The 21st century has accelerated the technological advancement in various functions of business. The automation of any business activities has always helped businesses to focus on its core function and stay ahead of its competitors. This is also evident from the fact that consumer demands has been rising in digital world which led to a massive demand of products and delivering the same to them on time. Ultimately this has forced every business to invest in its research and development to change the traditional business models and adopt an updated one.
The transformation of any business model with digital automation has to be integrated with its accounting function as there won’t be an overall progress without achieving an integrated system.
When most of the business adopts Blockchain technology, it becomes necessary for them to opt for an automated Blockchain into finance function. Thus a Blockchain integrated finance division functions on reducing manual transactions while the business’ overall focus can be on expanding its business to various markets. However this should not oversight investors’ involvement in the financial statement. Such automated finance function will help the investors to delve into the bottom of information incorporated in the financial statement. Though the basics of accounting remains same, the adoption of it will be on an advanced basis.
Why Incorporate Blockchain In Accounting?
Blockchain in Accounting helps to improve the integrity of financial statement. It will revolutionize how corporates will collect and present financial information. As these are operated on the trusted common grounds which connects the parties involved in the transaction together with the incorporation of smart payment contracts, this technology will put behind the traditional financial system.
Also such a revolution is necessary to prevent the financial system of the company vulnerable to fraud and misstatement. Some of the world’s biggest financial scams are results of management’s intervention in the financial system which gave them clearance to hack and manipulate financial data.
Blockchain in Accounting can be simplified and explained as below:
- There will be a contract between parties involved in the business. Such a contract will be converted into smart contracts which can either be non-negotiable or alteration requires approval of both the parties.
- The transactions are recorded in a pre-determined chronological order upon initiation of an event.
- Such recorded transactions can be viewed by anyone who has access.
- All the transactions of a business are stored in a joint ledger making a well connected trial of accounting records.
- Such records are stored in a sealed and encrypted way making it difficult for any person without the right key to understand it.
- Most of the data will be stored in cloud, making it accessible to anyone over the world, with access.
- All the reporting part are as per the standardization set by the organization which helps the senior level executives to access the up to date financial position on the go.
Blockchain in Auditing the Accounting Records
- A well automated financial technology will ease the job of auditors.
- Auditor now can access the company’s financial data without having to visit their premises. This relieves the auditors to focus on other works rather than binding the company’s accountants for long time periods
- Standardization of accounting records will help them to verify large volume of data automatically. This results in the reduced time for doing their task on traditional function while focusing on tasks which adds ore value.
- The Auditors then will be regarded as analytical innovators instead of being regarded as an accountant.
Limitation over Implementation of Blockchain in Accounting
One of the major limitations of Blockchain implementation over Accounting is going be the security over the data. However the same can be mitigated using several advanced features such as Hash Strings and encryption of data.
Hash string represents the digital fingerprint of a file. The fingerprint is timestamped by writing it into the Blockchain via a transaction. The integrity of any files can be proven by comparing the original timestamp with the one stored in the Block chain.
Encrypting the data makes it impossible for any intruders from understanding or reading the data without a key to decrypt it. Thus only those people will be able to view the data with the correct key.
The blog post is written by Mr. Nadeem, Tax Advisor at Flyingcolour Accounting & Tax Services. At Flyingcolour, we can guide and help your business with all kind of accounting needs with our up-to-date technology. If you have any query then feel free to call +971 4 4542366 today for a quality consultation or please send inquiry to info[at]flyingcolour[dot]com.
Please Note: This article was published on 10th September, 2020. The information provided in the article is based on the policies and rules applicable at the time of writing it. Talk to one of our consultants for any recent update or change.