Reshaping accounting with blockchain
According to the blog of Corl, a blockchain-based startup that brings revenue sharing to promising SaaS and tech companies and investors, all early-stage companies must set up some sort of accounting function.
It doesn’t have to be complex but should address the unique operational needs of one’s business. Once the company matures, it’s time to outsource the work to professionals or think about managing this area through an automated system like blockchain.
In most cases, an accountant will be able to assist in tackling some of the serious questions startups have, like if the state of their personal and business finances qualifies them for a loan, and how they’ll successfully pay that loan back. There’s a minefield of possible problems for SaaS and tech companies in their infancy, and Corl knows this. They offer free advice on their finance blog, in hopes of bringing entrepreneurs up to speed and matchmaking operationally-prepared startups and investors into mutually beneficial revenue sharing agreements.
While Corl uses blockchain’s bookkeeping capabilities for intelligently determining the logistics of revenue sharing agreements and distributing capital, blockchain works in a number of other brilliant ways as well – namely, for accounting. Using something called a distributed ledger, a large network of computers works together to compute secure transactions of digital assets and permanently store information.
Blockchain untangles accounting nightmares
In the world of accounting, blockchain, by many standards, is a match made in heaven, as it is fundamentally concerned with the ownership and exchange of assets and money, while accounting is concerned with measurement and communication of financial information (ICAEW).
According to experts in the world of accounting, blockchain will enhance the accounting profession through increasing clarity of asset ownership and simplify resource management. As you can see, the widespread adoption of blockchain is a logical step forward for accounting firms.
Traditionally, accounting has been based on something called a ‘double entry’ system, which goes all the way back to the Renaissance. Double entry instils confidence in bookkeepers that they can trust their own records. The system is in place because every business transaction involves an equal and opposite effect on two or more accounts, requiring a balance between credits and debits.
Unfortunately, the double entry system is concurrently managed with independent human audits, and each audit smacks the assuming company with a cost, related directly to the system’s complexity. In many cases, an organization will have records all over the place that need to be maintained, with employees across multiple departments working for this purpose.
The advantages of blockchain for accounting spread across every domain of bookkeeping, saving time, labour, rendering accounting costs negligible and increasing the reliability and transparency of everything tracked. With blockchain, participants can log and monitor records across domains. The technology is inherently decentralized, meaning that the node network is not controlled by any single entity – rather, any attempted changes to the timestamped records must be confirmed by all parties of the network. In this system, transactions and records can never be changed without every user aware of the event. In other words, falsifying or destroying records is impossible (In essence, what we are looking at is a significant drop in the amount of time it takes for auditors to confirm balances. Similarly, operating managers will be able to keep up with changes in their business in real time and stay level with any important financial information that pops up.
Blockchain promises to dramatically change the world of accounting by reducing auditors and their costs. According to ‘Innovation Enterprise’, blockchain “fills the precise function of the auditor”, assessing the degree of correctness on a company’s financial statements.
With blockchain, business operations across branches, departments and organizations can be consolidated into a single, easily accessible registry that may significantly reduce the amount of human error inherent in accounting.
Advancements made in this field are not without their share of challenges. One major question for auditors is how blockchain may affect their livelihoods, and to what extent technological automation could replace human jobs. This seismic shift could, by necessity, turn regular accountants into bona fide data experts. At the same time, that the technology may replace some practitioners has become a legitimate worry for accountants.
Right now the big accounting firms who make the majority of their revenue from auditing are pumping resources into blockchain to smoothen business operations in order to hopefully put labour in these areas to more efficient uses. The accounting giant Deloitte has over 30 blockchain prototypes in action, with a recently launched 20-member strong firm in New York for the advancement of the sector.