Blockchain & Cryptocurrency in Accounting English 202D Fall Blog

One of the main advantages of blockchain is that it eliminates the need for intermediaries and central authorities, such as banks, brokers, or auditors, to verify and process transactions. This reduces the risk of errors, fraud, and manipulation, which can affect the accuracy and reliability of cost accounting data. For example, blockchain can prevent double-spending, tampering, or falsifying of invoices, receipts, or contracts, which can lead to overcharging or underpaying for transportation services.

  • For this very reason, future work targeted for this area will help build thorough knowledge and determine the subsequent application of blockchain in the fields of accounting in terms of the scalability solutions proposed by the cited authors.
  • The final topic names are listed in Table 2, along with the 20 most important words for each topic and the marginal distribution of each topic.
  • These critical issues flourish as we face this new and interdisciplinary research topic driven by exogenous forces inherent in society.
  • In December 2017, SEC Chairman Jay Clayton stated that ICOs are vulnerable to fraud and manipulation because there is less investor protection than in the stock market (Clayton, 2017).
  • We may assume that, in the future, when there will be more cases examining the actual application of blockchain in accounting practices and real examples of the influence of blockchain on the accounting and auditing field, the number of papers in the leading journals may increase.
  • One cannot join a private blockchain unless invited by a network administrator.

This area is undeveloped because blockchain is a recent technology, and there are few use cases to study (Pimentel and Boulianne, 2020). According to Karajovic et al. (2019), blockchain for accounting information systems will reach a critical adoption what is hire purchase mass within the next three years and will become mainstream in 2025. Calderón and Stratopoulos (2020) show how the blockchain of the Listerine® supply chain works; this product is a mouthwash produced by J&J, a multinational pharmaceutical company.

His doctoral course focuses on new technologies applications in accounting, the health sector, and the business model field. He is particularly interested in blockchain, and he is currently studying the impact of this “disruptive” technology in the accounting, auditing and accountability fields. Through a horizontal consensus between actors, blockchain leads to overcoming the previous hierarchical information exchange paradigm created by the traditional information technology (IT) system (Cai, 2018). Consensus and longitudinal exchange facilitate applying audit and governance systems and smart contracts (Dal Mas et al., 2020a; Joseph, 2019; Rozario and Vasarhelyi, 2018).

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 purpose of blockchain, namely, to facilitate trust without intermediaries, has raised concerns about the future of auditors and their role in society. However, thus far, these worries are not justified because some aspects of the auditing process still require professional judgment (Turker and Bicer, 2020). Some audit procedures, such as sampling, confirmation letters, payroll examinations, invoice evaluations and reconciliation, will become less expensive or obsolete (Turker and Bicer, 2020).

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Thus, the uncertainty on measuring cryptoassets leads to the problems of comparability, verifiability, timeliness and understandability in financial accounting (IASB, 2018, p. 6). Therefore, in line with Smith et al. (2019, p. 166), we conclude that for now, “this innovative technology has the potential to change internal management systems …; however, lack of regulation and information makes investment planning for cryptoassets complex and forbidding”. The divergence of crypto classifications means that worldwide regulation and availability of information on cryptoassets will be the most important factors for their spread.

For example, well-developed IT competencies may become a prerequisite for the accounting profession, at least in the interim period where firms are prepared to face the changes brought about by integrating blockchain (Uwizeyemungu et al., 2020; McGuigan and Ghio, 2019). It will take time before companies implement blockchain as a ‘foundational technology’, and any disruptions to the profession will take place over years (Iansiti and Lakhani, 2017, p. 4). The main advantage of blockchain technology is that once a transaction is approved by the nodes in the network, it cannot be reversed or re-sequenced. The inability to modify a transaction is essential for the blockchain’s integrity and ensures that all parties have accurate and identical records. Because blockchain is a distributed system, all changes to a ledger are transparent to all the members of a network. Although blockchain is perceived by many to be just the foundation technology of cryptocurrencies it actually can serve large systems across a wide variety of industries.

Voluntary roles

And now, the accounting and audit professional needing to understand, they don’t need to understand hashing. That’s a spot for the accounting audit professional to understand, “This is an ecosystem I need to keep up on.” And that the tools for that ecosystem are beginning to appear. Imagine the power of this technology combined with Artificial Intelligence (AI) where the testing for discrepancies through analytical review could take place in real time and without the risk of missing transactions or the auditor having a blind spot in analyzing the information. Auditing requires the confirmation of transactions and balances on firms’ accounting ledgers at the end of the reporting period due to time-lags, reconciliations, and accounting entries. Accountants will not need to be engineers with detailed knowledge of how blockchain works. But they will need to know how to advise on blockchain adoption and consider the impact of blockchain on their businesses and clients.

The Future Of Blockchain In Accountancy

Besides, starting from the need to respect corporate data privacy, Schaefer and Edman (2019) propose a hybrid architecture governance without public or private authorization. Therefore, the authors’ most significant interest derives from the possibility of maintaining blockchain’s inherent characteristics while also maintaining the confidentiality of data resolving a challenging governance issue regarding data privacy. The blue shaded areas on the map represent research cooperation among nations. Additionally, the pink lines linking countries indicate the extent of collaboration among the authors.

To make sure a GL is accurate, you’d use a double-entry accounting system. Blockchain technology has the potential to replace the 500-year-old double-entry accounting system. Blockchain distributed ledger technology would popularize the triple-entry accounting system. In this post, we’ll focus our attention on how blockchain affects the accounting industry and what impacts this technology can have on your small business finances. Though mainstream adoption isn’t happening any time soon, it’s becoming increasingly important to understand how blockchain technology can change many aspects of tax season preparation as you know it.

What is Blockchain Accounting? A Primer for Small Businesses

Figure 1 shows the distribution over time of the included research products. The blue line includes all 346 research products assessed for discussion. The green line represents all 127 research products that belong to the “Accounting and Auditing” topic. The yellow line depicts articles published in journals ranked as “ACCOUNT” by the ABS AJG2021 journal ranking. Figure 1 shows a considerable increase in interest since 2016, in which year accountants and practitioners began to seriously consider blockchain as an accounting tool (Kokina et al., 2017).

For example, researchers could focus on the applications and evolution of accountability and transparency, considering financial reporting. Finally, new research can be addressed to assess immutability toward stakeholders, such as tax authorities, banks and shareholders. Second, in the field of auditing, starting from Dai et al.’s (2019) and Rozario and Vasarhelyi’s (2018) premises, more research efforts should be made to define how to audit activities integrated into a blockchain system. Such research will be even more impressive when comparing different accounting systems. Besides, interesting RQs will investigate how auditors will manage all stakeholders and how audit activities will evolve.

Guthrie et al. (2019) state that many challenges lie ahead, especially in technology. In this sense, Arnaboldi et al.’s (2017) study also notes that the technology revolution will change organizations, individuals and accounting through increased automation. Blockchain technology (BT) has been receiving increasing attention from the academics and practitioners, in terms of its emergence, evolution, transformation, potential disruptions, technical aspects, and implications on accounting, auditing and finance practices. Through a review of the 51 papers published from 2015 to 2021 in Scopus indexed academic journals in accounting and auditing. Based on the analysis of the selected papers, this chapter charts the current knowledge on BT, examines key themes identified from the literature, and recommends opportunities for future research. The chapter finds that the innovation and ensuing disruption of BT is still in an emerging phase, particularly the scope and influence in the accounting, auditing, and finance practice and research.

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