The studies collected for the review were drawn from accounting journals indexed by the Association of Business Schools (ABS), the Australian Business Deans Council (ABDC) and the Social Science Research Network (SSRN). To help analyse the corpus, we enlist the support of machine learning as found in other studies (Cai et al., 2019; El-Haj et al., 2019; Black et al., 2020; Bentley et al., 2018). From this, we contribute and provide a comprehensive picture and critique of the literature on blockchain in accounting.
The automation capabilities of smart contracts streamline operations, enabling accountants and auditors to focus on strategic analysis. As blockchain technology matures, its potential for real-time transaction processing, traceable audit trails, and secure data sharing holds the promise of increased efficiency and transparency in financial activities. It is also important to understand all the advantages and disadvantages of joining a public or a private blockchain (O’Leary, 2017). There are many different configurations of blockchain, e.g. peer-to-peer and public, cloud-based, private and these all need to be analysed before they can be soundly implemented in different settings. Further, those investigations must include analyses at the accounting, auditing and supply chain levels.
- Moreover, some of the relevant minor issues are related to latency, scalability and energy consumption (O’Leary, 2019).
- By creating digital representations of assets and recording ownership changes on the blockchain, industries such as art, real estate, and intellectual property can ensure provenance and authenticity.
- (2018), “Auditing with smart contracts”, The International Journal of Digital Accounting Research, Vol.
- Every transaction is attached to the previous transaction in sequential order, creating a chain of transactions (or blocks).
Lev and Gu (2016) argue that blockchain may reduce information asymmetry and lead to more effective decision-making. Massaro et al. (2016, p. 2) characterise an SLR as “a method for studying a corpus of scholarly literature, to develop insights, critical reflections, future research paths and research questions”. The possibilities that blockchain brings to information disclosure, fraud detection and overcoming the threat of shadow dealings in developing countries all contribute to the importance of further investigation into blockchain in accounting. A systematic review and research agenda from the perspective of sustainable development goals (SDGs)”, Business Strategy and the Environment, (August), Vol. (2017), “Toward blockchain-based accounting and assurance”, Journal of Information Systems, Vol. Bolici et al. (2020) analyze discussions about blockchain and tourism on Twitter.
Moreover, the absence of standardized protocols and practices across different blockchain platforms poses challenges. The lack of universally accepted norms complicates integration efforts and interoperability between blockchain systems and traditional accounting software. Blockchain’s transparency, coupled with its cryptographic verification mechanisms, simplifies the verification of financial records. Auditors can independently and efficiently validate transactions and financial data, reducing the time and resources required for audits. This ease of verification not only enhances audit efficiency but also strengthens compliance efforts and fosters trust in financial reporting accuracy.
A smart contract can be encoded with an obligation token to execute a payment once certain conditions are met (e.g., the payment due date has been reached). Alternatively, a firm may adopt a distributed private network, which is more like a traditional transaction ledger. Members will be independent, third-party (e.g., vendors, customers, lenders, external auditor) stakeholders that have no direct interest in colluding with other members. Recent accounting scandals and financial restatements, however, indicate that no system is impervious to collusion. Still, blockchain technology offers a promising platform that is more secure and transparent than the technology we use today.
The fundamental problem that blockchain solves in accounting
It would also be worth examining whether the response of managers towards blockchain varies in different industries (Cao et al., 2018). Burragoni (2017) argues that implementing blockchain in the finance industry might help overcome the threat of a shadow economy, given the improved transparency and legitimacy on offer, but this is an assumption that needs further justification. Unless existing processes and systems are truly scrutinised for their potential to benefit from blockchain technology, the full range of opportunities that blockchain presents will not be realised.
The Impact of Blockchain on Audit Practices
Collaboration among industry stakeholders to develop standardized practices can also streamline implementation and improve interoperability. Blockchain’s shared ledger minimizes the need for reconciliation across different entities. Parties involved in a transaction have access to the same immutable record, reducing discrepancies and the risk of errors.
How Will Blockchain Technology Affect The Accounting Industry?
This study’s analysis combined a structured literature review with citation analysis, topic modelling using a machine learning approach and a manual review of selected articles. The corpus comprised 153 academic papers from two ranked journal lists, the Association of Business Schools (ABS) and the Australian Business Deans Council (ABDC), and from the Social Science Research Network (SSRN). From this, the authors analysed and critiqued the current and future research trends https://quickbooks-payroll.org/ in the four most predominant topics of research in blockchain for accounting. With Deloitte COINIA, hundreds of thousands of addresses can be loaded in bulk for a variety of crypto assets, and Deloitte can see 100 percent of the transactions and reconcile them to clients’ books and records. Deloitte COINIA also assists with off-chain verification of private key ownership by using an innovative, custom-developed workflow to confirm the integrity of a signed message.
With blockchain accounting, organizations can effectively execute the double entry system for recording accounting transactions. Blockchain is predicted to eliminate the need for an auditor to review financial statements. Yet, despite the blockchain’s immutability, the audit process demands a determination that the transaction recorded must be backed by reliable evidence.
This streamlined process accelerates the reconciliation timeline, empowers auditors with accurate and consistent data, and fosters trust in the reliability of financial records. Blockchain’s cryptographic techniques establish an unprecedented level of transactional security and authenticity. Transactions are encrypted, time-stamped, and verified by consensus among participants. This eliminates the need for intermediaries advantages of using variance analysis to validate transactions, reducing the chances of errors and fraud. Auditors can trust the accuracy and legitimacy of transactions, which leads to more reliable financial reporting and auditing processes. Accounting has traditionally been a profession that, while highly regarded and respected as quantitative experts, has been focused on historical performance and only been applicable for a small subset of external users.
This decentralized nature ensures data remains secure, maintaining accuracy and trustworthiness even in the face of potential vulnerabilities. For accounting, this process revolutionizes the way transactions are recorded and verified. Each entry in the blockchain is a transaction involving assets, liabilities, or equity, creating a comprehensive digital audit trail. As these transactions are verified and time-stamped, the need for external audits may decrease, as auditors can directly access and analyze the immutable blockchain records.
Accountants will not need to be engineers with detailed knowledge of how blockchain works. But they will need to know how to advise on blockchain adoption and consider the impact of blockchain on their businesses and clients. They also need to be able to act as the bridge, having informed conversations with both technologists and business stakeholders. Accountants’ skills will need to expand to include an understanding of the principle features and functions of blockchain – for example, blockchain already appears on the syllabus for ICAEW’s ACA qualification.
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Because of how trustworthy blockchain technology is, it’s having an impact on how auditing is done. Despite its reputation for security, blockchain systems are not entirely immune to cybersecurity vulnerabilities. While the cryptographic nature of blockchain enhances data protection, vulnerabilities can arise in smart contracts, interfaces, or the software itself.
