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Accounting, finance and tax professionals play key roles in the integrity of our financial systems, from ensuring transactions and risks are reflected in company records to meeting any and all compliance obligations. Accounting and finance functions have great responsibility on their hands—and now have a new, complex technology to understand.
The rise of digital assets and distributed ledger technology, specifically blockchain, has the potential to upend the entire industry. It’s a 21st century technology being applied to 20th century businesses and regulations. Many industry professionals are increasingly being asked to work with these new technologies and are forced to understand the concepts with which they are based and the business models they enable. Financial professionals who are not able to appreciate blockchain’s impact on the industry are at risk of falling behind. At the speed with which blockchain has emerged, organizations need a framework for understanding the inherent challenges and opportunities of distributed ledgers.
Today’s advanced technology is pushing the boundaries of traditional ideas and business models. In this experimental economy, the rise of fintechs and startups are forcing legacy businesses and government regulators to keep pace. Of these advanced technologies, blockchain may be the most revolutionary.
Blockchain has the potential to disrupt industries in their entirety. Fintechs powered by blockchain are challenging full-service financial institutions and breaking down the need for intermediaries. These organizations are gaining traction in areas where banking and insurance licenses are not needed. In addition, they are putting services like payments, loans and spot insurance in front of the consumer where and when they’re needed, in a form that is immediate and frictionless. This means financial professionals must find new ways to keep pace with the change and risk of disintermediation, while also ensuring the efforts to use blockchain are targeted at the right opportunities.
Blockchain introduces opportunities for established entities—the ability to design networks, create incentives and democratize decision-making processes into the fabric of businesses moving forward—changing the corporate world as we know it today. One example is with the use of blockchain in the supply chain function. The immediate transactions enabled by blockchain lower costs by digitizing information flows, offer the ability to track goods with increased visibility and reliable accuracy, and provide the opportunity for liquidity, through financing goods during transit.
Although the public blockchains are not yet scaling in terms of transaction processing speed and data privacy, private blockchains have made much progress in these areas and they will be applied to the public chains over the next 12-18 months. In regards to governments, blockchain also has potential as a tax reporting solution. Concerns about too much information being made public are unfounded, as private blockchains, like Enterprise Ethereum and Hyperledger, exist to address this issue. Now is the right time to start planning for this new era across the accounting industry and the business world at large.
Blockchain has several attributes particularly suited for the tax world and is likely to play a key role in reporting moving forward. The audit process can be very costly and keep accountants tied up for long periods of time, but blockchain solves the problem of compliance by allowing regulators to tap into real-time transaction flows. In addition, blockchain offers automation and transparency, as well as ensures compliance with explicit rules.
Although there are many benefits to blockchain, it’s not an answer to every problem. Financial executives should consider whether distributed ledger is the best approach or if there are other technologies that can better address their issues. In regards to blockchain, the finance function will experience many changes ahead, but the industry at large is putting in place the tools and resources to navigate this new frontier.
To help develop frameworks around blockchain, I have joined industry leaders across accounting, law, tax, technology and higher education to launch the Accounting Blockchain Coalition (ABC). The ABC brings together experts to enable and educate the industry on accounting matters related to digital assets, highlighting similarities from historical examples and clarifying when new issues exist. We then provide an expert forum for dialogue within the industry to help determine an appropriate resolution—accounting treatments, assurance and risk representations, governance, or regulatory and tax compliance. This knowledge-sharing platform will help provide resources and document and share best practices to help finance professionals efficiently navigate the changing accounting industry.
In conclusion, blockchain offers huge opportunities for accounting, finance and tax professionals. As the blockchain and distributed ledgers go mainstream, these professionals will play key roles ensuring and maintaining trust and fairness of the organizations and transactions involved. To ensure industry professionals have the knowledge and background to play this key role, massive education and information sharing is needed. This is the role of ABC, a by industry, for industry nonprofit institution and initiative.
David Deputy is the Director of Strategic Development & Emerging Markets, Vertex Inc.