Financial Accounting Theory and Practice Analyze 2022

FINANCIAL ACCOUNTING
THEORY AND PRACTICE

Over the years, the increased technological advancements has revolutionised the
varied areas of accounting and auditing as mentioned by the authors Dai and Vasarhelyi
(2017). Some of the chief areas and applications that have been reformed because of the
blockchain’s functionality as mentioned by the authors are the financial markets, government
service, insurance sector, voting systems, banking, and the leasing contracts. The following
work is aimed at analysing the various aspects of the blockchain technology as mentioned in
the work of Dai and Vasarhelyi (2017) and other literary works in this context.
The authors enumerated the three phases of blockchain technology comprehensively
in their work and the same is elaborated as follows. The first phase of the blockchain was
concerned with the Bitcoin and digital currencies (Pilkington, 2016). The phase had started
with the setting up the framework of the public ledger. The said public ledger would support
the crypto currency network and would securely record the trading of Bitcoin as a chain of
interlocked blocks (Mainelli & Smith, 2015). The second phase of the Blockchain technology
is represented by the smart contracts as stated in the work of Dai and Vasarhelyi (2017) and
others. The smart contracts are stated to be programs that are user-defined that specify the
rules governing transactions. Thus, the smart contracts are the self-managing contracts on a
blockchain, the triggers of which are the attainment of a particular price or an expiry of a
date. The users of the blockchain can customise the rules on their behalf to convert the same
into a smart contract for the execution of specific tasks (Nofer, Gomber, Hinz & Schiereck,
2017). The authors Dai and Vasarhelyi (2017) stated the example of the ability of the
management in encoding the company-specific rules into smart contracts and thus facilitating
the automatic controls. Thus, the fraud risks can be mitigated as stated in the utility of the
blockchain in the second phase. The third phase of the blockchain technology is concerned
with future. It is imperative to note that there are several issues engrossed in the blockchain in
spite of the numerous revisions, such as that of bottlenecking and the processing times in the
transactions. The said issues when resolved completely opens new avenues for the prevention
of the cyber fraud, by avoidance of the fictitious transactions or backdating of the
transactions. The accounting profession can be enhanced by the reduction of the costs of
maintenance and reconciliation of ledgers. Thus, an absolute certainty can be achieved over
the history and ownership of assets. The Blockchain technology can aid the accountants in
attaining more clarity over the obligations of the organisations and available resources.
Further, by the aid of the technology, resources can be better aligned with the planning and
valuation, rather than recordkeeping. In addition to the above, the accounting industry can be