Benjamin Arunda

I am a Certified Blockchain Expert (CBE) and author of Understanding the Blockchain.

How Blockchain's Impact on Accounting Made Me Switch My Career

When I joined the university for my undergraduate course several years ago, I was excited that I am going to be an accountant thus handle money for big companies and work for the big 4 audit firms - EY, PwC, Deloitte and KPMG.

Little did I know that accounting was also evolving on the wheels of new revolutionary technologies. Anyway, who knew that there would ever be a technology more innovative than the internet? If there are any, perhaps just a bunch of sophisticated programmers, who are actually the ones innovating the new technologies.
Accounting has changed so much over the last decade!!
After graduating, I proceeded to do ACCA and then a certificate in Quickbooks accounting software, because I was deliberately rolling my sleeves to become a top auditor, a job I would work in until retirement. Then one day I got an an email alert of a new blog on ACCA platform introducing members and students to a technology called Blockchain.
https://www.accaglobal.com/my/en/member/member/accounting-business/2017/04/insights/blockchain-17.html
In the blog, ACCA was suggesting that in the next few years after blockchain is adopted in accounting, perhaps certain accounting and auditing roles will no-longer be needed.
This scared the hell out of me. I discontinued my ACCA studies and registered for programming classes to learn Python and Blockchain development.
After learning blockchain for sometimes and even taking courses with the University of Nocosia and the Blockchain Council, I wrote and published a book titled
'Understanding the Blockchain'
where i discussed the fundamentals of blockchain technology and its use cases.
So, a dreamer Accountant cum Auditor now fully entered the Blockchain industry!!

Blockchain in Accountancy

For long I quite didn't see how Blockchain is relevant in Accountancy until I learnt about Triple-entry Accounting. It's humorous that triple-entry accounting actually started in the 1980's. Recently the accounting concept came to the limelight when Ian Grigg associated it with Blockchain technology.
Triple-entry accounting is an accounting strategy that is an enhancement to the traditional double-entry accounting system. In triple-entry accounting, all accounting entries involving outside parties are cryptographically sealed and linked via a smart contract to a third entry.
The use of Blockchain-based triple entry accounting makes it almost impossible to compromise the way traditional accounting systems are easily hacked and records compromised.
Blockchain is transparent, audit-able and immutable thus a blockchain-based accounting system would be impossible to corrupt once transactions records are entered into the 3rd entry's smart-contract ledger.

Blockchain-based Accounting May Sack Auditors

Auditing is only on demand because companies do not trust their accountants. Accountants are humans thus are possible to compromise, and after-all, humans are to err.
Accounting records are also possible to compromise. Auditing by an external, independent auditor is therefore necessary.
Blockchain-based accounting systems are transparent, auditable and immutable; which means transactions can hardly be compromised. This means if account records are stored on a blockchain, it may not be necessary to invite an external auditor to proof or validate.
So auditors may be hardly needed in future!!

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Comments

January 4th, 2020

Thank you for sharing this information. The accounting profession needs people who want to think about these topics and help move the profession into the future.

A few suggestions/possible corrections:

There are two distinct uses of the term “Triple Entry Accounting” in accounting and they are unrelated . The Yuji Ijiri TEA of the 80s has nothing to do with Ian Grigg’s TEA of the 2000s. Ian Grigg did not adapt Ijiri’s work to blockchain; he, working with Todd Boyle, developed a new idea of financial cryptography over Todd’s GL Dialtone of ‘99-‘01. Ian’s 2005 paper reads like Bitcoin - pseudonymity, hard payments and more. When blockchain instantiated foundational concepts, Ian and others began to layer crypto TEA onto blockchain.

Secondly, TEA is only about trade transactions, and doesn’t help with other business events, so it is an incomplete solution and can’t obsolete auditing on its own. The relevance to construction, manufacturing process, B2C, professional services, etc. is questionable. One good lawsuit against a company, and investors will be left blindsided if relying only on blockchain-based information.

Auditing is not “only on demand because companies do not trust their accountants”. Auditing is on demand because investors, creditors and lenders don’t trust management. Blockchain doesn’t magically make data accurate and relevant; it only promotes data integrity once entered. And most of the data captured by ERP/accounting systems probably won’t even be written to the blockchain, but be kept off-chain and referenced from a blockchain.

Auditing isn’t focused only on whether transactions are modified after being entered into the system. In fact, they aren’t focused on individual transactions as a whole. They are focused on whether the reports fairly present the position and performance of the organization.

I encourage you to come back to accounting/audit, so you can help with a better understanding of the purposes and activities of audit to help the profession’s response to the incredible changes blockchain may potentially bring.

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