The financial services industry is experiencing a rapid transformation, led by the swift development of new technologies and combined with the inevitable need for the digitalisation of businesses. Blockchain is the underlying technology that enables cryptocurrency, which has gained much attention in the last few years. The application of blockchain is not limited to cryptocurrency, however, but can also be used to improve many processes in the financial services industry and beyond.
Blockchain is a type of distributed ledger technology (DLT), comprising cloud-based networks, storage and databases. DLT allows for transactions and data to be recorded, shared and synchronised across a distributed network, consisting of different network participants located in different sites. Blockchain is essentially a “chain of blocks”, where each block represents a set of records. These records can be information of any digital kind, such as personal data, financial assets and transactions, land titles, property ownership and healthcare records.
In blockchain, information is stored and updated simultaneously on all computers (nodes) connected to the particular network. There is no central data storage in a blockchain network and therefore the reliability lies on consensus through a peer-to-peer process to verify and record every item and transaction in the system. This eliminates the need for intermediaries or a central authority to approve these changes. Once a transaction is approved by the network participants, the original record will be left intact while the new information is added at the bottom of the ledger. This process provides a complete audit trail of record combined with the peer-to-peer verification and cryptographic encryption process to secure and ensure reliability of the information.
In a traditional accounting system, accounting records are stored in a centralised location or database, either manually or using accounting software, through which an accountant will have access to the ledger and enter the details or update any changes in the system using the double-entry accounting system. With blockchain technology, the accounting record is accessible to all relevant parties by employing a triple-entry bookkeeping model. This means all stakeholders related to a particular transaction — such as accountants, auditors, clients, banks and regulators — will have an identical copy of the ledger, which will be updated on a real-time basis across the blockchain network. The efficiency and security of blockchain make it an ideal tool in accounting.
As blockchain technology can replace certain aspects of accountants’ jobs in the future, such as bookkeeping, reconciling ledgers and audit routines, the day-to-day tasks of an accountant must be reimagined and reshaped. The automation of the routine tasks will allow accountants to have more time for higher-level tasks and thinking, including analysis, research and strategy-related decision making, where the output can add value for clients and firms.
As the job landscape of accountants evolves, accountants must embrace the change sooner or later. The shift of accountants’ role from bookkeeper to adviser requires that they improve their analytical skills, including interpreting and decision-making. Having reliable information recorded through blockchain increases expectations about the quality of their counsel to the stakeholders.
The use of blockchain also warrants a shift in demand for accountants’ services, from preparing to valuing or validating, as blockchain’s capacity does not span assurance of data credibility, such as revaluation and amortisation. Thus, accountants are required to apply their due diligence in valuing and validating the data stored through blockchain. This can then certainly have a knock-on effect on the auditors’ roles, since the audit process now depends on the new methods and technologies adopted by the audit clients.
Although the benefits of blockchain to accountants are apparent, they also face challenges. The direct and indirect costs associated with blockchain adoption are more burdensome to medium-size accounting and audit firms, whose clients are a mix of blockchain and non-blockchain adopters. The costs can be significant to accountants and auditors, not only in monetary form but also in terms of time, hence the reluctance of small accounting and audit firms to adopt blockchain technology.
Another challenge for accountants is to keep abreast of blockchain-related professional developments to possess sufficient knowledge to perform their tasks. Therefore, to ensure the integrity of accountants is well maintained, blockchain best practices must come into effect. Together with professional bodies, the universities, regulators and blockchain technologists are striving to create the best practices and talent pool in the blockchain ecosystem.
Associate Professor Dr Nor Shaipah Abdul Wahab at Taylor’s Business School, Faculty of Business & Law
Siti Hawa Yusof - Lecturer at Taylor’s Business School, Faculty of Business & Law
Taylor’s Business School is the leading private business school in Malaysia, based on the QS Subject Ranking 2021 edition