client accounting services

is blockchain an extinction event for accountants?

blockchain illustration using train carsthe make or break question.

by hitendra patil
accountaneur: the entrepreneurial accountant

till today, “work” in the accounting profession involved creating and re-creating the accounting information and then making sense out of it.

more on entrepreneurial strategy: is blockchain a cloud killer? | 22 ways blockchain will impact the accounting profession | podcast: how to become a true ‘accountaneur’ | how job titles can rebrand your firm | forget cpe, you need an fpe | ‘uberizing’ means more than technology
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e.g., you take an invoice in a paper form – printed from the data already existing in someone else’s accounting software (private ledger) – and then you re-create the same data by converting (manual data-entry, ocr, etc.) that paper info into data again.

blockchain can and will obviate this need to “re-create” the same information. this is just one example of how “accounting” work can and will get redefined.

blockchain creates a “distinct or extinct” question for accountants:

how will you organize, rather re-organize, what you do – your services, your practice, your firm, your life and that of your near and dear ones – if you can see this future, today?

that is, how will you ride the blockchain accounting train?

how to get ready

in its simplest form, the analysis of the traditional accounting (and auditing and tax) work done at accounting firms today will help you assess the impact of blockchain on your practice.

  1. make a list of each step of the work handled by humans in each task for each type of work.
  2. then ask a question for each step – will blockchain technology actually be able to do this step automatically? hint: if it is about “creating” data, then blockchain will do it, for sure.
  3. if the answer is yes, or may be, cut it off from the list of “tasks to be done by staff/partners.”
  4. review the list and see how many tasks are now remaining on the list – to be done by staff/partners – even after blockchain implementation.
  5. repeat steps above until you come up with an emphatic, definite “no” i.e., no, this cannot be done by blockchain.
  6. estimate the impact in terms of utilization of staff/partners, post-blockchain.
  7. then try to answer this question: “post-blockchain, what will the clients pay accountants for?”

difficult to imagine?

here are some hints:

  • human beings have been gifted with five senses and of course, the sixth sense.
  • technology does not have these gifts. e.g. you can sense and feel the entrepreneur’s sweat, the fidgeting hands, the worried voice, the optimistic positivity in the expressions, the confidence in the body language and so on. you can aggregate all of it in your mind and put that in a context. technology can’t (yet) make out a context.
  • humans interact with technology. technology, by itself, cannot sense human expressions, yet.
  • humans create technology. technology is not intelligent enough to create technology by itself. technology surely cannot create humans.
  • can you imagine humans speaking with technology and asking questions like, “hey, accountant! how do i get out of this long overdue receivables mess?” the thinking and analysis required to make “business” decisions based on synthesis of diverse sets of interrelated information – coupled with wisdom, expertise and experience in the real business world – can come only from humans, at least in the foreseeable future.
  • accountants, imagine yourself being appointed by your clients, not as an accountant but as a board member to help the enterprise make those business-critical decisions.
  • if you are that board member right now, how will you look at the financial data of the enterprise?
  • the future will be in helping entrepreneurs make critical business decisions – by actionable insights validated with key information contained in diverse data sets emerging through accounting and tax.
  • blockchain will do everything else for you. it’s just a tool for you to leverage.

how you can keep in touch with the future:

we all are fast moving toward an incredibly imaginable future
where we’ll keep getting our “life” back, more and more,
not by “doing” things that we, till now, believed to be “work”
but by using our specialized knowledge and expertise
to help others make their lives better and attain their potential.

9 responses to “is blockchain an extinction event for accountants?”

  1. stephen connor

    while this article brings up some significant points about blockchain and the impact it may have on our industry, it overlooks way too much at the same time. the thing that the aicpa believes could happen is that we transition from a dual-entry system to a three-tiered journal entry, which the blockchain service being the 3rd level. if anything though, i feel like the need for competent accountants, and more so auditors, will grow exponentially. when bitcoin and ethereum can change in value of up to 40% in a matter of days, company’s financial statements will have to be put through intense scrutiny for the valuation assertion. also these e-currencies are basically black market currency, and make it easier to hide money, which again furthers the need for a new level of auditing. the profession will evolve and change certainly, but will be more vital than ever

    • hitendra r. patil

      thanks, stephen, for sharing your thoughts. indeed, there is a lot more to cover on this very important topic. in fact, i did cover a bit in two of my previous posts, although those were more specific to “bitcoins”, not on the entire spectrum that blockchain can impact. here are those posts: what the bitcoin phenomenon means for accountants https://goo.gl/i3wiue. and irs bitcoin rule: 5 things accountants need to know https://goo.gl/rdqufz.

  2. katrina geety, cpa

    please define blockchain as you are referencing it in the article. if you google the term, there are many interpretations of it. your article states “blockchain can and will obviate this need to “re-create” the same information.” i get that and in its simplest form, bank feeds into qbo creates the data. we are way past that point of perceived efficiency. what people don’t get, which i know i have posted many times, is that garbage in is garbage out. the computer cannot discern what the true expense or income category should be.

    standardization of income and expense codes: this will only work if there is standardized input with a mechanism to categorize income and expenditures, similar to the icd 10 codes used in the medical profession where diagnosis and treatments are broken down to very specific conditions. and the standard industrial classification sic is a system for classifying industries by a four-digit code. established in the united states in 1937, it is used by government agencies to classify industry areas. and there must be an all-inclusive list of expense types that are utilized by accountants and the irs.

    standardization of forms: i have challenged the industry on many occasions over the years as to why, why, there has to be so many variations of the w-2, 1099, 1098, etc. every form contains the exact same information. standardization of data and format is a huge step in making the electronic exchange of information possible, via electronic forms.

    definition of system and process requirements to make blockchain feasible: has someone laid out the high level design of the “blockchain system”? have all of the entities involved been identified and their involvement documented? have all of the functions, processes and procedures been identified and documented? has all data required to support these functions been documented? my fear is that a less formal methodology will be used, such as the agile methodology, and the application will never succeed.

    level playing field of technology: to be effective, all entities in the blockchain (every entity participating in the company’s activities) must have a minimum level of technology. one company not able to comply because of substandard technology creates the need for a “workaround”, grinding the efficiency to a halt. this will be hard to achieve because many suppliers are not technologically able to comply.

    i think it is an admirable goal, and i am sure that i am not aware of the work that has been completed to address the concerns that i mentioned. however, i have seen few articles articulating the challenges of making this happen. there is actually one individual that i know that understands the concept, and he is the author, hitendra patil. great article!

    • hitendra r. patil

      thanks, katrina, for sharing your thoughts in detail. while it is tough to explain how blockchain will change accounting processes, i wanted to address one point quickly. “bank feeds” does obviate the need to re-create data but it is still not an “authentication” mechanism. bank feeds is still about one company’s books. blockchain, on the other hand, is an irrepudiable, authenticated set of records containing both transacting companies’ transactions. \

      i will cover more aspects of blockchain accounting in times to come.

  3. hitendra r. patil

    thanks for sharing your thoughts, david and scott! a few days ago, one of the banks from a consortium of 7 large europen banks and a blockchain technology provider stated that the bank will make the payment when “blockchain” confirms receipt of goods. it is a profound statement that reflects how the technology can descend onto day to day transactions really quickly.

    “the entrepreneur always searches for change, responds to it, and exploits it as an opportunity”… peter drucker. it is for all of us to uncover the opportunities from the changes blockchain, ai and other technologies are capable of ushering.

    • katrina geety, cpa

      conceivably, it could work. i have made it work internally in a large organization as i have said before. once you are working with companies outside of your realm of control, but you need their product or services, or want their sales, you can’t make it happen. if we can develop a hybrid system, with long term goals of achieving full automation (just like the zero defects movement), that incremental achievements are invaluable.

  4. scott bonacker

    there are a number of papers discussing blockchain on ssrn – (the first three were posted recently on 13-7-2017)

    blockchain as the driver of the fourth industrial revolution
    https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2998093

    blockchain innovation for private investment funds
    https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2998033

    blockchain technology disrupting traditional records systems (dallas federal reserve)
    https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2997588

    blockchain technology: principles and applications (posted 24-9-2015)
    https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2662660

    it’s not something that is going away, at all. the question is how far will it penetrate, and how fast.

  5. david kupferman

    this is yet another in the continuing series of’ “the sky is falling” articles from a phrenological taxation expert who’s guzzled too much of the blockchain koolaid.

  6. scott bonacker

    got it –
    http://goingconcern.com/viking-cpa-blockchain/

    this writer at goingconcern isn’t as concerned, and i think it will be a little bit yet before all clerks and bookkeepers keel over from lack of oxygen and sunlight.
    http://goingconcern.com/accounting-news-blockchain-deloitte-cloud/

    scott