Schmitz, J., & Leoni, G. (2019).

Accounting and auditing at the time of blockchain

technology: A research agenda. Australian Accounting Review, 29(89), 331-342.
Retrieved from https://docs.google.com/a/eiu.edu.vn/viewer?
a=v&pid=sites&srcid=ZWl1LmVkdS52bnwyMDE5LTIwLXEyLWFjdGczMzV8Z3g
6NzkxNmFkMjBjNWZjZDQxMQ

Dai, J., & Vasarhelyi, M. A. (2017). Toward blockchain-based accounting and assurance.
Journal of Information Systems, 31(3), 5-21. Retrieved from
https://docs.google.com/a/eiu.edu.vn/viewer?
a=v&pid=sites&srcid=ZWl1LmVkdS52bnwyMDE5LTIwLXEyLWFjdGczMzV8Z3g
6MzIwYjQwNmU5ZjE5MmFlYg

What is blockchain 4.0 ? (2020). Retrieved from

https://bytesoft.vn/en/what-is-blockchain-4-0

Alarcon, J. L., & Ng, C. (2018). Blockchain and the future of accounting. Pennsylvania CPA
Journal, 27-29. Retrieved from https://docs.google.com/a/eiu.edu.vn/viewer?
a=v&pid=sites&srcid=ZWl1LmVkdS52bnwyMDE5LTIwLXEyLWFjdGczMzV8Z3g
6ZWM2ZjM2MjhiMzEwZDg

(Schmitz & Leoni, 2019)

(Dai & Vasarhelyi, 2017)

(What is blockchain, 2020)

(Alarcon & Ng, 2018)

Blockchain and the future of Accounting

Blockchain Technology: What It Is? https://docs.google.com/a/eiu.edu.vn/viewer?

a=v&pid=sites&srcid=ZWl1LmVkdS52bnwyMDE5LTIwLXEyLWFjdGczMzV8Z3g6Nzkx
NmFkMjBjNWZjZDQxMQ

https://docs.google.com/a/eiu.edu.vn/viewer?
a=v&pid=sites&srcid=ZWl1LmVkdS52bnwyMDE5LTIwLXEyLWFjdGczMzV8Z3g6MzIw
YjQwNmU5ZjE5MmFlYg

Blockchain technology (BT) – also known as distributed ledger technology (DLT) – is a

system in which transaction records stored in blocks are maintained across several computers
linked to a peer-to-peer network that uses algorithms to verify transactions. In other words,
Blockchain is a type of highly secure, distributed ledger system accessible via a public or
private network, where each server on the network has a copy of the system.
Talking a little bit about its background, Blockchain technology was conceived and initiated
by Nakamoto (2008). He used a chain of blocks to create a decentralized, publicly available,
and cryptographically secure digital currency system. That system, named Bitcoin, enables
peer-to-peer digital currency trading. The Bitcoin blockchain can even be viewed as a new
type of accounting database that records the transactions of the digital currency into blocks.

Blockchain Evolution
https://docs.google.com/a/eiu.edu.vn/viewer?
a=v&pid=sites&srcid=ZWl1LmVkdS52bnwyMDE5LTIwLXEyLWFjdGczMzV8Z3g6MzIw
YjQwNmU5ZjE5MmFlYg

https://bytesoft.vn/en/what-is-blockchain-4-0

Since 2009, blockchain has evolved through four phases. Blockchain 1.0 purely focuses on
the trading of cryptocurrency or the ‘‘Internet of Money’’. Blockchain 2.0 involves similar
trading, but with a much broader scope of financial applications including derivatives, digital
asset ownership, smart property, etc. To expand the trading from simply digital currency to a
large variety of products, a new type of application called a ‘‘smart contract’’ was introduced
in the second generation of blockchain, which I will discuss more details later. Blockchain
3.0 expands blockchain systems further, beyond financial and business applications to Cloud
storage products, voting systems, or even government administration. And the latest one is
Blockchain 4.0, which will allow businesses to move their current operations onto secure,
self-recording applications based on decentralized, trustless and encrypted ledgers. Crucially,
it brings the basic, inherent advantages of blockchain within reach of businesses for the first
time.

Smart contracts
https://docs.google.com/a/eiu.edu.vn/viewer?
a=v&pid=sites&srcid=ZWl1LmVkdS52bnwyMDE5LTIwLXEyLWFjdGczMzV8Z3g6Nzkx
NmFkMjBjNWZjZDQxMQ

An implicit process in accounting is the involvement of the human element in all steps.
However, the necessity for the human function may change with blockchain development.
BT can carry a programmed version of human action, which is called smart contracts. Smart
contracts encodes relevant terms into a blockchain and execute automatically when
predefined conditions are met. Smart contracts basically extend blockchains’ utility from
simple record-keeping of transaction entries to automatically implementing terms of
multiparty agreements. Smart contracts can facilitate the execution of audit processes by
automating the transaction reconciliation procedure while providing more transparency to
stakeholders through close to real-time audit reporting. The automated reconciliation of
transactions does not only save time but also reduces the risk of human error. Furthermore, as
the trading history is distributed to every entity in the network, repudiation or modification of
a trade will be almost impossible. For accountants and auditors, smart contracts are said to
play a significant role as they allow for the autonomous recording of transactions in
compliance with agreed terms.
https://docs.google.com/a/eiu.edu.vn/viewer?
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This is an example in which blockchain-based smart contract is used to monitor and operate
a loan covenant. When a company and a bank agree on a covenant, this conditional term is
encoded into a smart contract that is then deployed into a blockchain. The nodes in the
blockchain network will monitor the conditions and activities of the company against the
requirements outlined in the smart contract. Once a violation of the covenant is detected, the
blockchain network will automatically activate the portion of the smart contract pertaining to
that violation. This would lead to actions such as calling in the loan, increasing the interest
rate, or just send off the warning based on the agreement.

What It Means for Accounting

https://docs.google.com/a/eiu.edu.vn/viewer?
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Most known as the distributed ledger system behind the bitcoin digital currency, BT has been
forecasted to be a game-changer in various industries and professions including accounting. It
is believed to be able to bring great benefits and fundamentally change the current paradigms
in accounting area.

In the ecosystem, blockchain would play the role of the accounting information system,
which distributes the power of transaction verification, storage, and management to a group
of computers in order to prevent any unauthorized data changes.

Database, ERP, and Blockchain

https://docs.google.com/a/eiu.edu.vn/viewer?
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I am going to make a comparison between blockchain and ERP system – one of the most
important innovations in corporate database usage to help to understand its features better.
First, as you can see, unlike a regular ERP that is usually organized in a centralized
architecture, blockchain distributes the power of transaction verification, storage, and
organization to a group of computers. Blockchain is able to prevent any unauthorized data
changes and is more effective at protecting companies’ data from cyber-attacks than ERP is.
Generally, blockchain is an append-only linear transactional database. It has a relatively
simple data-organizing scheme compared to an ERP, which is usually based on a relational
database and allows many data operations. Unlike an ERP system that requires intensive
human efforts, blockchain is designed to operate automatously with little human intervention.
The ability to create smart contracts also allows accountants to design and deploy various
controls on blockchain systems. Current blockchain systems still do not have the accounting-
specific modules present in ERP systems.

A BLOCKCHAIN-BASED ACCOUNTING ECOSYSTEM

Blockchain, as well as associated smart contracts, can be leveraged to securely store
accounting data, to instantly share relevant information with interested parties, and to
increase the verifiability of business data. Using blockchain technology, companies can
generate new accounting information systems that record validated transactions on secure
ledgers. Those transactions will include not only monetary exchanges between two parties,
but also the accounting data flow within a company. Such systems would enable close to real-
time reporting by instantly broadcasting accounting information to interested parties. Because
of the dramatic decrease in the unit cost of processing, memory, and storage, as well as the
emergence of distributed public ledgers like blockchain, external participants can access
companies’ real-time accounting information at low cost. Smart contracts could serve as
automatic controls that monitor accounting processes based on predetermined rules. In this
system, managers, accountants, business partners, and investors could actively collaborate to
verify transactions, as well as provide reliable evidence for cross-validation.

Triple-Entry Accounting
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https://docs.google.com/a/eiu.edu.vn/viewer?
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Double-entry accounting has been the basis for financial reporting for businesses throughout
the world since the middle ages. However, in order to trust accounting records, costly
reconciliations, confirmations, verifications, and audit procedures must be performed by the
firm and its counterparties, as well as by auditors. Blockchain facilitates the innovation of a
triple-entry accounting system, a system whereby all transactions are cryptographically
sealed by a third entry and reside in a shared ledger. The third entry serves as a digitally
signed receipt for the parties involved in the transaction, which can be verified without the
need for a central certifying authority. Because of the nature of blockchain, once an
accounting entry is confirmed and added to the chain, it can hardly be altered or destroyed.
Moreover, smart contract technology could enable rapid verification of transaction records
following accounting standards or pre-specified business rules. By encoding the third
accounting entry into blockchain, a transparent, cryptographically secure, and self-verifying
accounting information system can be generated.

CHALLENGES

The operation of blockchain usually needs substantial storage and computation resources.
Placing volumes of corporate data into such a system would be extremely demanding and
potentially expensive for current commercial computing.
Lack of awareness and understanding of the technology is also a major challenge for
blockchain popularization. Blockchain’s algorithms, operating paradigms, and smart contract
require substantial system and knowledge to be used correctly and efficiently due to their
complexity in implication.
There will be needed changes in accounting standards. Regulators should have a deep
understanding of the technology and its impact on businesses, and provide appropriate
guidance and supervision to prevent misuse and abuse of blockchain and smart contracts.
Moreover, the auditors’ role in the new accounting system should be rethought, and the
current audit paradigm may need reengineering. This might lead to unwanted changes for
firms not adapting such technology.

Accountants’ roles
The roles of accountants are likely to change due to the shift in the recording and
reconciliation of transactions from a manual to a progressively automated procedure. Thus,
BT is likely to foster the reengineering of accountants’ and auditors’ roles. A new generation
of accountants and auditors equipped with skills to operate in the new blockchain ecosystem
– may be required to respond to the change of the current accounting and auditing paradigm.
Furthermore, accountants and auditors could play a key role in the generation, execution and
control of smart contracts. As trusted professionals, accountants and auditors have the
extensive accounting and auditing expertise necessary to monitor and control how smart
contracts and encoded accounting standards and other regulations are being executed. Finally,
being the experts in record keeping, standard setting and the application of complex business
rules, accountants and auditors may gain a relevant role in the regulation and implementation
of BT globally. On the one hand, they may offer advisory services to their clients for
blockchain-based solutions; on the other hand, they may provide their expertise to authorities
and regulators willing to institutionalize BT.

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Personal Opinion
The blockchain technology has the potential to shapeshift the nature of today’s accounting. It
may constitute a way to vastly automate accounting processes in compliance with the
regulatory requirements.