There’s been a lot of change for finance and accounting lately. We know. And it may feel overwhelming to have to keep up with new technology and the ever-increasing amount of available data to analyze, while trying to figure out if the robot uprising will be a threat or a liberator.
As if all of this isn’t enough to make your head spin — and we know it is — along comes blockchain technology. Tempting to ignore it and hope it goes away, right?
But it’s not going to. And based on its current trajectory, it could impact your organization sooner than you think.
Disruption in the finance industry has become the new normal, and migrating to a growth mindset is the most effective way for accounting and finance professionals to prepare for what’s ahead. It’s also the only way to switch up the typical pattern of lagging behind as the last industry to adopt cutting edge technology.
So, What Is Blockchain?
A blockchain is a distributed, digital ledger with built-in security that records transactions in real-time. Every ten minutes, all transactions are verified across the network, reconciled, permanently time-stamped, and stored in a block that is encrypted and inextricably linked to the preceding block. This creates a chain. A blockchain.
Blockchain is the technology that powers cryptocurrencies such as bitcoin and Ethereum, but its potential for accounting and finance extend far beyond digital currency.
An article in AccountingToday predicts that “blockchain technology may be more important to the accounting profession and its clients than artificial intelligence, robotics, networks and sensors, drones and nanobots.”
The Benefits of Triple-Entry Accounting
Blockchain is structured as a triple-entry system, with both sides of every transaction simultaneously and directly recorded onto a shared ledger, creating a verifiable cryptographic receipt — or digital signature — that is visible to both parties.
The process provides a permanent audit trail, significantly reduces the risk of accounting errors, and guarantees the integrity of financial records. It eliminates central points of attack and protects the ledger from corruption and fraud because transactions can’t be retroactively altered.
It also holds the potential to revolutionize the areas of documentation, invoicing, and payment processing, erase waiting periods and reduce the cost of global transactions.
The Trust Protocol
The heightened security of both data and information is one of the most valuable components of blockchain technology, and it establishes an unprecedented level of trust. The transaction itself can be fully trusted without having to trust the other party.
As a result of this trust protocol, blockchain is being cited as the next wave of disruption, especially for global companies and auditors.
According to an article in Fortune, “The system uses complex mathematical functions to arrive at a definitive record of who owns what, when. Properly applied, a blockchain can help assure data integrity, maintain auditable records, and even, in its latest iterations, render financial contracts into programmable software. It’s a ledger, but on the bleeding edge."
Technology Searching for a Purpose
Now is the time for accounting and finance organizations to research and reveal the ways in which blockchain can benefit their companies. The technology holds the potential to provide a seemingly limitless number of solutions, and it’s growing fast - really fast.
As a result, it’s essential to ignore the hype and focus on the practical use cases emerging from the research from financial institutions around the globe. These range from data management and record-keeping to compliance, and can begin to give your organization a clearer picture of how to adjust your strategy to prepare for the very near future.
"The excitement around blockchain continues to gain momentum as firms see it as an opportunity to get their feet wet with a transformative computing architecture that they believe will change the [accounting] industry," says Selwyn Halbertsma, director of business consulting at Synechron, in a Journal of Accountancy article.
Why Finance Automation Matters More Than Ever
Remember when the concept of “Modern Finance” was first introduced? Since then, finance automation has emerged as the most effective way to modernize your processes, particularly the manual tasks that are part of the financial close.
And if you’re at all familiar with the Continuous Accounting model, you know that preparing for finance of the future is a process-first approach.
Ventana Research states that “there are many ways of putting the [blockchain] technology to practical use that complement and enhance established patterns of doing business. Technology that conforms to how an organization operates and provides immediate, clear benefits usually is adopted broadly and quickly.”
This means that in order to be ready for the benefits of blockchain, you must identify the gaps and areas of process improvement now and work toward operating as a modern finance organization. For just as you can’t automate bad process, you can’t expect to integrate innovative technology like blockchain into a department that still relies heavily on spreadsheets and manual processes.
Shaping the Future of Finance
The value that blockchain technology could bring to finance reinforces that accurate financial data, greater reporting transparency, and automation that streamlines intercompany accounting and ensures compliance will eventually be a permanent part of the financial landscape.
And because blockchain is still in the early stages of what’s possible, there’s an opportunity for accounting and finance professionals to lead this global initiative at its onset, playing an integral role in shaping the future of finance and our world.