records is guaranteed.

Blockchain technology has the potential to greatly reduce or eliminate the need for auditing resources which as a result disrupting the accounting profession as a whole. 

How Blockchain is impacting the Auditing?

The impact of Blockchain on auditing process is mentioned below:

• Saves time and effort

Blockchain technology is a complex process but is expected to well run the process of financial reporting and auditing. In the Blockchain world, Auditor gets continuous and real-time access to information in a standardized manner which saves a lot of time and effort required in the Accounting and Auditing process.

However, in case of absence of Blockchain technology, the details and documents i.e. (Reconciliation statements, ledger & journal entries, bills, vouchers, and other supporting documents) are provided to the Auditors in physical or electronic formats and the Auditors invest a lot of time and energy in assessing the authenticity of each transaction.

• Effective Auditing

By using encrypted codes, Blockchain technology makes it possible to check every single transaction. It makes it easier to detect irregularities on a real-time basis and enhances effectiveness in the audit process. Further, with the help of Blockchain technology the auditors creating real-time alerts about fraudulent transactions.

• Allows High-level management to focus on other strategic areas

Real-time reporting on Blockchain will release a higher level of management to focus on other core areas. People at the higher level can free themselves from the tedious work such as Interpretation of data and pattern of transactions. Further, they can also channelize their energies and knowledge on more creative aspects.

New Opportunities to the Accountants and auditors in Blockchain System

Blockchain technology has not only transformed the existing audit process but has created new opportunities and roles for auditors in the future. Some of the opportunities are-

• Keeping a check on the Smart Contracts

Blockchain is based on smart contracts that are used for automating business processes. In Blockchain technology, proper due diligence is required at each stage. The auditors should be involved in the role of proper due diligence and proper business logic. However, in case of absence, it will be difficult for Blockchain users to track errors and irregularity.

• Examining the Blockchain system: 

For examining the blockchain system and for conducting due diligence users would want to involve the auditors as a third-party.

• Evaluating the legal and administrative aspects

For evaluating the legal and administrative aspect an auditor could take up the role of a Central Administrator for Blockchain in the future and can also avoid the biased judgment in case of the participants of the blockchain platform performs the same role.

Conclusion

Blockchain is enhancing the quality of audit and results in the notable changes in the existing framework of the accounting and auditing process. However, the role of the auditor will remain the same i.e. the auditor will have to use their knowledge and professional capabilities to check the authenticity of the data. In such a fast-moving and competitive environment, it is very important to adapt to the new technologies and changes are the only way to remain successful.