Blockchain Accounting Problems Could Be Limiting Mainstream Adoption
Blockchain is the future of financial reporting. However, various issues stand in the way of broader utilization and adoption. A large part of the blockchain and cryptoasset discussion, at least in accounting and financial reporting circles, has been how blockchain will impact and develop the reporting and disclosure process. Conferences, articles, and podcasts have been populated with various takes and versions on a common theme; how blockchain will transform the reporting process and how it might drive to the demise of the audit and accounting profession.
If operating correctly, a blockchain develops a tamper-resistant record of transactions and data that have happened between network members. In addition to the enhanced data integrity a blockchain offers, there is also the fact that transactions, and by extension the blocks that form the blockchain, have been approved through some consensus methodology. Specifics differ from blockchain to the blockchain. However, the fact persists that at least some network members have supported every bit of information stored on the blockchain itself.
Organizations maintain records internally continuously, but the external reporting process relies on the validation and verification of this information through attestation or audit process. Importantly, a conventional audit does not entail a summary of every single transaction.
Instead, a traditional financial statement audit includes the company in question hiring an external accounting firm to audit, test, and otherwise strive to confirm the data being reported to the marketplace. This process may vary from organization to organization, but routinely includes some confirmation, testing, and verification of the amounts put forward by the organization.
Without understandable and consistent reporting, the data stored on a blockchain is not worth much. In other words, better reporting is key to broader blockchain utilization and adoption.
Obstacles to mainstream blockchain reporting
Interoperability: The consideration of interoperability is not a new one for the blockchain space still is of special significance when it comes to financial reporting and attestation. If blockchain, despite the type, is to satisfy the promise of allowing the real-time assurance and reporting of data, the information stored therein must be capable of exported and analyzed by other software tools.
Governance: A permissionless blockchain might have been the original idea and concept behind the blockchain and cryptoasset space. As far as commercial and enterprise adoption is involved, this type of blockchain seems to have been succeeded. Permissioned blockchains proceed to stimulate the adoption of blockchain in the commercial space, but a problem that is still emerging is just how these permissioned blockchains will be governed.
Reporting requirements: Blockchain has transformed how individuals both believe about, and treat, financial information and financial assets, but the reporting obligations for organizations have not kept pace. The financial reporting process and communication is, by its very nature, a complex process that includes inputs, reviews, and comments from an array of market actors.
Blockchain-based applications can streamline and enhance financial reporting, but before that can occur, several fundamental issues must be resolved.Financial reporting and accounting might not be the most scintillating of blockchain conversations, but it remains one of the most relevant and market-moving applications of blockchain.