There is a new technology that is changing the landscape of fintech and also privacy and data security. That technology is blockchain. Nasdaq.com recently came out with an article about the big 4 and blockchain. I think they just copied our article about the big 4 and blockchain but whatever. Copycatting is a form of flattery.
This is especially relevant now with the price of bitcoin exceeding $4,000.
I want to talk about the applications of blockchain to accounting. I don’t think everyone understands how it can be utilized in accounting. I don’t even think the big 4 fully understands right now because it is so complicated.
Ok what is blockchain?
Blockchain is a distributed database and a group of controls that store and share that information. It is decentralized information. That is why it is going to transform the world. By being decentralized, it creates an extra layer of security for everyone’s data.
Blockchain is Bitcoin, Right?
When many people think of blockchains they think of bitcoin. Bitcoin is not a blockchain. It is a cryptocurrency that supports a blockchain.
What’s an example of a blockchain?
To help conceptualize blockchain I’ll give a quick example of a blockchain application. One of the applications of blockchain that everyone talks about is a smart contract.
For example people talk about the titles of property when they talk about smart contract on the blockchain. More specifically they think of titles of a house. Wouldn’t it be nice to have the total ownership history of a house maintained on a ledger versus having to rely on title lawyers?
So that’s how you have to think of it. It has the capabilities of maintaining the history of important transactions with the added feature of privacy and security because it is decentralized and secured with cryptography.
If everything is decentralized, it makes it harder for hackers to take down a company’s information all at once.
Why do accountants care about blockchain?
Now why do accountants care about blockchains. Accountants care about blockchains because clients would value having their data decentralized, so that no one event could compromise their system. Additionally, blockchains could wipe out auditing completely. If everyone is constantly verifying the data, then why do you even need an accountant?
For example, most people need financial statements for regulatory approval or to satisfy shareholders. What if those regulators or shareholders were on your blockchain, they could see all the transactions and verify that they are ok.
As far as financial statements go, I still think people will still need summary financial statements that will be supported by a ledger that is on the blockchain. And then that will have to be audited. Deloitte has already conducted an audit of a blockchain, but who knows what that really means since there are no standards on how to audit a blockchain. I do think auditors will still be auditing even after the implication of blockchain.
Ok so what are some ways that blockchain can be used in the accounting and tax industry.
Ways blockchain will be implemented in the accounting industry
- Tax Compliance
I think that taxing agencies will move to the blockchain one day. I think state taxing agencies in the united states will be some of the the first to adopt because they are greedy. States will likely mandate that taxpayers join their blockchain in order to transact business in their state. Why do I believe this?
I believe this because states will be able to assess whether taxes have been paid properly instantaneously if they can see all the transactions on the blockchain. They wouldn’t have to wait for companies to fill out tax returns or forms. The blockchain would essentially be one giant tax form.
I believe this is especially true when it comes to simple taxes like sales tax, vat, premium tax and excise tax. I do think the IRS and other global taxing agencies will also adopt the blockchain because it reduces the amount of compliance. The big 4 should be thinking about this and taking the idea to government agencies today as a consulting idea. They could help implement blockchains for taxing authorities. Those projects would be huge revenue wins in the 10’s of millions of dollars.
2. Accounting transactions
Ok so how would blockchain actually work in accounting transactions. It is kind of weird and a logistical nightmare for accounting because the notion of a blockchain means it’s a decentralized network. This means that a company would have to allow other agents onto their network to see and verify all of their financial transactions.
Well what company would allow that? Many people think this can be accomplished through a consortium or private network. People still would not want their competitors and other companies to see their information. For example, who would Facebook have on their network, GE, IBM, Snapchat? Who would they trust to see their information.
3. Accounting Consortiums
In order to form a consortium you’d have to know who you are forming it with unless the big 4 formed blind consortiums for these companies. Which is another huge service offering that the big 4 could provide.
4. Blockchain Node
Another way for accountants and the big 4 could get involved in blockchain is to volunteer to become a node on a network. The companies that are adopting or will adopt blockcahin don’t trust the networks and nodes attached to large scale solutions like ethereum, so they set up private blockchains. The problem is you need a number of nodes to keep the network safe, but who can large companies trust? That is where CPAs and the big 4 firms come in and offer to be a node for companies in any of their blockchain networks. Whether they be related to smart contracts or accounting blockchains. CPA’s have brands of protecting client information and access to important data. This gives them the edge against other competitors in the marketplace. This can be a recurring services as well. This is where accountants and the big 4 can really make a killing. They can offer their trustworthiness and their ability to audit to be members of blockchain networks and blockchain consortiums.
If you are in the accounting industry, you need to start thinking of ways that blockchain will change the industry. The ideas above are just a few ideas. Blockchain will be implemented very quickly and will change the whole landscape of tax accounting so try to learn as much as possible.
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