With Blockchain revolutionising business in every way possible, it is poised to change the way accounting will be done in years to come. With the increase in accounting frauds, embezzlements and manipulations, the need for a robust accounting system is felt. With the help of blockchain, this problem is solved by using Triple-Entry Accounting instead of Double-Entry Accounting.
Instead of keeping separate records based on transaction receipts, companies can write their transactions directly into a joint register, creating an interlocking system of enduring accounting records. This implies that the accounting records will be safe and reliable and the entries made by both the parties are congruent. As shown in the pictures, an accounting entry entered by one company will be stored in the joint ledger and the other party can also ratify and incorporate that entry. For example, a block could be created once a contract is signed, then a purchase order could be issued against the contract. Bills would be issued against this purchase order and payments against those bills. Thus, it makes tracking easier and ties all those separate pieces together. Having a ledger shows the entire string of related transactions would ease the audit process. It would allow both parties to have real-time status updates about transactions. To put it in simple words, just like one tags someone else on Facebook, the tag appears on not only their timeline but also on the timeline of the person they tagged. Similarly, the transactions involving two parties would also be shown in both the accounting records. The benefits of triple entry accounting are that:
- The cost and time involved in Audit will decline considerably. It may lead to fully automated audits in the future.
- The integrity will be safeguarded as, by using Hash functions, one can be assured that data is unaltered (especially transactions of revenue nature). Since the entries are distributed and cryptographically sealed, falsifying them in a credible way or destroying them to conceal activity is practically impossible.
- It reduces human error.
- The current regime relies upon management to swear that their books are true and fair. However, this not always the case and Triple Entry Accounting takes care of this problem. Auditors, tax authorities, courts and banks would put greater reliance on this data.
- Functions performed by accountants like reconciliation, processing and control would change significantly as most of these activities will be automated (especially for banks). This would lead to huge savings in cost and effort.
- Use of smart contracts to automate the execution of contracts on the fulfilment of certain conditions.
It is yet to be seen what impact this will have on the accountants. With blockchain, there might not be a need for audits in the future. Thus, the auditors and accountants must look to embrace this disruptive technology to provide more Value Added Services to their clients. Triple Entry Accounting will change the future and people must try to embrace such technology to be in line with changing times. With the adoption of technology, there will be no more Enrons and Satyams.
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