Why Auditors Need to Understand the Best Audit Tool “Blockchain”
There is a lot for accountants and auditors to understand as distributed ledger technology (also known as blockchain) and digital currencies emerge. First, members of the accounting profession are being challenged to gain a deep understanding of how the technology works. Second, as the use cases for blockchain multiply, accountants and auditors need to consider how the existing accounting and auditing rules relate to distributed ledger technology.
The technology capitalizes on a digital ledger of economic transactions that is a list of continuous records in blocks and has major implications for accountants and auditors because it provides significant transparency and is considered extremely difficult to corrupt.
The potential of blockchain lies in its ability to create a distributed ledger of transactions, of which all participants have an identical copy that can be accessed and viewed in real-time. There are huge implications for payments, and therefore accountants, but also for any industry or process relying on the sharing of information in a secure and timely fashion.
“Blockchain is a distributed, decentralised database technology that maintains a growing list of transactions and, through encryption and other activity, verifies their permanence and is immutable.
Blockchain has significant implications for accounting, and the nature of the accounting and auditing profession. Blockchain is a better ledger. In the financial world every single use case boils down to being able to maintain and reconcile ledgers with each other. There’s obviously a lot of operational and regulatory complexity around that but, at its core, that’s what accountants do, adding entries to ledgers and having multiple ledgers that need to reconcile against each other.
Accountants do a lot of transaction processing, reconciliation and control, and that could change significantly if blockchain technology gets adopted on a widespread basis. The cost savings that the banks are looking at are huge, and most of that saving is people who do the back office, so whether you view those as accountants or ledgers, there’s a degree of challenge to those in the accounting profession who work in finance functions.
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