September 21, 2018
Published: Accounting Today
In its 2017 Hype Cycle for Emerging Technologies, Gartner estimates it will take five to 10 years before there’s mainstream adoption of blockchain. However, major players in the financial services industry are already seeing benefits from the technology, using blockchain as a game-changing “trust protocol” for financial transactions and keep pace with regulatory processes.
In addition, many companies are starting to work with blockchain technology along their supply chain to control sourcing together with their OEM partners. Regulatory agencies are tapping into the prospective use of blockchain to better understand revenue and cost streams of taxpaying companies. This increase in adoption has pushed accounting and finance executives to look at blockchain as a potential technology disruptor in their space, recognizing that there are several key business benefits to leveraging the technology.
With trusted public registries, transparency in the value chain, and the possibility of industry standardization, the ramifications of blockchain technology are significant. CFOs are now looking at this innovative technology’s potential to increase IT security, eliminate redundancies in cost reconciliation, and close the books faster. At the same time, they are looking for a more connected, “in the moment” value chain management process, from suppliers’ suppliers through their own company to customers, partners and other stakeholders like the aforementioned regulatory agencies.
Enhanced security to fend off cyber-threats
Over the past few months, the world has experienced some of the largest cyberattacks to date. This is because the rate of internet adoption and IoT connected devices is outpacing the ability to create proper security. In fact, the 2017 Official Annual Cybercrime Report predicts that cyberattacks will cost the world $6 trillion annually by 2021, up from $3 trillion in 2015.
With blockchain, entries in a digital ledger are protected with cryptography. When financial transactions are made, new blocks are added to the chain and each block is assigned a unique “hash” that represents a set of data without disclosing the data itself. It is extremely difficult to adjust a hash back into its original text as each block is attached to the previous block. This enables verification that certain information — like a password or document, for example — is the same as it was when the fingerprint was stored.
Ownership of a transaction can also be embedded in the technology, verified at every stage, and monitored within the ledger, offering another layer of increased security. With financial transactions being monitored in real-time, it’s practically impossible to commit fraud. Instead of only seeing a finalized version of the ledger, such as with today’s centralized architectures, all users will see exactly how updates to the transaction register were formulated, making it easier to spot fraudulent activity as it happens.
Eliminate redundancies and increase efficiency
Blockchain increases CFOs’ operational efficiency through improved speed, access and legitimacy of transactions. Where transactions are traditionally regulated by a central governing financial institution, blockchain can remove the need for third parties to guarantee a transaction. The technology coordinates agreements among all the parties with a transparent, shared architecture. Transactions can be posted in seconds or minutes, rather than days, and finance professionals have access to the data every step of the way, allowing them to see and track every liquid movement of capital.
Blockchain also eases the timely reporting process, recording transactions simultaneously across all copies of the ledger and eliminating redundancies in record-keeping. Streaming transfers can decrease some fees and taxes, saving businesses money and giving finance professionals back some time to focus more on forward-thinking strategic activities.
Blockchain allows accounting executives to make strategic business decisions through a real-time, end-to-end view of transactions through all ledgers in the system. By integrating blockchain into intelligent technologies, automation tools and existing ERP systems, finance teams can manage transactions under a single umbrella, ensuring they are keeping track in a way that keeps up with the digital economy. This connectivity provides the opportunity to analyze the forces behind market trends to stay ahead of the curve.
The blockchain network can help move away from the exchange of data toward sharing governance over the same data. If a transaction is posted, it can be seen automatically and users do not have to wait until it is transferred to their system — all inclusive of a sophisticated data policy. This enables accounting executives to access a vast variety of advanced analytical capabilities based on mega-transactions, ultimately creating “real big data.” Particularly in the treasury function, this helps tremendously to optimize working capital with full insights and foresights into a company’s value chain. The same holds true for management accounting and controlling — the system allows for unprecedented steering possibilities and decision-making based on facts versus gut feeling and experience.
With a framework that allows the creation of a trusted, digital ledger to securely log information, blockchain provides accounting professionals the opportunity to tap into the full potential of their digital investments. As the role of the CFO continues to evolve digitally, it is crucial that they gain a strong grasp and understanding of the concept behind blockchain so they are prepared to embrace it when the time is right, and can ensure they stay competitive with their peers.