Q&A with Aeon C : Traditional Accounting vs. Blockchain Accounting
As we say, Totem Live takes accounting off your TODO list. You don’t need to be an accounting professional to use Totem Live. However, I chatted with an accounting and auditing professional plus Totem Live user, Aeon, to get his perspective.
Aeon C. is an international accountant and tax consultant based in Singapore. He is an experienced Chartered Accountant with a focus on accounting and taxation for the digital economy. Aeon has a passion for blockchain technology and its real-world application, especially those in his own profession. Has been actively contributing to various blockchain projects like Totem since 2017.
Me: What is the workflow in accounting today?
Aeon: If you aren’t familiar with book-keeping or financial accounting, there are a number of processes or workflows. We typically have three components: inputs, processing and outputs. The input is the data collection part of the accounting process. The data ranges from internal and external sources such as contracts, bank statements, invoices, inventory and payroll records and so on.
The second point in the workflow is processing. Accountants verify the source of transactions that have been submitted with supporting documentation to understand the nature of the transaction and determine the appropriate accounting entries based on accounting standards.
Lastly, there are the outputs. We assign the transaction into the right ledger accounts, perform bank reconciliation and closing entries, generate financial statements (e.g. profit or loss, balance sheets, cash flows etc).
The end-to-end process is intensely manual in nature and time consuming.
Me: What is the most time-consuming aspect of accounting?
Aeon: Reconciliation of valid information which should have been taken care of at the point of transaction, which can be mitigated or avoided if there is a common platform that allows different parties involved in the transaction to access, analyze and record the data at that point of time.
Routine journal entries such as prepayments, accruals, depreciation / amortization, revaluation of financial assets / liabilities to fair value as at certain dates, recurring income and operating expenses as well as payrolls which can largely be automated.
Me: How accurate is the current accountancy and financial statement practice?
Aeon: In terms of accuracy it is hard to say, but it is manual, involves a lot of inputs, outputs and parties. Accounting fraud has also proved to be possible even when following accounting practices and auditing, take Wirecard for example.
Malicious accounting fraud aside, here is a quick summary of how accuracy can be challenging to the precise degree, given the flow. Accuracy is especially important when financial predictions, investments and other risky actions are based on the entire accounting process. For example:
- Bookkeeping is mainly focusing on data gathering and recording financial transactions based on specified categories or accounts listing
- Accounting standards such as IFRS / GAAP are very comprehensive and complex, which forms the basis of financial accounting policies, procedures and practices.
- Significant accounting estimates and judgements are normally used in key accounting standards such as revenue recognition, impairment of assets and fair value measurement of financial assets and liabilities.
- Financial statements are merely a fair and reasonable representation of the condition and operation of a business at a given point of time — not to be treated as a precision gauge of the financial position.
Me: What is the most challenging part of accounting today?
Aeon: Accountants need to keep abreast with the rapid advancement of technology that could disrupt their industry. Accounting professionals frequently need to diversify their skills and to be equipped with a multi-disciplinary mindset. On top of the changing booking keep, accounting and financial rules and standards — staying on top of technology is important.
For example, certain simple accounting functions such as data collection and repetitive data entries can be automated, but remain currently manual. The automation would save time allowing accountants to perform more value added functions and strategic tasks — e.g. financial forecasting and risk management.
What is challenging and exciting is the impact of innovation. Big data, data analytics, automation and AI are getting more traction in the traditional accounting functions, which could be game changers. Of course, hopefully blockchain, but I’m not aware of any other than Totem at the moment. Blockchain accountings is complicated and Totem Live appears to be the first blockchain project that is built specifically for the purpose of reshaping and revolutionizing the existing accounting industry
Although we see news claiming that blockchain could disrupt the finance and accounting industry in many ways, I’ve yet to see any real-world application being built for the accountancy industry. Most blockchain applications that we see today are focusing on supply chains, DeFi and banking. While important, accounting is a foundational layer of these areas.
Me: How will Totem Live and blockchain impact accounting in your opinion?
Aeon: First, Totem Live is a p2p accounting protocol, which is new, it means accounting is done for the first time in real-time. Plus, not only is there currently not an accounting digital protocol, but definitely not a p2p one.
It brings accountability through blockchain’s fraud resistant, always verifiable property. Of course, it has the potential to automate accounting entries for all parties involved. Decentralized accounting also has no borders, it can be completely global.
Totem Live is comprehensive in terms of accounting features with modules suitable for SMEs and large enterprises. The fact that it is low cost maintenance and open source software license is very different from the current centralized and monopolized accounting software industry.
Accounting requires higher levels of security and it has a built-in secure and encrypted communication channel within the app, you don’t have to go back and forth between communication channels like email, Whatsapp, or who knows what.
Me: What are the biggest changes in accounting during your experience?
Aeon: I would identify three main changes I’ve noticed in my accounting tenure.
- Accounting standards are increasingly more complex, leading to costly compliance processes. Yet, the standards are still lagging behind in terms of the development of technology like crypto assets and blockchain. They are more complex, but not necessarily addressing the current technology advancements and digital era.
- The use of cloud-based accounting software. It has allowed users to access remotely at anywhere and anytime. Going paperless in accounting, but still very centralized and inefficient to a certain degree.
- Again, big data, data analytics and AI in accounting to improve data-driven decision-making skills, risk management, predictive analytics, automation of monotonous tasks and data visualization.
Me: How does accounting differ in small/medium to enterprise business?
Aeon: For SMEs, bookkeeping could be much simpler in terms of volume and complexity of the transactions and bookkeeping function. These can be easily outsourced (in most cases they are dealing with recording of transactions which are often routine and clerical in nature) and standard accounting software can be used to satisfy their needs
For larger enterprises, there is more internal coordination and communication among different departments (e.g. finance and marketing teams) needed to ensure all transactions are verified, captured, analyzed and recorded in their customized accounting software. Complex situations such as consolidation of accounts will come into place for a group of companies, which normally involve inter-company transactions and transfer pricing issues. In-house accountants also play a key role in determining the appropriate accounting standards applied for more complex transactions in terms of recognition and measurement in the financials.
However, typical accounting pain points such as identifying erroneous entries, dealing with missing receipts or unidentified payments still remain — which typically involve substantial time spent liaising with different people in order to close their financial accounts.
Me: What would the perfect accounting technology look like?
Aeon: The perfect accounting technology would have these properties:
- A common accounting protocol or software for all parties involved in a transaction
- Integration of all accounting modules (e.g. AP / AR / inventory)
- Real-time updating of accounting transactions
- Automation of reconciliation and routine data entries
- Risk identification — to mitigate human errors or potential fraudulent transactions
- p2p communication in a secure and encrypted environment
- Free and open-source software license
- Environmental, paperless also simplifying the flow of information
- Forecasting capabilities or predictive analytics to improve decision-making
If you’re interested in getting your questions answered by a Totem Live user and accounting pro on why live accounting makes sense, let us know in the comments! Big thanks to Aeon for his input on the Totem Live Accounting project.
Want to get started on changing the accounting status quo?
- Totem Live app
- Totem Tech on Gitlab
- Join the conversation on Discord
- Totem Live on Twitter
- Totem Docs
