How will Blockchain change the future of accounting?
There is a lot of talk about the use of blockchain in traditional accounting. This does not come as a surprise as blockchain was originally developed as an accounting tool for the cryptocurrency Bitcoin. But how will the decentralized ledger transform double-entry bookkeeping, a system that has been around since the 11th century AD?
Here are 4 ways blockchain will have an impact on accounting:
It will decrease mistakes due to human error. An accounting error occurs when there is a discrepancy in the books that is not due to fraud. Accounting errors are very common and can occur for one of three reasons: an entry is omitted, an entry is calculated incorrectly, or an entry is not in accordance with generally accepted accounting principles. Blockchain eliminates accounting errors by eliminating steps where errors may occur. Since humans are not entering the transactions into the system, there is no opportunity for lost receipts or mixed up numbers.
It will reduce, if not eliminate, fraudulent accounting. Blockchain aims to eliminate fraud by moving from a centralized database to a decentralized system. Because every party involved in a transaction must verify the entries and changes must be unanimous, manipulating the books is nearly impossible. To find out more about how blockchain will reduce fraud, read this article.It will increase the confidence of investors and shareholders. Reducing fraud means more accurate financial statements. Investors will be more likely to trust a company using blockchain-based accounting because there is more transparency. They will be able to see how their investment is being used to generate future value.It will save companies a lot of money. The Sarbanes-Oxley Act mandates that companies operating in the United States are subject to external audits of the company’s financial statements. External audits can be extremely expensive. By moving to a transparent, decentralized system, external audits will no longer be necessary. Although, it may take some time for legislation to catch up to the technology.
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