Value – The article identifies the possible effect of blockchain on accounting practice and what further developments are still needed to create an integrated accounting system on blockchain technology. New technologies and digital innovations are gradually reshaping the contours of accounting, auditing and reporting (Bonsón and Bednárová, 2019; Dai and Vasarhelyi, 2017; Lombardi and Secundo, 2020; Mancini et al., 2021; Marrone and Hazelton, 2019). Among the emerging technologies able to revolutionize business models and consequently change the processes underlying management control, accounting, auditing and reporting is blockchain (Schmitz and Leoni, 2019). A blockchain is a distributed digital ledger shared by several peers in a network that facilitates transaction recording and property tracking for tangible and intangible assets. Approved transactions take the form of blocks added to a chronological chain of previously validated blocks through the use of cryptographic signatures (Bonsón and Bednárová, 2019).
We used a thesaurus file to merge similar keywords (e.g. “audit” and “auditing,” “cryptocurrencies” and “cryptocurrency”). The keywords were grouped into clusters, namely, sets of closely related nodes within a bibliometric network. To create this form of bibliometric network visualization, VOSviewer uses colors to indicate the cluster to which each node has been assigned considering the cooccurrence relations.
Auditors could extend their services to work as accounting blockchain information systems administrators or advisors (Bonyuet, 2020). Auditing procedures and standards will need to keep pace with the new IT environment (Gauthier and Brender, 2021), as new accounting systems will be subject to control testing (Sheldon, 2019). Moreover, some of the relevant minor issues are related to latency, scalability and energy consumption (O’Leary, 2019). Furthermore, a blockchain cannot ensure that recorded transactions happened in the real world (Coyne and McMickle, 2017; Alles and Gray, 2020; Sheldon, 2021). Possible solutions for this issue include establishing conflicting interests between involved parties by design (McAliney and Ang, 2019) or providing digital IDs of real-world objects (Alles and Gray, 2020). The latter suggests the complementarity between blockchain and Internet of Things (IoT)/radio-frequency identification (RFID) technology (Sheldon, 2019).
The remarkable growth of the blockchain technology has raised both excitement and concerns for the global accounting industry. Is blockchain implementation and accounting going to have a symbiotic relationship or as suggested by some experts, should the accountants start to look for a new line of job? Like the blockchain technology itself, the answer to these questions is complex.
What is the blockchain effect?
Blockchains provide a way for every member in an organization to directly record entries in the ledger through their personal computers. This means that it’ll also save you and your bookkeeper tons of time while also making it easier to audit your own financial records. If an organization modifies a transaction’s data in the blockchain, it’ll affect the hash value.
- The data requirements would be large compared to a traditional system and is a concern that needs to be addressed if blockchain is to enjoy widespread adoption.
- Furthermore, a blockchain accounting system that is integrated with smart contracts “can self-execute or self-enforce the agreements signed by two parties” (Cai, 2021, p. 9).
- Table 3 provides some quantitative data (total citation and CPY) regarding the studies with the highest impact on this topic.
- The system should capture accounting procedures in the blockchain system for multiple accounting systems to achieve the correct treatment for all different transactions and the related presenting and disclosing of the accounting information correctly.
- From this perspective, it is essential that blockchain solutions are integrated into ERP systems and with RFID, IoT and AI technologies to create fast, reliable and repeatable processes.
The miners are being compensated for their work through the issuing of cryptocurrencies. New ways of compensation for cryptographical validation might need to be developed before blockchain technology could become the norm for capturing and storing information. Nakamoto’s (2008) vision, on which Bitcoin was based, was to create a P2P electronic cash payment system under which payments can be sent to other parties in the blockchain without the need of financial intermediaries, such as banks. Nakamoto stated that digital signatures through cryptographical proof would replace the reliance on the trust of the financial and regulatory intermediaries. Information and funds could thus be transferred without the need for such intermediaries (Smith et al., 2019). Trust is thus placed on the integrity of the blockchain system for capturing both financial and other information.
The Limits of Blockchain on Audits
This includes integrating data from a prior period as those data become available (accounting for subsequent events or adjusting for under/over applied overhead are examples). The ability for a double-entry accounting system to make such adjustments is crucial to its utility in the modern world. Blockchain negates this ability, making substantiation less beneficial than promoters claim. Additionally, just because a transaction cannot be modified, that provides no assurance that it was entered properly in the first place.
Blockchain accounts are unchangeable, and cannot be penetrated, thus reducing the chances of fraud. This system automatically records a transaction as it happens, which ensures that the actual details of the event agree to the disclosure thereof in the accounting records. Smart Contracts should automatically enforce an accounting entry once an event is triggered. The event could be the accounting consensus manually created, as seen earlier, or it could be an external event that is picked up by an oracle. Accounting entries would no longer be posted manually based on source documents, but rather become the source document itself. Blockchain makes it possible to write verified transactions to a distributed ledger in a secure fashion, without a central authority, between untrusted parties, creating an undeniable past, value for each node and adding value (trust) to those transactions.
Furthermore, the process of an independent audit of financial statements enhances the trust that is crucial for the effective functioning of the capital markets system. Any erosion of this trust may damage an entity’s reputation, stock price and shareholder value, and can result in fines, penalties, or loss of assets. Users of financial statements expect CPA auditors to perform an independent audit of the financial statements using their professional skepticism. CPA auditors conclude whether they have obtained reasonable assurance that the financial statements of an entity, taken as a whole, are free from material misstatement, whether due to fraud or error. A blockchain is unlikely to replace these judgments by a financial statement auditor. With more companies exploring blockchain business opportunities—including the blockchain audit trail—many accounting firms have undertaken blockchain initiatives to further understand the implications of this important and versatile technology.
It is this removal of “middlemen” by enabling trusted peer-to-peer exchange that is driving what some have come to refer to as “Web 3.0”, and the creation of $2 trillion of wealth in the last ten years. • Automating transactions with less error in data on both sides of the transaction. (2020), “Challenges when auditing cryptocurrencies”, Current Issues in Auditing, Vol. (2018), “Auditing with smart contracts”, The International Journal of Digital Accounting Research, Vol.
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In particular, it digitally documents each piece of valid information about a product in real-time and maintains transparency.Do you have a networking environment? Does this environment demand share records to be transferred in a convenient yet secure way? Then, blockchain helps you to bridge communication and acts as an intermediary between various interacting units. It provides space for the creation of a data ledger that is authentic and is non-duplicated records. Essentially, blockchain technology is a form of accounting, but with several computers operating simultaneously in a network.
- For auditors, this offers the potential for a transition from a periodical or annual exercise to a continuous matter, one that can now encompass both parties to a transaction simultaneously.
- Also, Add-ons that will cut-short on accounting focuses on a decentralized control on accounting activities with operations like ‘hashing’ and ‘time stamping’.
- However, cryptocurrencies do not meet the financial asset definition provided by IAS32 (Procházka, 2018; Morozova et al., 2020).
- Then, blockchain helps you to bridge communication and acts as an intermediary between various interacting units.
- Allied Business Academies publishing a total of 14 different journals in various fields of business.
Therefore, the issue of accountability based on blockchain represents a tremendous opportunity for future research. The main aim of the present study is to review the literature on the use of blockchain in accounting practice and research and to define potential opportunities for further investigation. The success of cryptocurrencies has enticed entrepreneurs, academics and practitioners to study their innovative underlying technology, the blockchain and its opportunities in many different sectors. Hence, blockchain became a tool to innovate and could disrupt and create new business models.
The distributed ledger technology working through a network of thousands of globally distributed computers promises deliverance to businesses and their leaders thanks to its immutability, security, reliability, and speed. Smart audit processes are basically the autonomous audit processes, including the autonomous internal control tests as well as analytical processes, deployed on the auditor’s blockchain. This deployment in the distributed blockchain ledger leads to real-time reporting for many stakeholders like major investors, suppliers, the SEC, audit inspectors, and the audit committee.
What is Blockchain Accounting? A Primer for Small Businesses
Purpose – The article discusses the possible implications of blockchain for accounting practice and what further developments are needed to create an integrated accounting system on blockchain technology. Approach – The article follows a structure approach by identifying characteristics of blockchain technology to discuss the implications for accounting practice. Findings – The instant verification and immutability features of blockchain systems provide for the integrity of data for both accounting and auditing purposes. However, the intensive use of blockchain for accounting information purposes depends on different and cheaper validation processes. The complexity of different accounting transactions with related estimates and uncertainty needs to be captured correctly on blockchain through use of interventions such as smart contracts without limited human invention to be successful. The so-called triple-entry accounting provides for the secure capturing of accounting information for use by different stakeholders, but currently does not change the double-entry accounting system to prepare financial statements.
Blockchains have applications that go beyond financial accounting and conventional bookkeeping. Elements of judgment – such as recording and classifying transactions that cause an outflow of money [cost of sales or expenses] and other concerns, require business knowledge. Blockchain needs to be developed, standardized, and optimized to become an integral part of the financial system, which may take many years. Though we can find many blockchain applications and start-ups in this domain, they are still at the pilot study stage or not beyond the proof of concept.
3 Blockchain potential in business models and supply chain
Blockchain forms the basis for an online P2P network that utilizes computer-powered cryptography to help exchange of value. The computers linked to the network, called nodes, verify and save the transactions simultaneously, letting parties who don’t know each other to execute transactions without the need of any trusted third-party intermediary like a bank or a financial network. With smart contracts, transactions automatically go through when certain conditions are met.
The Impact of Blockchain Technology on the Accounting Industry
However, if the businesses were to begin recording their assets on the blockchain, it would become far harder for the counterfeiter to prove his or her assets as authentic. One of the fundamental features of the Advance Rent: Definition, Journal Entry, Accounting Treatment, Example blockchain is that if something once put on the blockchain, it cannot be counterfeited or altered[6]. And a use case that has risen to pop up for the blockchain technology is the ownership verification tool.