Part of what Harshwal & Company has always been about is applying the most advanced technology solutions available to the challenges essential to accounting and the client’s individual business, corporate, governmental, or tribal challenges. The latest technology Harshwal is implementing with customers is Blockchain, a technology designed to distribute accounting tasks across multiple sites in a way that not only saves money in the long run, but also increases the effectiveness, and even usefulness, of accounting processes.
What accounting is all about, in the final analysis, are three things: trust, accurate record keeping, and a tool that helps organizations manage their relationships. The implications of this technology are much broader than that which will be covered in this article. Some of those things will have a major impact on the future of business and the operations of organizations. Part of the reason for implementing Blockchain technology now is to position your organization and its operations so that it will be prepared for the implications of such technologies as they take over the marketplace.
However, the purpose of this e is to define what Blockchain technology is, describe how it relates to trust, accurate record keeping, and a tool that helps manage relationships, and how it can help clients avoid fraud and other extremely expensive costs related to transparency. What the article does not deal with is the implications Blockchain represents when the technology allows data to become what Forbes Magazine has described as a “digital asset.” This refers to the electronically defining, through cryptography and programming, value so that value can be traded, or even used as money. Firms like Amazon with their ability to allow customers to borrow an electronic book for 15 days, or the Bitcoin phenomenon, are examples of some of what the technology can, and will be, able to achieve. The implications are much broader and far reaching than these examples, but this, perhaps, gives some idea about what a “digital asset” can become.
At its simplest Blockchain is simply an electronic ledger of transactions. In accounting these transactions are primarily about the flow of money into a firm and the corresponding outflow as the firm pays its bills or creates value for its stockholders or stakeholders. However, as the previous paragraph says, when implementing Blockchain for the first time, clients should keep in mind that transactions can also be defined values, say an electronic contract or a lease for a good or service. This requires different cryptography and programming, but it is all closely related, and starting to implement Blockchain can lead to other opportunities in the future.
The key to Blockchain technology, though, is that the electronic ledger is kept on multiple computers on a network. No single entity, or office, controls the ledger. Sophisticate algorithms, and cryptography designed to keep the data safe as it moves through the network, govern the accounting functions through a consensus strategy. This strategy allows individuals anywhere on the network to make an entry or effect a change, but strict mathematical rules govern whether or not there is a majority consensus on the networked computers that allows the transaction to take place without being flagged. Once a consensus has been achieved, then the ledger is updated on all the computers that are part of the network. No single person or entity can govern the network. The rules set in place govern the network instead.
This does not mean that accountants have no role in the process, of course. Their jobs change. If, for instance, a transaction is flagged for some reason, the question is why? What’s going on? Is someone trying to manipulate the system for fraudulent purposes? Is something going wrong somewhere on the network that needs attention in terms of either accounting or business practices?
Still, this is where trust comes into play. Transactions accepted by consensus within the system are chained together into blocks, a product of the algorithm. These blocks are then cryptographically protected in multiple copies throughout the network, making manipulation from either inside or outside the organization extremely difficult if not impossible. The ledger is then trustworthy. It is a product of the rules and algorithms designed to create accurate accounting data that is free from manipulation. The ledger can be trusted.
The ledger is also transparent in that the data entered and then consensually accepted by the network’s decision-making rules can be traced easily throughout the system. Key reports and analyses of the data are also stored on multiple computers, providing another level of protection. Access to any of the data is established through the cryptography rules built into the algorithms.
Blockchain is essentially a set of tools that can help Harshwal clients manage increasingly complex interactions within a global economy. Part of the value of the technology is not only the trust within the business or organization it creates, but also the ability to communicate that trust to banks, government agencies that have regulations important to the success of the enterprise, or partner organizations. In too many instances audits have missed essential clues to problems that threaten a firm’s profitability. A good example is the bankruptcy of Lehman Brothers, a firm that appeared to be setting record profits, but ended up being the trigger that brought on the Great Recession. By having the ability to ensure a greater accuracy in reporting real data managed through a Blockchain, relationships can be strengthened. Algorithms can even be set up to help a client manage relationships with firms that they might believe need to be watched as they do business with them.
The application of Blockchain technology is especially useful to organizations like corporations or non-profit agencies that do business and work across national borders, government agencies with operations in many communities or states, college or universities with multiple campuses or instructional sites, Native American Tribes that operate multiple casinos or need the ability to keep data for several communities in their nation, health care organizations that operate with multiple clinics/hospitals/or offices, and any organization that has a need for distributed accounting/auditing/fraud protection. A distributed system with Blockchain consensus rules not only speeds up accounting processes like invoices, payroll, flags about difficult to collect accounts, recording and analyses of accounting data, but it can also be used to develop tools for marketing and managing complex relationships.
Harshwal & Company can install a Blockchain system and then train personnel on how to effectively use such a system to increase efficiency, deliver profits, protect against fraud, manage relationships, and increase trust within and out of your organization.