Blockchain is a hot and current topic in the financial world. However, there is also a lot of talk about future potential. According to PwC, only 3 percent of the financial service providers surveyed use blockchain technology or are in the process of doing so. In addition, blockchain initiatives in companies tend to be driven by IT departments rather than finance. Even though this technology is still in its infancy, the C-level management in startups should look at its potential and include it in their strategic planning for the next few years.
The Benefits To Accounting Are Immense
The biggest advantages of this technology are that the chronology of transaction data in the blockchain chain is immutable and therefore cannot be manipulated. In addition, the data in the chain is presented very accurately, transparently and coherently in real time.
This will make double-entry bookkeeping obsolete: Instead of keeping separate records based on transaction receipts, companies can write their transactions directly into a joint register, creating an interlocking system of enduring accounting records. Since all entries are distributed and cryptographically sealed, falsifying or destroying them to conceal activity is practically impossible. It is similar to the transaction being verified by a notary — only in an electronic way.
This means that startups can always fall back on error-free financial data. In addition, this standardisation would allow auditors to verify a large portion of the most important data behind the financial statements automatically. The cost and time necessary to conduct an audit would decline considerably. The Blockchain as a source of trust can also be extremely helpful in today’s accounting structures. It can be gradually integrated with typical accounting procedures: starting from securing the integrity of records, to completely traceable audit trails. At the end of the road, fully automated audits may be reality.
The blockchain can control financial processes such as liabilities, receivables and compliance. Moreover it unfolds its greatest potential when it is linked with other innovative technologies — for example with areas from automation and artificial intelligence. Thereby blockchain transactions could also be linked to contracts or to information such as compliance or regulatory requirements.
To sum it up: The new technology would ensure less error in financial data and less fraud. It would increase trust in transactions and its security. Blockchain in accounting would save employees a lot of time and startups a lot of money.
Much Remains To be Done
In many companies, digitalisation and cloud-based accounting are not yet so advanced that the existing systems would work well with blockchain technology. In addition, the data processing programs lack the speed and storage capacity to manage the long transaction chains.
But not only is digital accounting still under construction, but the blockchain technology itself is still evolving. To truly become an integral part of the financial system, blockchain needs to be further standardised, regulated and optimised. This process will likely take many years to complete.
Nevertheless, it is already important for every financial manager today to think about the Blockchain technology when digitising his accounting department. The new technology he buys and implements must be compatible with blockchain in the future. Otherwise, his digital transformation will not be successful.