22 Ways Blockchain Will Change the Accounting Profession Forever

Illustration of network with city backgroundWill you be ready?

By Hitendra Patil
Accountaneur: The Entrepreneurial Accountant

Stock exchanges and banking systems have worked on similar fundamentals in handling and creating what are known as “non-repudiable” transaction records: straight-through processing (STP), electronically connected networks of intermediaries in their “ecosystem,” etc.  But unlike bitcoin, the stock exchange and banking systems are highly regulated and centrally owned.

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More recently, bitcoin technology has created a similar “distributed shared ledger” ecosystem.

In other words, blockchain-type systems have existed in professions that involved various degrees of public participation.

How this will happen in accounting is highly complex for this post to discuss but what is more important is what blockchain can and will do to the accounting profession.

Let us not worry, for the time being, who will create and own this public/private technology infrastructure. Let us also not worry about how this blockchain accounting technology will be designed and created.

Here’s a sneak peek into the future of how blockchain can transform clients’ experience of accounting.

P.S.: Please do NOT try to figure out the “how” yet. Just read on and try to visualize the future as described below.

  1. Eventually, accounting firms will go away, just like bookstores.
  2. An accountant will NOT become extinct. She will be just doing something (absolutely, totally) different (and surely more valuable work).
  3. Auditors, rather the current way audit processes work, will go away too.
  4. This is because “audit” will be easy and highly cost-effective with access to a public shared ledger.
  5. A client will NOT provide information, data and documents to the accountant – ever.
  6. Gone forever will be the days when a client sent a shoebox full of receipts to the accountant.
  7. Client’s accounts books, and the blockchains – the shared ledgers – will get created constantly and automatically, as and when transactions are taking place. Sometimes even before they happen!
  8. Just like the doctors and nurses who monitor the patients’ health, accountants will monitor financial health of clients, but online, in real time and almost always remotely.
  9. Clients will NOT need to file tax returns. This is because the government will have the information already and the government will refund the extra taxes deducted from financial transactions. People won’t be able to avoid or evade or pay fewer taxes than they owe – ever. So, people will NOT ask accountants to prepare tax returns. Instead, they will seek advice to “prepare for” optimized tax deductions.
  10. Clients will NOT run out of cash to run their businesses – at least not fast. This is because banks will release cash automatically into their checking accounts when needed, as financing on their “preauthorized linked assets” will be created automatically, online, in real time.
  11. Accountant will tell clients the precise time when they will lose those assets if the bank keeps putting cash into their checking account.
  12. Clients can see the future of their business. Every day. Every minute. At the speed their business operates, their accountant will show them the balance sheet of future months and years.
  13. If a client’s business has started to go downhill, his accountant will tell him precisely how many days or months he has before he will lose everything.
  14. If a client’s business is on an upswing, she will know precisely when will it reach stagnation stage based on performance of her industry peers and as the impact of new technologies and regulations kicks in. In other words, her accountant will tell her how much time she has to create a new product or service to keep the upswing intact.
  15. Clients will make and receive fewer payments. This is not because their business is slow but because vendors and customers will settle monetary transactions on net basis, not on gross basis – because everyone’s accounts books will be networked.
  16. Clients’ books will tell them, automatically, who are their “currently good” customers who are likely to be bad ones in the near future, even when revenue from them is growing, as their books will be synced with their customers’ books.
  17. Client’s books will also tell them, automatically, who are their “currently bad” customers who are likely to be good ones in the near future, even when revenue from them is actually reducing, as their books will be synced with their customers’ books.
  18. Clients’ books will tell them automatically which of their customers and vendors are likely to go out of business and by when, because their books will be networked. And of course, they too will know, online, in real time, if their accountant’s business is doing well or bad.
  19. Hold on! Clients’ accounting is NOT going to be emotionless robotics. Just the data and information handling will be robotic. Clients will still have their accountants as their even more trusted advisor, in the flesh.
  20. Clients WON’T have to make appointments with their accountants anymore. Clients can ask an accountant or a financial advisor – online or by phone, in real time – by picking the one they want from several out there. Clients won’t even have to send any accounting data to them. Clients will just share it with accountants while the online session lasts.
  21. Today’s accountants will be tomorrow's business strategists and growth directors for their clients.
  22. And yes, there will be NO fees to be paid for “accounting.” Clients will pay their accountant only for use of her knowledge, experience and wisdom to help them navigate their business and financial situations.

16 Responses to “22 Ways Blockchain Will Change the Accounting Profession Forever”

  1. Charles Markowicz

    I see the same in Europe, although I don’t fully agree with what the profession will become : on one hand as a lot of work disappears, many juniors and students won’t have a job anymore as the volume per practice will be reduced. On the other hand, we may all offer consultancy, advisory or mentorship services but how many clients will request it and at which level ? A grocery owner, a solo consultant, a two-partners press Agency… might need some servics from time to time but not to the extent of the profession past revenues.

    Reply
  2. Hitendra R. Patil

    Read Part III of the series of posts on this subject i.e. Blockchain and The Accounting Profession here: “Is Blockchain a Cloud Killer?”: https://goo.gl/Hp71FL

    Stay tuned for the next parts that will bring more actionable insights….

    Reply
  3. Hitendra R. Patil

    Blockchain technology is moving into the financial mainstream with IBM and seven European banks. When a merchant sells goods to another party and those goods arrive, the blockchain triggers a payment to take place, explained Wiebe Draijer, chairman of the executive board at Rabobank, one of the participating banks. (Read the news here https://goo.gl/gK8Szy).

    If blockchain technology can trigger, in trusted ways, those all-important money movements, what happens to the need for making AP and AR entries in the books?

    My thoughts are that it will NOT replace accountants but actually help accountants to move to a much higher ground in the total value-chain in the profession. It will be an UPGRADE from being “required” to clean the messy books to a higher level of financial management consulting and advisory.

    Reply
  4. John

    Sounds plausible for the sophisticated clients who are computer savvy but these types of articles ignore the large group of the public who are not. Then this assumes the IRS is competent & trustworthy for THEM to prepare the returns for the taxpayers.

    You would be surprised at how much of the public are not even hooked up to the internet.

    Reply
    • Mario Costanz

      The IRS does not need to be competent & trustworthy for a blockchain tax preparation solution to work (even though I feel that they are). A blockchain is immutable, secure and transparent. Data will flow from data source to a tax return automatically in the patent pending blockchain tax preparation solution I am building. The business as we know it will never be the same. ;)

      Reply
  5. Robert

    What about avoiders or shadow economy that will refuse to feed the system?
    A lack of bio-diversity (for lack of a better term) leaves blockchains open to manipulation ala the 2008 crisis and the bitcoin hack.
    It will also hinder innovation by being unable to “account for” things that are beyond established system scope.
    In the block chain dystopia data interchange will eliminate the bookkeeping element and AI will eliminate human analysis element (read CPA) by being faster & better at pattern recognition.

    Reply
  6. Frank Stitely

    WebMD didn’t kill doctors and AI won’t kill accountants. Expert systems tend to get co-opted by the experts, because the general public can’t understand or easily use the results from the systems. CPAs will use the expert systems to craft solutions for clients.

    Reply
    • Mario Costanz

      Blockchain technology is much bigger than what WebMD is to the medical industry. There will always be a need for people. The industry will be transformed and look nothing like it does now within 5 years. Systems are being built (including one by myself for tax preparation) that will be easy to use and immutable. The CPA’s role will become one of consultation and review with little left to do on the preparation side.

      Reply
      • Hitendra R. Patil

        A couple of years ago, I wrote a post – with some fun included – “How Will Accounting Firm of The Future Do Business?” – https://goo.gl/RmB1e1. I had a little idea then that the picture included therein for fun might actually become a possible reality in future. I firmly believe that accountants can absolutely, positively change the lives of people, not by “preparing” the information but by being able to relate the insights from that information with the life stages of people. And fortunately, technology will make it possible for accountants.

        Reply
  7. Hitendra R. Patil

    Thanks for sharing your thoughts in detail, Katrina! Indeed – it is just not good for a talented and experienced CPA to waste her precious time on “cleaning” up data. And yes, the DIY bookkeeper – who has no formal training in accounting principles – who thinks he/she is a bookkeeper/accountant just because he/she can input data in a software – is the cause of colossal loss of time, effort, money AND talent of qualified accountants. It is indeed an unfortunate fact that DIY technology was perceived to be the solution to save a few hundred dollars a month in professional services fees. One of the key reforms that accounting profession needs is “standardization of data exchange” – just like what telecom and banking industries did decades ago.

    Reply
  8. Katrina Geety

    Really? I have cleaned up so many clients’ records from the QuickBooks Online bank feed and from other software integrated services. I may have one or two that have mastered the integration process, sort of. If I could take a picture of my accountants page, you would see how many “unreconciled” transactions each company has. I have always professed “garbage in, garbage out”. A transaction with AT&T may be phone services, internet services or new equipment purchases. Who makes that decision and allocation? Who analyzes all of the electronic transactions being originated by individuals and businesses. Someone has to take the time to interpret them on the receiving end. So, the transaction didn’t have to be entered (date, payer and amount), but everything else does.

    We developed a highly integrated POS, distribution, warehousing and financial reporting application internally at McCrory Stores back in the late 1980s. There were 1200 stores nationwide, 12 distribution centers, 1 warehouse near the port of Baltimore and corporate offices in York, PA. We did it. Everything was electronic. But integrating with entities outside of our internal network was challenging. Sharing replenishment orders with vendors, coordinating shipments, returns, etc. was difficult. When the entity you are working with is out of your control, the standards and processes you want to operate by are out of your control. I am all for it. Always have been, especially in tight networks (major customers or suppliers).

    As an accountant that serves privately owned businesses, our clients are able to import and download data. But they don’t know how to process the feed…is it a deposit or payment on account as an example and how do they post it. I am exhausted from cleaning up companies’ data that is a train wreck, because the software company empowered them to be a bookkeeper, when they have no clue about accounting concepts. The DIY bookkeeper is a nightmare for accountants. The reason they went that route is because they didn’t want to pay for professional services and they were led to believe that they could be successful with the software. And now they have a huge mess to clean up. And they chock at the estimated fees to clean up the mess.

    Maybe large companies have the skilled resources to make this happen, but not in the majority of companies operating in the USA.

    Reply
    • Roberta Biros

      Katrina,

      I can not add a word to what you’ve said. Your summary is spot-on! I also serve privately owned businesses and have had the exact experiences you shared. The self-serve approach provided by QuickBooks online is a disaster but the client doesn’t know what they don’t know. Something else compels them to need my services. When I take a look at their books I am overwhelmed at times by the hundreds of unreconciled transactions sitting out there waiting for someone to do something with them. Some are ten years old. The auto-feed must be incessantly managed in spite of the fact that QB will tell you it “learns” where to post transactions. Thanks for sharing your thoughts.

      Reply
  9. Hitendra R. Patil

    This is Part II of the series of posts on this subject i.e. Blockchain and The Accounting Profession. Read Part I here: Blockchain Accounting Is an Oncoming Train But you CAN ride it to the new destiny of your practice. https://goo.gl/gkvpRX

    Stay tuned for the next parts that will bring more actionable insights….

    Reply

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