Technology is changing fast, and it’s hard to keep up. Blockchain is one of the most promising technologies, with perhaps the most tremendous potential to upheave the accounting industry.
You’ve probably heard of NFTs, those nifty images whose values shot ‘to the moon’ a few years ago as they broke onto the tech scene. And you’ve undoubtedly heard of Bitcoin, the first cryptocurrency that vaulted the dark web into infamy. However, those headlines grabbing instances were just the precursor to the massive upheavals blockchain technology will sweep in.
With the potential to redefine transparency, data security, and operational efficiency, blockchain technology is setting the stage for the future of the CPA industry.
What is blockchain?
Blockchain is a decentralized ledger system that comprises a peer-to-peer database of secure records. Unlike traditional databases, where data is stored in a central location, a blockchain distributes data across a network of computers. Each blockchain record, or ‘block,’ is chronologically linked to the next, creating a chain of interrelated data blocks.
Nowadays, blockchain has moved way beyond Bitcoin and other cryptocurrencies. Its potential to securely record nearly any data exchange – from contracts and communications to votes in an election – gives CPAs something to be excited about.
Advantages of Blockchain for CPAs
Flawless records
CPAs love clean and organized records, and that’s why every CPA will love blockchain. Every transaction on the blockchain is meticulously documented, time-stamped, and cannot be changed or deleted, creating an immutable record that you can instantly retrieve, making auditing and reporting incredibly more efficient. Time to say goodbye to file cabinets filled with paperwork or digital clutter in endless folders on a messy desktop!
Also, just because records are meticulous doesn’t mean there aren’t other areas where fraud or errors can be committed. The human element involved in initiating transactions or interpreting and applying regulations can still lead to inaccuracies or intentional malfeasance. This is where the unique expertise of CPAs remains crucial for their ability to provide oversight, apply professional skepticism, and ensure that ethical and regulatory standards are upheld.
Security
In a world where cyber threats are increasingly sophisticated, blockchain’s decentralized nature provides an answer to the challenge of keeping client data safe and sound. Rather than storing all data in a single, vulnerable location, blockchain scatters it across numerous blocks across the network. Any attempt to tamper with data in one block would require a simultaneous attack on all blocks in the network – a feat nearly impossible to achieve, at least by non-state actors.
Automation
Imagine the following scenario. You log in to your computer, spin up your artificial intelligence assistant, and initiate a sweep of your client’s blockchain. Then, your AI assistant compares that data to the documents stored in a vector database, a form of long-term ‘memory’ that allows the AI to come to lightning-fast conclusions. A red flag is raised – you take a closer look, and indeed there is a discrepancy.
In such a scenario, hours upon hours of labor-intensive research are simply eliminated. The triple combination of the blockchain, AI assistants, and long-term memory is the perfect platform for automating tasks like auditing, tax reporting, account reconciliation, and account verification. Instead, CPAs can focus on strategic advisory roles and other high-value services, increasing their value proposition to clients. Furthermore, the automation potential of blockchain not only promises to make these tasks more efficient but also reduces the risk of human error, enhancing overall accuracy, efficiency, and trust in the industry.
Smart Contracts
Smart contracts are programmable contracts that automatically execute when predefined conditions are satisfied. They leverage the security and immutability of the blockchain to ensure the fulfillment of contractual terms, reducing the possibility of disputes or fraud.
While it may seem that CPAs are pushed out of the equation, that couldn’t be further from the truth. Each smart contract must have an ‘oracle’ – someone, or something, that ensures the validity of the completion of the contractual terms. And sometimes, that oracle simply has to be a person. Here, the assurance services of CPAs come into play. Let’s use an example to illustrate the necessity of an oracle.
A software development company enters into a smart contract with a freelance developer. The contract terms state that upon completion of a software module to the company’s specifications, a predetermined payment will be released to the developer.
The smart contract can verify certain elements of this agreement automatically. For instance, it can confirm the submission of code by the developer at a particular timestamp. However, assessing whether the code meets the company’s specifications and is of adequate quality requires a human touch.
In this case, that’s where the CPA comes in. With a basic understanding of software development and the specific requirements set out by the company, the CPA doesn’t need to dive into the code but rather verify that the deliverable has been reviewed and approved by the designated company representative, often a technical lead or project manager. The CPA might also check that the approval process adhered to the company’s internal controls.
Once the CPA confirms that these requirements have been met, they update the contract on the blockchain, which triggers the release of payment to the freelance developer. This process highlights how acting as an oracle, the CPA can provide an essential layer of validation and assurance within a blockchain-based contractual framework, even when the contractual conditions don’t directly involve complex financial transactions or audits.
Implications of Blockchain for CPAs
As blockchain technology makes inroads into the accounting industry, it’s natural for some professionals to harbor concerns and misconceptions about their place in a blockchain-dominated landscape. While blockchain does indeed have the potential to automate many tasks traditionally handled by accountants, the notion that it could render CPAs irrelevant is a significant misconception, as we’ve laid out above.
Though blockchain technology is capable of streamlining and automating numerous accounting processes, it does not replace the nuanced understanding, judgment, and strategic thinking that CPAs bring to their roles. In fact, the rise of blockchain should be viewed as an opportunity rather than a threat, as it presents a chance for CPAs to augment their service offerings and deliver increased value to their clients.
Additionally, the complex nature of blockchain technology itself creates a new realm of advisory services that CPAs can provide. Understanding blockchain technology, its applications, and its implications are set to become increasingly vital for businesses. CPAs with a deep understanding of blockchain technology will be in a prime position to guide their clients through these complexities, enhancing their own practice and demonstrating their invaluable role in an evolving landscape. In this context, blockchain should be seen as a tool that enhances, not threatens, the practice and importance of CPAs in the accounting industry.
In Conclusion
In conclusion, blockchain technology presents a host of opportunities for CPA firms willing to embrace change and leverage these advancements. Early adoption and understanding of blockchain technology can significantly strengthen CPA practices, positioning them to thrive in an increasingly digital and interconnected world.
Therefore, it’s essential for CPAs to educate themselves about the implications and opportunities of blockchain for their profession. The time to explore and understand blockchain is now, as its impact will only continue to grow. The more you know, the stronger your practice will be when blockchain becomes the new norm in the industry.
