Blockchain will completely overhaul the UK’s accounting industry. The ICAEW described blockchain as “fundamentally an accounting technology”, due to the secure and transparent type of transactions. Blockchain can effectively streamline bookkeeping procedures and keep much more accurate records. With blockchain slowly being introduced into different financial markets, we look at how it will disrupt accountancy in the UK.
Streamlining accounting operations
UK head of audit at Ernst & Young Hywel Ball notes the possible disruptions that blockchain will have on internal finance functions.
“Accountants do a lot of transaction processing, reconciliation and control, and that could change significantly if this technology gets adopted on a widespread basis,” said Ball. “The cost savings that the banks are looking at are huge, and most of that saving is people who do the back office, so whether you view those as accountants or ledgers, there’s a degree of challenge to those in the accounting profession who work in finance functions.”
The most obvious place that blockchain will improve is auditing. Internal blockchain systems can effectively log transactions and disseminate the information to different parties. Transactions will be error free because both parties will be able to check them before agreeing to sign anything.
Blockchain in disrupting the status quo of accounting processes
Blockchain is a timely technology that can help accounting firms become more transparent and reduce the chance of errors. This could potentially reduce cases like the Carillion Scandal from happening again. With the Shadow Chancellor John McDonnell stating that his party will be commissioning a review into the entire auditing and accounting scheme in the UK, it is likely that blockchain will be looked at as a way to provide more transparency. Using blockchain accounting firms wouldn’t be able find loopholes in a “regulatory maze [that] allows obfuscation and buck-passing”.
Limitations in disruption
While blockchains will provide more secure and transparent transactions, it is not a full proof system. FXCM in their feature on the limitations of blockchain argues that the technology can come with costs. One limitation that particularly applies to accountancy is the throughput challenges. While secure, blockchain is much slower at processing transactions. FXCM point to the fact that in 2016, blockchain required 45 minutes to process transactions compared to Visa’s network which could process more than 50,000 per second.
Another limitation is the “51% attack” that is yet to be addressed by blockchain developers. Simply put, the 51% attack is a problem for accountancy firms because it can mess up their customers’ data if an outside influence decides to spread lies on a network. If the majority of data (ergo, the term 51%) states that the false information stored within the blockchain is correct, then, that eventually becomes the truth. Regulatory bodies need to be careful with this attack as it can prevent the positive disruptions of blockchain.
Blockchain is extremely efficient in the fintech industry. Computerworld states that more banks and financial tech companies are embracing the technology’s native capabilities in cross-border payment networks. J.P. Morgan recently launched the Interbank Information Network (IIN), which has the potential to reduce the number of workers needed to respond to data-related inquiries.
The Bank of England, on the other hand, is already planning to create its own Bitcoin-style virtual currency. What will power the virtual currency is blockchain, which means the bank’s accounting department will be relying on the technology soon. If successful, the Bank of England can set the ball rolling and entice other financial institutions and accountancy firms to adapt blockchain into their systems.