The inventor of bitcoin and blockchain technology goes by the name Satoshi Nakamoto. Though Nakamoto claims to be a Japanese man born in 1975, most experts believe Nakamoto is a pseudonym. Some have gone so far as to theorize that Nakamoto isn't a single person at all, but rather a collective of people. The mystery persists to this day, despite the efforts of many of the world's best journalists.
As fascinating as this story is, the wide-ranging application of blockchain technology is even more compelling. In a world where disruption is a buzzword, it's still rare for a technology to radically alter the face of an industry. For accountants and auditors, however, blockchain has the potential do just that, especially when combined with other innovations such as machine learning. Because accounting records contain highly structured sets of data, this technology is perfectly suited for our profession. Professionals who aren't at the forefront of learning and testing ways to adopt these technologies risk getting left behind.
Blockchain: Way more than bitcoin
While blockchain was created to facilitate bitcoin, the technology now extends far beyond the world of cryptocurrency. An important facet of blockchain technology is that it is decentralized, eliminating the middleman. Rather than storing data in one location, blockchain technology shares data across a massive peer-to-peer network. Until now, we have relied on institutions or trusted third parties, such as banks, government registries, and other intermediaries, to be in the middle of our transactions to create validity.
The way blockchain technology is structured is said to make it nearly impossible for records to be falsified or corrupted. This is because as transactions are permanently added to the ledger (like blocks in a chain), information is transparently presented to all parties involved and one block is then linked to the next in the chain. Files can also be time-stamped and marked with a virtual fingerprint known as a "hash string" to ensure they remain unmodified. Because hackers cannot access data through a central point of vulnerability, blockchain networks are nearly impenetrable.
How blockchain could alter accounting
Blockchain adoption is still in its infancy, but that hasn't stopped experts from speculating on the vast changes the technology may bring. In a white paper published by Deloitte, the firm hypothesizes that blockchain could "shapeshift the nature of today's accounting." No wonder, then, that all of the Big Four accounting firms are spending a great deal of time and money investigating blockchain applications. For example, Deloitte has established a blockchain consulting business and EY accepts bitcoin for settling invoices.
What might a blockchain-based accounting system look like? Theoretically, it would allow secure, verified information to be stored and accessed by multiple parties across multiple locations. Because a blockchain is encrypted and consensus verified, it essentially notarizes itself. All of this adds up to the possibility of a replacement for the double-entry accounting method that has been commonplace since the Renaissance.
"Imagine a world where accounting was not double entry, but maintained in ledgers simultaneously recording the same item in multiple locations on multiple computers, all self-balancing and checking every few minutes," wrote Tony Hobrow, CEO of VenturesOne Asia and NexAssure Group, in a LinkedIn article. "No middlemen, no reconciliation, no corrupt date, no need for month-end cycles, no need to bring together all the different books and records of departments and counter-parties."
That, in short, is the promise of blockchain accounting.
Combining blockchain with artificial intelligence
Blockchain may transform the accounting world as we know it, but other technological advances are already making waves. Chief among them are innovations from the world of artificial intelligence (AI). A 2018 analysis by International Data Corp. predicts AI spending will reach $46 billion by 2020.
Machine learning is a subfield within AI that should be of particular interest to accounting professionals. Arthur Samuel, who coined the term, defines machine learning as giving "computers the ability to learn without having to be explicitly programmed." With machine learning, tasks that have traditionally required human intervention can be automated. This technology increases efficiency within the accounting profession to an unprecedented degree, which in turn will affect our future workflow process and how we interact with clients.
When you combine machine learning and blockchain, you get nothing short of a technological revolution. It's possible to envision a world where accounting and auditing happen in real time, with all relevant parties being informed every step of the way — a true continuous audit. That future may still be a ways off, but now is the time to start assessing which processes in your firm could be amenable to AI technology. Accounting firms and corporate accounting departments should start not only learning how to take advantage of the technology, but also testing new ways of working internally with their teams and externally with clients. Starting small with expense reporting or document collection applications can be a way to gain confidence in the benefits of utilizing technology like this before taking on larger applications like general ledger systems.
Visions of the future
What does this mean for accountants and auditors? The short answer is change is on the horizon. While even the most forward-thinking thought leaders don't foresee a world where accounting processes can exist without humans, there's no denying that roles and workflows will look radically different in the next few years.
Auditors will spend much less time performing audits, and more time designing, reviewing, and verifying how information flows between systems. Rather than audits being performed at regular intervals, blockchain and machine learning present the possibility of a true continuous audit. All of this technology adds up to more time for human connection with your internal teams, as well as your external clients, with soft skills, analytical abilities, and advisory services becoming important in delivering value to an organization. With continuous audit, trends and missing data could be identified much earlier, allowing for problems to be proactively addressed, rather than reactively reported. Continuous auditing also would give peace of mind to businesses and their investors while also, hopefully, reducing many of the tasks that accounting firms often have written off or not charged for.
A similar shift could also occur for accountants. Everyday data-entry tasks are poised to become much easier, freeing up time for accountants to focus on analysis and insights. Accountants and firms that develop these skills now will be able to differentiate themselves as the technology becomes widespread. The days of offering value simply through accurate data entry and calculations are numbered, so taking the time to retool now and work on your advisory skills is an investment in the future of our work.
There's no getting around the fact that technologies like blockchain and machine learning are no longer a tiny dot on the horizon. The future is here, and accounting professionals must be willing to adapt.
Amy Vetter, CPA/CITP, CGMA, is an adviser, keynote speaker, and leader of the Technology Innovations Taskforce for the AICPA's Information Management Technology Assurance (IMTA) Executive Committee. She also has authored the book, Integrative Advisory Services: Expanding Your Accounting Services Beyond the Cloud, published by Wiley. Learn more at amyvetter.com. To comment on this article or to suggest an idea for another article, contact Jeff Drew, a JofA senior editor, at Jeff.Drew@aicpa-cima.com.