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IMPACTS OF BLOCKCHAIN ON ACCOUNTING PROFESSION.

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Introduction

A blockchain is also known as distributed ledger technology (DTL). It is an electronic

decentralized ledger that stores information digitally. The ledger distributes data in a selected

group of participants. Blockchain works by breaking up data into shared blocks that ate put

together or rather chained in form of cryptographic hashes (Jump up Morris, David 2016). Most

blockchains are used in cryptocurrency systems like Bitcoin (Miraz & Ali, 2018). The system

emphasis on fidelity and security of data. The transactions are permanently recorded and can be

accessed by anybody. One of the main objectives of blockchain is to make sure that information

recorded digitally is distributed and not tampered with in any way. The concept of blockchain

was first proposed in 1991 as a research project and by 2009 its application was used in Bitcoin

(Banerjee, Biswas, & Biswas 2020).

Since blockchain is an accounting tool in form of technology, it is obvious it will affect

financial accounting greatly. This case study critically examines more about blockchain impacts

and implications it has on the accounting profession. The accounting profession is concerned

with financial information, analysis of the same, planning, and allocation of finances. The

research will shed light on the different characteristic of blockchain limitation, and how this

effects professional accountancy.

Findings, Impacts and Implications Blockchain on the Accounting Profession

Immutable and decentralized

About blockchain, immutable means cannot be erased. Any kind of information stored on

a blockchain cannot be altered. Decentralized means that no entity controls the information, not

even the government. All participants have access to the same information through these

features. Incidences of manipulation of information and cyber-attacks are drastically reduced if

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not eliminated (Stephen and Alex, 2018). Through the use of mining rights, speculators might

put the information to gain one's profits it becomes hard to locate the speculator who posted the

information that could be false. Difficulty of regulation is majorly contributed by 51% attack.

(Jimi, 2018). If this happens it becomes almost impossible to contain the situation. One possible

remedy to mitigate this risk is the application of permissioned blockchain rather than public

blockchain. The permissioned blockchain works in that one central organization is mandated to

control information on the blockchain. These can at least solve the problem of the difficulty of

regulation. However, this will shift the idea that blockchain is immutable and decentralized

(Frankenfield, 2020).

Record management

Blockchain has a broad implication of record management in securing and authenticating

records at a lower cost. The latter is achieved by the use of embedding authentication into

documents, and a closed-loop tracking system that works against interfering or modification. By

the use of two-way authentication, accountants get certainty over ownership of assets and clarity

over assets. Through the use of a ledger record-keeping system, one can track changes attached

to a particular asset as long as the document has the same blockchain signature. Preventing any

alteration through the ledger record-keeping system reduces the chances of misappropriation of

the company’s assets and misreporting. Fraudsters are likely to have a hard time altering the data

(Liu, Wu, & Xu, 2019)

The potential negative impact of blockchain technology in the long run in financial

accounting is; tampering with smart contract permit, reporting and automation of accounts as

well as raw data on blockchain that helps in tracing activities of the business. This can be solved

by auditing (Khan et al., 2021) The use of blockchain will make it almost impossible to
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manipulate data if not entirely. Change in data management due to the integration of blockchain

will eliminate reconciliation and provenance assurance. Other value activities such as technology

will greatly expand in financial accounting.

Cost-saving

According to a stander fintech study, blockchain could minimize financial services cost

between US$15billion and 20 billion per annum by 2022 (Gregorio, 2017). Firms will reduce

employee turnover due to reduction workforce. Blockchain can simplify the work done by

accountants and auditors. Transactions do not require intermediaries such as banks and credit

card processors. In return, one can save the transactional cost. Moreover, companies are not

likely to hire auditors to validate the information. The money that would have been used to pay

the profession is allocated to another project (Ullah, et al., 2020).

Employment

Since blockchain replaces bookkeeping and reconciliation work, accountants who took

on these tasks are likely to be threatened over their jobs. Auditors working on the financial status

of a company would be unnecessary if all of the transactions are visible on blockchains.

Generally, this could also affect how audit works. However, accountants have the opportunity to

teach and influence how blockchain operates as well as improve the system and its services.

Blockchains need to be developed, standardized, and optimized to become a fundamental part of

the financial system. Most applications and start-ups in this field have not gone beyond the pilot

study stage (Chedrawi, & Howayeck, 2018).

There is so much to do concerning blockchain and accountants can bring expertise in this

field. There is little to audit a company with blockchain-based transactions with external sources.

However, there is much to pay attention to how transactions are recorded and recognized in
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financial statements. In the long run, auditors and regulators would evaluate transaction

authenticity with certainty over those transactions. It is not clear how the introduction of

blockchain would affect accountancy in employment. The challenge poses a new challenge to

financial accountants.

Time management

Blockchain is a fast means of transacting. Transactions are processed in a very minimal

period. Regardless of weekdays or holidays, blockchain operates normally. Banks also can

exchange revenue between firms quickly, efficiently, and securely. In the stock business, the

settlement and clearing process can take around three days. During this process, money is frozen

by the use of blockchain, the processing time is reduced. According to a French consultancy

estimates that consumers could save approximately $16 billion in banking and insurance fees per

year through blockchain applications (Conway, L. 2021).

Recommendation

Blockchain is a distributed computing system but it does not have features that make up

a distributed computing system. The main aim of a distributed computing system is to ensure that

transactions are following the rules and regulations. Meaning that the blockchain system is not

soo beneficial for companies. The limitation should be rectified.

The issue on scalability is whereby for transactions to be completed the network should

not be congested. As more people join the network, chances are the transaction will be delayed.

The solution to this kind of shortcoming should be; transactions should be done off-blockchain

but store and access information.

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Permissioned networks should be emphasized when it comes to energy consumption. The

miners perform complex statistical problems that to the real world are not ideal. permissioned

networks have limited nodes that make work less cumbersome. Therefore private networks

should be integrated to make work easier.

The decentralization nature of blockchain should be rectified. For instance, if one forgets

their private keys to their wallets chances of retrieval are almost impossible. The chances are that

the wallet will never be recovered even if it has important details. Centralization should be

embraced to mitigate this kind of risk.

The government should teach people how to use blockchain as well as management. The

skills will ensure that blockchain impacts people positively and many people benefit from it.

Blockchain is still not standardized. It seems that it will take some time for it to mature.

Different diverse solutions should work together to solve this problem. The limitations of

security such as cryptographic cracking, double spending, and 51%attack should as well be

looked into. Ripple, hyper ledger, and there are some of the solutions that can help in solving this

problem.

Conclusion

The use of blockchain technology in financial accounting will progress with time. In the

short run, the application could be used as a medium where companies can disclose information

that will help in solving the trust issues with investors. Blockchain will reduce mistakes in

disclosure and record management and increase the quality of information accounted for and

eradicate information asymmetry.

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One threat related to the blockchain is raw information; this problem can be rectified

through auditing. This will prevent counterfeiting and help in authenticating business operations.

The responsibilities of financial accountants will differ from transactions recording and

preparing statements to authenticating the source of information and valuation of the smart

contracts in blockchain use. The difficulty of regulation is another problem related to blockchain.

The problem can be resolved by the use of consortium instead of the public blockchain. In

general application of blockchain has both positive and negative impacts. Once the technology is

matured enough the blockchain will be more integral to the financial accounting department than

it is currently.

Ethereum and hyperledgers are blockchain solutions. Ethereum solves inefficiency by

switching to a better technology solution with automation by use of smart contracts. Ethereum

also uses proof-of-stake (PoS) instead of proof-of-work (PoW) which I more reliable.Hyprledger

unifies blockchain solutions in one entity.

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Reference List

Banerjee, S., Das, D., Biswas, M. and Biswas, U., 2020. Study and survey on blockchain privacy

and security issues. In Cross-industry use of Blockchain Technology and Opportunities for the

Future (pp. 80-102). IGI Global.

Chedrawi, C. and Howayeck, P., 2018. Audit in the Blockchain era within a principal-agent

approach. Information and Communication Technologies in Organizations and Society (ICTO

2018):“Information and Communications Technologies for an Inclusive World.

Conway, L. 2021. Blockchain Explained; Investopedia

https://www.investopedia.com/terms/b/blockchain.asp (accessed on 7 november 2021)

Frankenfield, J: Permissioned Blockchain. 2020. Investopedia

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Gregorio, M.D, 2017. Blockchain: A New Tool to Cut Cost. PWC.

https://www.pwc.com/m1/en/media-centre/articles/blockchain-new-tool-to-cut-costs.html

Jimi, S. Blockchain: How a 51% Attack Works Double Spend Attack. 2018. Available online:

https://medium.com/coinmonks/what-is-a-51-attack-or-double-spend-attack-aa108db63474

(accessed on 1 May 2018).

Jump up Morris, David Z. (15 May 2016). "Leaderless, Blockchain-Based

Venture Capital Fund Raises $100 Million, And Counting". Fortune. Archived

from the original on 21 May 2016. Retrieved 23 May 20

Khan, S.N., Loukil, F., Ghedira-Guegan, C. et al. Blockchain smart contracts: Applications,

challenges, and future trends. Peer-to-Peer Netw. Appl. 14, 2901–2925 (2021).

https://doi.org/10.1007/s12083-021-01127-0
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Liu, M., Wu, K. and Xu, J.J., 2019. How will blockchain technology impact auditing and

accounting: Permissionless versus permissioned blockchain. Current Issues in Auditing, 13(2),

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Miraz, M. H., & Ali, M. (2018). Applications of blockchain technology beyond cryptocurrency.

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Ullah, N., Alnumay, W.S., Al-Rahmi, W.M., Alzahrani, A.I. and Al-Samarraie, H., 2020.

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