How Blockchain Will Shape the Future of Accounting | Jacob Lewtan | TEDxBryantU

00:10:01
https://www.youtube.com/watch?v=v6patZu2otg

Summary

TLDRThe video discusses the transformative potential of blockchain technology in the field of accounting. It highlights how blockchain can enhance the transparency and integrity of financial statements by utilizing a decentralized ledger system that is secure, immutable, and capable of processing real-time data. This technology improves the accuracy of financial reporting by using smart contracts, which automatically execute and record transactions only when specific conditions are met, reducing the risk of fraud. By shifting auditing from reactive to proactive, it simplifies the verification process, thus making audits more efficient. The video envisions a future where blockchain seamlessly integrates with current accounting practices, providing real-time, trustworthy financial data and revolutionizing the role of auditors.

Takeaways

  • 🧗‍♂️ Blockchain operates like a rock climber solving each step meticulously.
  • 🔏 Miners encrypt data onto the blockchain, creating a secure ledger.
  • 🤝 Smart contracts execute automatically under predefined conditions.
  • 🛡️ Blockchain can enhance the integrity of financial information.
  • 🔍 Blockchain shifts auditing from reactive to proactive.
  • 📈 Companies can track and present financial data in real-time.
  • 📊 ERP systems lag behind in tracking product obligations.
  • 🚀 Blockchain can automate complex revenue recognition processes.
  • 💹 Real-time financial statements with integrity are envisioned.
  • 🔄 Integration of tech and finance through analytical innovation.

Timeline

  • 00:00:00 - 00:10:01

    The video begins by highlighting the transformative impact of technological advancements on industries over thousands of years, with a focus on the accounting sector's evolution. It introduces the concept of blockchain as a potential solution to the limitations faced in accurately assessing all financial statement data of a company. By comparing blockchain to a rock climber solving complex challenges, the video explains how blockchain technology securely adds data to a ledger, creating an immutable and autonomous record that is resistant to cyber threats. Furthermore, it touches on smart contracts, which execute automatically once certain conditions are met, providing businesses with new transparency and accountability solutions.

Mind Map

Video Q&A

  • What is the main focus of the video?

    The video focuses on how blockchain technology can revolutionize the accounting industry by providing more transparency and accountability in financial reporting.

  • How does blockchain work according to the video?

    Blockchain involves a network of miners solving complex equations to encrypt data, which is then added to a public ledger that is autonomous, unchangeable, and secure from cyber threats.

  • What are smart contracts and their role in blockchain?

    Smart contracts are automated agreements encoded into the blockchain, which execute only when predefined conditions are met, ensuring transparency and reducing human error.

  • What problem does blockchain solve in accounting?

    Blockchain can prevent financial fraud by making financial data immutable once added to the ledger, thus maintaining integrity and preventing manipulation.

  • How does blockchain improve auditing processes?

    Blockchain allows auditors to verify financial transactions proactively by connecting all data to verified blocks, reducing the time spent on traditional auditing processes.

  • What analogy is used to explain blockchain’s impact in accounting?

    The analogy of upgrading from a unicycle to a car is used to describe how blockchain can significantly enhance the efficiency of data management and auditing compared to traditional ERP systems.

  • Why is there a need for increased transparency in financial reporting?

    Increased transparency is necessary to prevent fraud and errors in financial reporting, thereby safeguarding investors' interests and maintaining trust in corporate financial statements.

  • How does blockchain affect revenue recognition?

    Blockchain ensures that revenue is recognized accurately through smart contracts, which trigger revenue recognition only after the actual service is provided.

  • Why is blockchain particularly useful for tech companies?

    Tech companies could benefit from blockchain because of the complexity in revenue recognition over product lifespans, where multiple updates occur.

  • Who can benefit from blockchain technology as discussed in the video?

    Small businesses, tech startups, and eventually larger corporations can benefit from blockchain by maintaining financial accountability and transparency.

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  • 00:00:01
    [Music]
  • 00:00:05
    as thousands of years have passed
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    industry disrupting innovations have
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    continued to alter how business is
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    conducted from paper to stone tablets
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    and from computers to the cloud the
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    accounting profession has continued to
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    stand the test of time as a way to
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    protect investors of a company after
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    learning in school and on-the-job that
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    there was no possible way to assess all
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    information of the company that goes
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    into their financial statements I set
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    out to find an alternative using an
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    emerging technology called blockchain
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    for those of you that may have heard of
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    blockchain you've probably heard the
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    buzzwords mining hash encryption and so
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    on and you may even think that miners
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    are a group of people taking a pickaxe
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    to some online cloud in the sky to
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    understand blockchain you can think of a
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    rock climber
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    scaling the side of a mountain each move
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    they make is meticulously calculated and
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    before they stick their next pick into
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    the side of the mountain their entire
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    being is working to solve their move
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    after executing that move they then move
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    on to solve the next block chain
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    operates under a similar premise when
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    data is being added to the blockchain a
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    network of miners is working to solve a
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    complex rigorous equation to encrypt
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    data onto the chain the entire network
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    works to solve this equation and after
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    solving it moves to the next as data is
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    added onto the blockchain it can then be
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    aggregated to form a traceable ledger
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    that is autonomous unchangeable and
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    practically impenetrable from cyber
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    threats when a resident smart contract
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    is used in conjunction with blockchain
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    the result is an agreement
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    in encode that only executes when terms
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    of the contract have been met after
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    execution the contract is then recorded
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    on the blockchain without any ability
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    for human interaction once the contract
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    is set in motion now seeing the promise
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    of these two technologies many companies
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    have taken to developing applications
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    for their operations such as tracking
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    inventory or the exchange of money for
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    goods and services but rather than
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    tracking tangible items
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    what if blockchain technology could be
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    used to help maintain accountability for
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    the financial information that companies
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    are providing to investors Enron and
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    world-cup are two companies alone that
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    caused two hundred and fifty billion
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    dollars of investor losses these were
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    not incidental losses however these
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    losses stemmed from management decisions
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    to fraudulently manipulate the financial
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    information being provided to investors
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    they did this to help reach their
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    earnings targets and receive their
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    bonuses now not all frauds are this
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    large
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    but fraud similar to this do happen
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    frequently affecting everyday investors
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    and that is why the SEC has settled
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    billions of dollars of fines for errors
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    and fraud and financial reporting in
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    order to safeguard these investor
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    interests many large companies use ERP
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    systems that aggregate the data the
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    accounting information as it flows on to
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    the company's books the problem with
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    these systems however such as in world
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    common Enron is that they can be
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    susceptible to those with proper
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    clearance and access who want to
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    manipulate override and potentially hack
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    into the financial data being aggregated
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    the use of blockchain technology can
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    help companies improve the integrity of
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    their financial information as seen in
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    some of the largest scandals when
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    accuracy dwindles investor confidence is
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    lost and for that reason it is essential
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    to have increased monitoring and
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    transparency
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    over how companies adapt generally
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    accepted accounting principles in their
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    everyday to safeguard these investor
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    interests the accounting profession must
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    adapt to an ever-changing world of goods
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    and services the problem being that as
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    companies continually adapt current
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    systems tend to lag behind for example
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    in the past many companies could
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    recognize a sale of revenue each time a
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    sale is made
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    but now software companies specifically
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    can't recognize all revenue in the event
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    of a purchase only when a service is
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    actually provided and so if a software
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    company sells a product to a customer
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    that includes three updates over its
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    lifespan there will be four instances of
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    revenue gained once when the base
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    product is downloaded by the customer
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    and each time a subsequent update is
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    released this increased intricacy of
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    recognizing revenue has started to grow
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    some of the current systems in place
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    such as ERP systems now companies need
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    to keep track of a sale of their product
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    as well as each obligation that is held
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    within the product to solve this problem
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    I proposed a framework that utilizes
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    blockchain technology as the trigger for
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    recording financial information on to a
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    blockchain ledger consider the use of
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    blockchain technology to help recognize
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    the revenue from a service only after
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    the services provided would a smart
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    contract trigger the recognition of that
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    revenue onto the blockchain ledger
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    first management would be required to
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    break out each obligation or service
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    held within a sale of a product then
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    each obligation such as a software
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    update would be coded into their own
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    smart contracts that would only execute
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    when the service is actually provided so
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    if a company sells a product to a
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    customer and they download that product
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    a smart contract would trigger the
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    record
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    of the amount of revenue tied to that
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    product on to the blockchain ledger then
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    if an update was downloaded let's say a
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    month later a smart contract would then
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    trigger the recognition directly tied to
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    that revenue and that update onto the
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    blockchain ledger at that point the
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    company and its investors would be able
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    to see exactly how much revenue they
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    have truly earned from providing their
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    services
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    now one instance of a transaction may
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    seem insignificant but imagine thousands
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    of transactions being aggregated
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    blockchain technology has the potential
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    to completely revolutionize how
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    companies collect and present their
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    financial information you can think of
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    it like this imagine a youth taking a
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    unicycle to work every day it can be
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    done but you would much rather upgrade
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    to that nice and fast car to go to work
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    this framework is similar an ERP system
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    can hold data but that data takes a much
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    more effort on behalf of an auditor to
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    work to verify blockchain technology can
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    revolutionize how companies aggregate
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    their data autonomously making an
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    auditors job more efficient part of that
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    auditors job is testing the data for
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    existence and completeness and this can
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    be done by sampling the data and
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    verifying that sample by sending letters
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    to customers to confirm their balances
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    among other methods of accounting
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    research blockchain technology has the
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    ability to shift an auditors rule from
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    utilizing a reactive approach to a
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    proactive methodology rather than
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    spending time verifying transactions
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    because they don't currently have a way
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    to tie all of their financial data to
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    verified transactions an auditor would
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    discuss management judgments before it
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    is even written into a smart contract
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    code management would first discuss
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    their judgments and estimates with
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    auditors to ensure that they completely
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    adhere to generally accepted accounting
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    principles
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    only after an auditors sign-off with the
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    obligation or their judgments be written
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    into a smart contract to execute blanket
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    treatment across all transactions
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    without any human intervention this
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    technology can be implemented in today's
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    small businesses and tech startups alike
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    but as the technology becomes more
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    efficient blockchain will show its value
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    as a way for companies to increase and
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    maintain accountability over their
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    financial statements I envision a future
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    where all companies can click to create
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    financial statements in real time with
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    integrity I envision a future where the
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    line between tech and finance is blurred
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    where auditors are not just accountants
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    but analytical innovators and I see a
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    future where specialized professions
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    such as accounting can rise up through
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    the use of blockchain technology thank
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    you
Tags
  • Blockchain
  • Accounting
  • Smart Contracts
  • Financial Integrity
  • Fraud Prevention
  • Auditing
  • Revenue Recognition
  • ERP
  • Financial Transparency
  • Tech Innovation