Technology has revolutionized the age-old way of doing business. Almost all the major industries are now equipping themselves with the latest advancements which have proven to show better efficiency and higher accuracy.
One of the latest innovations is Blockchain. Its initial development was for record-keeping in the Bitcoin network. Furthermore, its application is evident in various other fields like Finance, Insurance, and Supply Chains. Accounting too is making use of this technology for scaling the effectiveness of the accounting and audit process.
What is Blockchain?
'Blockchain' may sound very complex. But the actual functioning behind this term is quite simple. It has two separate words, 'block' and 'chain'. Here, 'block' refers to the digital pieces of information, and 'chain' refers to the public database. So, blockchain consists of multiple blocks of data strung together.
There are four basic requirements in Blockchain technology:
- The occurrence of a transaction
- Verification of the transaction
- Storing the transaction in a block
- Securing the block with a hash
Security is a key feature. New blocks are always stored linearly and in a chronological manner so that the security vulnerability associated with changing the contents of the previous blocks, is eliminated. Also, the unique hash code is a mathematical function that is randomly generated. So, if in case, the content of a particular block is changed, its hash value too, will get changed.
If a hacker tries to intercept or snoop on a particular block, he will have to modify the other blocks too, to cover his tracks. The recalculation of all the hash values requires enormous computational power. So, blockchain is both safe and trustworthy.
How is Blockchain changing Accounting?
Previously, the measure of data―and the sources from which evaluators have generally expected to gather, arrange, dissect, plan, and survey this data―has been the basic factor in deciding the length and intricacy of reviews. This has prompted the potential for both tedious and possibly mistake inclined cycles that don't exploit bookkeeping experts' capacities to see the master plan.
Blockchain eliminates the tedious work of collecting, storing and organizing data. It also helps keep a track of all the transactions and hence, it increases the scope of accounting. Checking the details of a transaction is only one of the many components of auditing. So, when Blockchain takes care of the other technicalities, the Auditors can look into the intricacies of those elements that require business knowledge.
With the implementation of Blockchain, the cost of maintenance and reconciliation of ledgers will get reduced drastically. It would help the accountants focus only on assessing the real economic interpretation of the record stored in the blocks and relating it to the economic reality and valuation.
Integrating the Blockchain technology to the financial system will take many years as it still needs standardization and optimisation. Leaders of the Auditing field have already started their research by bringing in their expertise. Auditors need not be engineers with itemized information on how blockchain functions. However, they would need the knowledge of how to prompt on blockchain appropriation and consider the effect of blockchain on their organizations and customers.
Feel free to consult RSM UAE to discuss your financial and budgeting concerns. RSM is one of the world’s leading audit, tax and advisory service network, recognized for innovative solutions across the globe. RSM professionals can help your company undertake granular analysis required for incorporating blockchain in your current financial systems.