A Primer on Blockchain for CPAs
The concept of blockchain is well known to those who are familiar with Bitcoins. Bitcoins are cryptocurrencies that have taken the world by storm. There is no central authority that enjoys any sort of jurisdiction over Bitcoins. Bitcoins are powered by Blockchains.
Blockchains make all transactions transparent and secure and simplify auditing. In fact, Blockchains are expected to transform accounting. All CPAs should have a basic understanding of Blockchains and know how they operate. The existing accounting methods won’t help you much with Blockchain, you will need to go much beyond that.
What is a Blockchain?
Blockchain is basically a way to maintain the authenticity and integrity of digital accounting reports. It involves adding hash strings to the accounting reports. A hash string is a time stamped finger print on the accounting data. This is verified by the Bloackchain later, along with the original book. Blockchain allows you to verify if the accounting books are authentic or not, or whether they have been altered in any way.
Blockchain and the Impact on Accounting
Blockchain follows a method called triple entry accounting. Triple entry accounting is an accounting practice that was rarely followed until now. As you are aware, accounting is based on a double entry concept. Double entry accounting is used to balance financial statements and to ensure that debit remains equal to credit at all times.
Double entry accounting is based on the principle that assets should always be equal to the sum of the equity and liabilities. Based on this equation an accountant checks the veracity of a financial statement. All of the major accounting applications ensure that this consistency is maintained throughout the accounting process. However, this method does have its drawbacks, especially when an independent auditor does the verification. The issue here is that there is no way to stipulate the time spent on the process and the expenses involved in the auditing.
This problem is solved by Blockhain. The use of Blockchain means there is no requirement to hire an independent public auditor as Blockchain provides a common verification platform which can be sued by the regulatory agencies as well as by the accounting manager. Blockchain verifies the hash strings connected with the accounting books with the time-stamped fingerprints on the data. This ensures that every financial transaction is properly notarized.
Why Use Blockchain for Accounting?
Blockchain is a significant new development in accounting that every CPA should know about. Blockchain eliminates some of the complexities associated with accounting.
It offers an independent, verifiable and automated way to ensure that there is no interference of any sort with the authenticity of the accounting process. Essentially, Blockchain ensures that there is no conflict of interest in the auditing of the data, which is bound to happen when a business hires independent auditors.
Blockchain allows for automated auditing of data. This eliminates the redundancy associated with manual accounting and helps to speed up the accounting process. Blockchain also helps to minimize the cost of auditing by eliminating the need for manual accounting.
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