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

revamped by the reduction of the negligible errors by the least involvement of the humans in
the processes.
The triple entry accounting calls for the addition of a third element other than the
global standard debit and credit, and is an alternative method of accounting (Kokina, Mancha
& Pachamanova, 2017). It is known as the method of agreement on the objective reality.
Some of the features that comprise of the triple entry accounting system are the existence of
the self-executing entries on a secured platform of the third party, and the non-availability of
the options of the alteration of the transactions once entered into the chain process
(Woodside, Augustine & Giberson, 2017). Further, each transaction can be verified
efficiently and the maintenance of the blockchain in not done on the internal servers of an
entity. The fact that the data is maintained in a decentralized manner leads to the reduction of
the security threats. Thus, it can be rightly stated that all the transactions in the chain are
backed by the highest level of encryption technology (Fanning & Centers, 2016). The said
method of accounting would call for the elimination of the “control account” or “suspense
account,” and adoption of a more controlled approach in the third party verification process
as aided by the blockchain. Thus, there would be a reduction of the substantive testing on
external audits (Crosby, Pattanayak, Verma & Kalyanaraman, 2016). The triple entry
accounting would lead to the provision of the enhanced audit records as real time status
updates would be available to both the parties of the transactions.
I agree with the arguments presented by the authors, regarding the enhancement of the
accounting and the auditing profession with the use of the blockchain technology. The author
Yermack (2017) has also accorded one of the chief benefits of the accounting through the
blockchain to be the real time accounting and status updates. Thus, a personalised set of the
financial statements can be created by the parties as and when needed by the aid of the instant
access to accurate financial information (Coyne & McMickle, 2017). I further agree with the
fact that the revolution can be achieved in the auditing profession as each and every entry can
be verified by each of the parties concerned. Further, as stated by the authors in their work,
transaction tampering is one of the major issues in the accounting profession and I agree with
the authors views that as the transactions are posted as a part of the chain, the same cannot be
altered by the parties. Thus, the blockchain enables a better governance structure and internal
controls within the entity (Zheng, Xie, Dai, Chen & Wang, 2017). Hence, I agree with the
authors views that the blockchain holds an ability of creation of an enhanced accounting
framework based on real-time, and transparency and thus makes the profession more reliable.

Further, I agree with the authors’ views that once the accounting system is simplified and
becomes more precise, the auditing profession is also enhanced to be less time consuming
and agile. However one thing to be noted herein is that most of the present accounting
software are not compatible with the blockchain technology in technical terms. So for the
firms to be establishing the said technology, an adoption of the cloud based accounting
service is must in addition to the hiring of a blockchain developer. Thus, an initial investment
would be one of the considerations for the firms to adopt the said technology in the
operations.
The following section is descriptive of certain crucial challenges and problems with
the use of the blockchain technology in the accounting profession, as listed below. One of the
major challenges in the adoption of the blockchain technology in the accounting profession is
that the technology can be slow and the critics often do not consider the same to be viable for
large-scale applications and organisations. Further, another problem that could arise is the
development of the consensus among the various parties as numerous people can participate
in the network. Yet another problem is the cost of the electricity because on the excessive
reliance on the intensive computing power. In addition, the huge computer rigs with multiple
servers are also a costly affair for the organisations. In addition to the above listed issues, the
next issue in the implementation is that there are still a number of areas in the blockchain
where regulation is uncertain. One such area of uncertainty is the self-executing contracts or
the smart contracts. Thus, there are absence of the common regulations to enforce the
uniformness in the implementation of the technology. There is still a lack of collaboration
and uniformness in the network of the blockchain. It is needed that the increased
collaboration is exercised with the aid of participants such as technology providers,
regulators, organisations and governments.
The discussions conducted in the previous parts aid to conclude that the development
of the technologies there has been enhancement in the varied areas of business operations
over the years. One such work of Dai and and Vasarhelyi (2017) has been critically reviewed
which has elaborated the technology of the blockchain and its wide impact on the accounting
profession. Some of the other literary works have been studied to examine the arguments
presented by the authors such as the enhancement of accounting by real time updates, non-
allowance of modifications of the transactions and others. Further, the crucial problems have
been identified in the application of the blockchain technology. Thus, it can be concluded that
the work has been comprehensively prepared and is informative.

References
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