Background developments in recent years (Dai & Vasarhelyi

Background of ICT
and Internet.

the increase of globalisation across the world, ICT and specifically the
internet, is argued to be one of the effective catalyst to help organisations
to compete with each other in service provision, increasing customer and market
base (Tan et al ,2008, p. 224). This is because the internet has some inherent
advantages such as speed, accessibility, costs are low and friendly to use. Internet
of Things (IoT) generally refers to network of interconnected devices with
worldwide intelligence, which enables these devices to exchange data (Xia et al
,2012, p. 1101). These devices can communicate with humans and other devices as
well. Innovation in IoT is associated with combining physical and digital
elements to come up with new products that promote unique cost-effective business
models (Wortmann & Fluchter, 2015, p.222). IoT has enabled the development
of several applications some of which has enormous potential to cause
disruption within the Accounting and Auditing profession. Cloud accounting, big
data and blockchain are some of the ICT applications which have caught the
attention of researchers in recent years. Cloud accounting this can also be
known as online accounting, that is utilising accounting services with its
software hosted in remote servers. (Dimitriu & Matei ,p.842).This relieves
the organisation from installing the accounting software on individual computers.
Furthermore, it increases accessibility of information by other employees
especially from distant branches.

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can be traced back to around 2008 when electronic currency, Bitcoin was
proposed by Satoshi Nakamoto, which forms one of the base applications of
blockchain (Cao et al ,2017, p. 108). He makes use
of a chain of blocks to come up with a decentralised and cryptographically
secure electronic currency system (Dai & Vasarhelyi ,2017, p.6). Generally,
a block can be viewed as a group of transactions and a chain is created when
more information is summed up to existing blocks. It has been described as one
of the most vital and potentially disruptive innovation developments in recent
years (Dai & Vasarhelyi ,2017, p.5). There are three basic types of
blockchains that is the private blockchain, the public blockchain and the
permissioned blockchain (Peters &Panayi, 2016,
p.). Public blockchains are not in the control of only one organisation but the
control is spread among its users thus it is very much decentralised. Due to
its decentralisation characteristic, every member in the chain has the
authority to access, make changes and update transactions, which at times might
be unwelcome in business nowadays (Cao et al ,2017, p. 108).  Private blockchains are more centralised
among a group of users. Users must have the authority to access the information
and its only limited to selected groups of people or entities (Dai &
Vasarhelyi ,2017, p.7). These chains include a limited number of participates
therefore privacy and confidentiality of information is high. The third type is
the permissioned blockchain. These are similar to private blockchains but
however trusted parties are selected in advance and given the authority to
check and verify transactions (Peters &Panayi,
2016, p.). The main advantage is that the right to check and update
transactions is denied to irrelevant users thus ensuring privacy and security
of company information. This also makes the updating and validation of
information quicker.


Financial view of

In financial
terms, blockchain can be seen as some digital public ledger where transactions
that are carried out in it are shared among the parties that are authorised and
participating within the chain (Crosby et al ,2015, p.). The operation of the
transactions is designed to be decentralised. The nodes within this system can
reach out to the whole list of transactions carried out that is there is no
central system. This enables the nodes to first verify the transactions and
then add these transaction records to blocks which are subsequently summed up
to the blockchain (Dai & Vasarhelyi ,2017, p.6).
This means that the blockchain is constantly growing as finished blocks are
summed up to already completed blocks and they are time stamped (Fanning & Centers, 2016, p. 55) Furthermore, the
system has the capacity to certify the identity of the participants involved in
a transaction that is the payer and payee. Additionally, it can check if the
person who is supposed to pay (payee) has adequate money for the transaction to
take place. Once the transaction is completed it is almost impossible to alter
the block chain records. This ensures an almost irreversibility of blocks of
transactions added to the chain.  


has evolved under three stages of development, Blockchain 1.0, Blockchain 2.0
and Blockchain 3.0. Blockchain 1.0.
is mainly about digital currency that is services related to payment and
cryptocurrencies. Blockchain 2.0 is
mainly about smart contracts or intelligent contracts in economic markets.
Blockchain 1.0 covers currencies and 2.0 covers markets. Thus 2.0 is more
useful in the financial markets, covering stocks, bonds, futures, property
rights and other smart contracts.
Blockchain 3.0 is a widely innovative stage of blockchain application
systems beyond currency, and financial markets. It is commonly used in public
services such as voting systems, health, culture, arts etc. This shows that
blockchain does not only affect the financial services but dissects to the
operations of the society



Blockchain does
not only have the ability to potentially disrupt the financial industry, but
also it can unsettle the whole society thus it can become the” new Internet revolution”. (Dai &
Vasarhelyi ,2017, p.7). This application has grown into many different
functions such as voter registration, property intelligence, banking, financial
markets etc. The development of blockchain has caught
the interest of many in the society and they believe that its future is bright.
Deloitte 2016, says that it is looking forward to seeing blockchain improving
relations and coordination among organisations, business processes and data
becoming more transparent. The academic researchers think that it will have
enormous research value and a great impact on human life (Coa et al ,2017, p.


Academic research
about blockchain has mainly focused on its impact on the financial sector. In a
study by Coa et al ,2017 they examined 188 Chinese research papers about
blockchain and 66.49% (148) were about its impact on the financial sector.  However, its impacts on the accounting and
provision of assurance services is still less explored (Dai
& Vasarhelyi ,2017, p.9). This can further be supported by the study by
Cao et al 2017 where out of the 188 papers studied only 3 were related to the
accounting profession that is 1.6%, the lowest percentage.  The auditing and accounting functions are
among the professions where blockchain is likely to come with advantages at the
same time changing the current ways of doing things. Its tasks such as safe guarding
data integrity, prompt sharing of data and the automation of processes could
potentially disrupt the current accounting paradigm (Dai & Vasarhelyi
,2017, p.10). Therefore, the author wants to explore
the impacts of blockchain on the accounting profession.

Research Question:

What are the possible impacts of blockchain on the
accounting profession?


characteristics of blockchain is very important in this essay. These
characteristics will help us to understand how blockchain is likely going to
affect the accounting profession. In an
article by Cao et al, 2017 they come up with seven
characteristics of blockchain technology. These include its decentralisation nature,
where information is not stored or controlled by one organisation. Another
interesting characteristic pertains to the nodes within the chain. These nodes
cannot cheat each other, and they are all responsible for maintaining and
safeguarding the information within the chain. This increases the integrity of
transactions processed within the chain. Some characteristics such as
resistance to manipulation, ability to trace the information stored,
transparency about transaction and the automation of transactions will most
likely have an impact on the way in which accountants operate today (Cao et al,
2017, p. 109). (Karajocic et al ,2017, p. 2), also supports this view
and they pointed out blockchain’s resistance to manipulation and self-auditing
characteristics as threats that can potentially completely do away with the
accounting profession altogether.  The shift from non-automatic to automatic
operation will most likely shift the role of the accountant from someone who
collects and adds up information to someone who analyse and interpret the
available information (Dai & Vasarhelyi ,2017, p.13).


1.      How is it going to change the accounting function?


      Smart contracts.

Smart contracts
they are computer programmes which are operated by automatic equipment and
which when activated can automatically perform transactions such as the
transfer of assets in that same chain upon satisfying certain activation
conditions (Al-Saqaf & Seidler ,2017,
p.340). Currently in the accounting profession there is a lot of
documentation and replication of efforts as accountants try to perform checks
and balances. These in most cases are labour intensive as they are heavily
manualised (Deloite, 2016, p.2). Smart contracts on the hand need little or no
human interaction. One just need to convert accounting rules into the
blockchain that are in line with accounting standards and the system will
update the information in conformity with those rules (Dai
& Vasarhelyi ,2017, p.12) For example, when the recognition principle
of when the sales should be recognised as revenue is encoded into smart
contracts, such programmes can hold the recording of sale into the digital
ledger in blockchain until the goods are shipped. More so if a smart contract
is programmed with some predictive model for default rating, it can evaluate
the default rate by a debtor and come up with adjustments for provisions for
bad debt.This will somehow give an assurance on some account assertions such as
occurrence, cut-off, classification and posting. Thus, a smart contract can
enable several transactions to take place automatically (no or with minimum
human interaction) (Al-Saqaf & Seidler ,2017,
p.340). Does this mean that
the importance of accountants is going to be reduced with the coming of


            The triple-entry accounting.

One of the main
changes likely to brought by blockchain is the triple entry accounting. At
first accountants were using a single-entry system where transactions were only
recorded in one set of accounts. However, this system was prone to a number of
risks such as fraud and error. To manage this risk, a traditional double entry
system was widely used in the accounting profession, where unlike the single
entry, a transaction is recorded in two sets of accounts. This reduces the risk
of error and fraud but however could not provide total assurance of financial
information,a gap auditors and regulators are currently trying to fill (Dai & Vasarhelyi ,2017, p.10). Thus, the triple
entry accounting system is likely to provide these assurances in financial
reports. Blockchain will act as the third party in this system and provide some
verification, integrity, security and storage to the financial data. By adding
blockchain as the third entry, a secure accounting information system can be
created which enhances credibility of financial reporting (Deloite,2016, p.3).

Uncertainty about the technological capacity: Accounting
involves the use of large sums of data and a lot of calculations. Bitcon which
is one of blockchains’ mechanism requires high storage capacity (Dai &
Vasarhelyi ,2017, p.18). Thus, for blockchain to be used especially in large
organisations then the system must have large storage capacity. If the storage
and computational capacity is compromised, then the safety of data will be
under threat. Thus, management and accountants must consider the amount of
information necessary to upload on the system to avoid the system being
overloaded (Dai & Vasarhelyi ,2017, p.19).


research questions about impact of changes brought by blockchain on the
accounting profession.

discussing these changes from the triple -entry accounting and the smart
contracts, one might pursue the following research questions related to the
impact of blockchain on the accounting profession: What skills, knowledge and
expertise should accountants and auditors need to possess to be able to cope up
with the changes likely to be brought by fully adopting blockchain? Since smart
contracts work with limited human intervention, what does this mean to the
future of accountants? Does it mean accountants are going to be washed away or
they will focus on some other aspects of the business?


How is it going to
impact the auditing function?

play an important role in ensuring the credibility of financial statements.
They provide an independent opinion on whether the financial statements show a
true and fair view of the financial performance of the company. Thus, the
various stakeholders of the company will place their trust on the auditors’
judgement of the completeness and accuracy of the information provided to them
by the management of the company.


Blockchain and its
smart contracts will lead to a smart control based assurance approach (Fanning
& Centers, 2016, p. 55). This is when company based control rules are encoded
into smart contracts which will oversee the accounting information added into
the chain and the business processes. This will enable real time audits of the
business events and transactions. When combined with data analytical
programmes, they can monitor even complicated business processes. With these
smart controls, which can verify and time stamp information before it is
updated, there is little doubt to assume that the auditing profession will be
disrupted (Lazanis, 2015,p).The traditional auditing is centred on ensuring
that the financial statements do not contain material misstatements. In other
words, it is to check whether the information is credible and reliable. Thus,
the auditors will gather audit evidence from both internal and external sources
to use. For example, if an auditor wants to confirm the bank balance for a
client, he can contact the bank to verify the balance. Or an auditor will
confirm a sale with the buyer to determine whether the sale actually took
place. With blockchain most of the information will be readily available on the
chain thus the auditors will reduce their time on this work. Thus, auditors should change from their current validation
role to more complicated role such as assessing the system trying to identify
possible risks. This is because a reduction of audit time means
reduction on the fees to be charged thus it will resultantly affect the inflow
of revenues (Fanning & Centers, 2016, p. 55).

Uncertainty about regulations and skills required: Blockchain is going to be highly technologically based
digital ledger which needs to be regulated to ensure its smooth function and
storage of financial information (Deshpande et al ,2017, p.16). More so, auditors
need to develop skills to analyse and interpret the activities taking place on
the chain as well as be able to identify risks on the chain. However, a
challenge might be what knowledge and level of skill should the auditors have
so that they can audit and fully understand blockchain? (Dai
& Vasarhelyi ,2017, p.17)


Further possible
research on the impacts of blockchain to the auditing profession.

Blockchain will
bring with it various opportunities to the auditing profession such as the
ability to carry out real time audits. However, in order to fully understand
the impacts of blockchain on the auditing profession, further research can be
done on the possible risks to the auditing profession brought by the full
adoption of blockchain. For example, since the information on the chain will be
reliable questions such as: To what extent should the auditors rely on the
information from the chain? Do they have to perform tests on the chain to
determine its reliability?   What
internal controls should auditors implement to ensure the safety of information
on the chain?

How is it going to
affect the business model for accounting firms?

The introduction
of blockchain and its technology will most likely reduce the work to be
conducted by the auditors but at the same time improving the efficiency of
their work.  To adopt the new technology
and its opportunities, some accounting firms have started to innovate
self-auditing applications. These analytical tools can be used to transactions
in the chain and they can obtain audit evidence such as identifying patterns
and deviations from accounting principles (Dai & Vasarhelyi ,2017, p.14).
This will help the accounting firms to move from the manual audit and
resultantly would change their business models (Coa et al ,2017, p. 112). The
total removal of the profession however is most likely not to be soon
(Karajovic et al ,2017, p.2)

are the “big four” accounting firms responding to this impact?



Australia is currently working with Bloq, Netki and Libra to come up with the
Vulcan application which will be able to develop digital assets that can be
traded with other cryptocurrencies (Miles ,2017). PwC Australia Blockchain
leader, Roben Allen said that Vulcan platform strives to make bitcoin more available
to big organisations. It will further try to apply regulatory compliance
reporting to cryptocurrencies (Rizzo ,2016). Furthermore, PwC’s Belfast office
hired 15 technology specialists to commercialise and try to derive some
benefits from blockchain (PwC ,2016). Steve Davis,
PwC partner said that he expects the group of 15 to grow up to over 40
technology experts. He further said, “PwC is now breaking new ground in developing
radical FinTech solutions and these appointments represent the first stage of
our plans to grow a world-class Fintech offering” (PwC ,2016).
Ashley Unwin, executive board member for PwC UK congratulating these
appointments said: “Blockchain technology is worrying major players in the
financial services industry as they don’t know where it will go or its
potential to disrupt business models. However, in document delivery and
settlement processing alone, it will offer significant cost reduction and
efficiency gains”.



formed its Rubix team with a mandate to develop client specific applications
based on blockchain. This was to speed up the auditing of blockchain
transactions (Karajovic et al ,2017, p.2). The team was to establish itself as
a leading market provider of blockchain based solutions. PermaRec is one of the
applications developed by Rubix. PermaRec is an application which will enable
Deloitte to audit quickly triple-entry accounting systems (Tapscott,2016,p)

& Young (EY)

has disclosed that it is releasing a new blockchain platform. The plan is part
of EY’s endeavour to assist clients in verifying their customers at the same
time taking into account the inherent risk of data privacy and management(Kean,2017).
The move was applauded by Michael Maloney, EY’s Financial Services manager and
described it as one of the most feasible technology assembled by their R&D
team so far(Kean,2017). Furthermore EY-UK in 2016, launched a six-week
challenge for start-ups. They were looking for ways in which blockchain can be
used to solved some of the business challenges for their clients (EY,2016).
Start-ups which participate include BlockVerify, Tallysticks, Bitfury all
paying attention on blockchain’s progress and application particularly in
energy sector.


has introduced Digital Ledger Services in collaboration with Microsoft. DLS
will enable financial institutions to be aware of the potential capabilities of
blockchain (KPMG ,2016). These include reduction in cost improvement the
processing speed of transactions and security. They assist in highly regulated
industries such as health care, the government and financial sector to embrace
blockchain (KPMG,2016).