A blockchain is a digital ledger which is created for capturing transactions conducted among various parties in a network. It is a Distributed Ledger based on Internet which includes all transactions since its creation. All participants (i.e., individuals or businesses) who using the shared database are “nodes” connected to the blockchain, each maintaining an identical copy of the ledger. Every entry into a blockchain is a transaction that represents an exchange of value between participants (i.e., a digital asset that represents rights, obligations or ownership).
Blockchain technology is a distributed ledger that assures the confidence of everyone involved, and the strong cryptographic basis shows that, when implemented properly, the blockchain offers effectively unbreakable protection. Initially, blockchain was created for Bitcoin, but its much wider potential is now starting to be applied to supply chains, finance, insurance, and other areas. Blockchain, is a relatively new technology, and is poised to change how accounting is done on a more fundamental level.
Blockchain is considered reliable because full copies of the blockchain ledger are maintained by all active nodes. Thus, if one node goes offline, the ledger is still readily available to all other participants in the network. Hence, no single party controls a blockchain and no single party can modify it or turn it off.
Why Blockchain is an opportunity?
Blockchain has the potential to enhance the accounting profession by reducing the costs of maintaining and reconciling ledgers, and providing absolute certainty over the ownership and history of assets and also free up resources to concentrate on planning and valuation, rather than recordkeeping. Hence, Blockchain can be a replacement for bookkeeping and reconciliation work.
In the past, the quantum of data and the numerous sources from which auditors have traditionally needed to collect, organize, analyze, prepare, and assess this data has been a very important factor in determining the duration and complexity involved in the audits. Further, the audit processes were, both time-consuming and potentially error-prone also that do not take full advantage of the ability of the Accounting Professionals’ to see the bigger picture. AI Technology has the ability to harness voluminous data to provide insights and to drive the quality of the audit.
Conclusion:
Since the technology will introduce new risks related to the reliability of the blockchain, automated controls, and related-party transactions, the increasing impact of blockchain on industries and on internal controls over financial reporting also means that audit methodologies will need to evolve.