Accounting will not disappear, but accountants as we know them might.
In the recent Netflix blockbuster: Don’t Look Up, a group of astronomers sound the alarm about a killer asteroid hurtling towards earth, only for many to hit the snooze button. Monica Singer is the accounting equivalent of those astronomers.
Singer, a chartered accountant, former CEO of Strate (a central securities depository), and the South Africa lead for the blockchain company ConsenSys, speaks authoritatively about accounting and crypto. These are takeaways from our conversation and additional research regarding the looming effect of blockchain on accounting.
The current model isn’t working
One of the core problems with accounting, explains Singer is that the current double-entry system means that there is no single authoritative ledger open to all for scrutiny and an overreliance on intermediaries from auditors to bankers.
“As we know from Auditing 101, if there is collusion, you can’t pick it up,” says Singer. “As we know from VBS Bank, between the management and the auditors, they were all colluding. And the poor regulators, they couldn’t get the right information and then the bank went under, and the money disappeared,” says Singer.
“What we’ve done as the profession is we keep on making accounting and auditing standards more complicated thinking that if we put in place more rules and regulations that this thing is going to change and it doesn’t. It gets even more murky. The more murky it becomes, the more room for interpretation and manipulation.”
One ledger to rule them all
One of the core concepts of blockchain, the technology which powers Bitcoin and other cryptocurrencies, is the idea of a distributed and immutable ledger. This aspect has allowed people to confidently trade cryptocurrencies without fear of disputed ownership because many copies of the same ledger is spread across many computers. The same principle has profound applications for accounting.
Instead of the current system, where there is a different set of books for management accounts, shareholders, and the tax authority, blockchain makes it possible to have a single decentralised and distributed record created in real-time, which can’t be altered.
“Imagine your regulators, the taxman, the auditor, the counterparties; everybody is looking at the same ledger, so it’s impossible to cheat,” explains Singer.
Another aspect of blockchain that will disrupt the accounting profession and the wider world is the idea of a ‘smart contract’. An element made famous by the Ethereum blockchain, which has allowed for the current NFT (Non-Fungible Token) craze.
Singer compares a ‘smart contract’ to a vending machine where the user gives money, presses a button and receives the desired good. These could be used, for instance, to execute life insurance payouts once a smart contract capable blockchain notices a death certificate issuance on the Home Affairs database.
Jacob Lewtan, author of the 2019 paper Blockchain: Opportunity to Improve Financial Reporting and Corporate Governance, suggests that auditors will have a more proactive role once smart contracts are used in accounting. One where they discuss management judgements before these are coded into a smart contract to make sure they adhere to GAAP.
The future is just about here
As more and more businesses purchase crypto assets or implement blockchain solutions, there is increasing demand for accounting and crypto specialists. Mazars recently chose a product created by a company called Verady to “supply confirmation and reporting around its clients’ digital currency audits,” according to a press release the companies issued.
“More and more companies are not only buying cryptocurrencies but implementing blockchain solutions,” says Singer. “When the auditors encounter this new technology, they don’t always know what they’re doing. I’ve spoken to many CFOs of these companies, and they are horrified at having to pay audit fees to a bunch of auditors that have never heard of blockchain.”
Don’t be a dinosaur
The good news for the accounting industry is that this change yields opportunities.
“Many of the decentralised products that have been created are replicating current financial products, but I believe that the potential comes from inventing new financial products, and I really think that if you take the training of the accountant, combined with programming, that combination would be very powerful in creating new financial instruments,” says Singer.
The bad news? This change could be an extinction event for those not prepared to adapt. “When I lecture to the profession, they are horrified with this technology as opposed to being encouraged about the possibilities,” says Singer.
“I sit on the board of SAICA, and so far, we have done nothing. The only thing I do is write articles for Accountancy SA, and that’s it. In five years, I haven’t seen any improvement of the profession.” Singer’s advice to accounting students is to learn to code once they’ve completed their accounting studies.
Lewtan, speaking in his TEDx Talk, sees a similar melding of accounting and tech, “I imagine a future where the line between tech and finance is blurred. Where auditors are not just accountants, but analytical innovators. And I see a future where specialised professions such as accounting can rise up through the use of blockchain technology.”