Blockchain: A 'significant evolution' accountants can't afford to ignore

Blockchain might be the most buzzworthy word in accounting today, if its prominence at the Accounting and Finance Show L.A. last week is any indication.

Multiple sessions covered the emerging technology, with one keynote speaker, Robert Massey, a partner at Deloitte, giving a primer on the hot topic.

“Blockchain is one of the most significant evolutions we’ve seen,” said Massey, who leads the Big Four firm’s cryptocurrency and blockchain practice globally. “Blockchain is to value as the internet is to information. It’s an exponential change, to share information between decentralized parties, in real time. It decentralizes the ability to record information, and enable transactions. It’s the next step in the evolution of commerce.”

Massey finds it helpful to think of blockchain as a “big shared ledger” -- more specifically, “a distributed ledger which allows digital assets to be transacted in real time, in an immutable manner.”

Smarter agreements

Members of another panel on blockchain focused more on how accountants should plan to harness the technology within their practices.

Practitioners should start with educating themselves on the blockchain, all panelists agreed. David Cieslak, chief cloud officer and executive vice president at business consulting firm RKL eSolutions, suggested that firms add a blockchain leader, while Ron Quaranta, chairman of the Wall Street Blockchain Alliance, recommended seeking resources on the topic from the American Institute of CPAs.

“Technology has disrupted the profession previously — this is not a new conversation,” said Danetha Doe, founder of financial mentorship program Money and Mimosas. “It’s the speed of the change. The next generation is adopting quickly, and you’re going to start to see a shift in the profession … how blockchain can be applied to different use cases outside the box.”

“All of us need to be thinking a lot more about value, and a lot less about tasks, [which] are often much more transactional,” said Cieslak. “Blockchain is really going to accelerate that. How can we leverage the technology to bring that greater value?”

It was a question asked frequently throughout the two days of the Accounting and Finance Show, with speakers attempting to provide guidance on a bold, and still mysterious, new frontier. But the technology’s novelty and unrealized potential only energized both panelists and attendees.

The conference’s thought leaders were most enthusiastic about blockchain as it related to new ways of conducting business, such as its use in smart contracts.

Smart contracts take “key terms in a legal agreement, and embed [them] in software, creating link dependencies in the agreements,” Massey explained in his keynote session. He offered the example of a farmer buying crop insurance, which will pay him if it doesn’t rain for 100 days.

Smart contracts utilize blockchain to connect to outside, trusted “sources of truth” to facilitate, enforce and verify terms of an agreement, thus removing the need for third parties or middlemen. In Massey’s farmer example, one of those sources of truth would be regional weather data.

“Blockchain is very effective connective tissue,” Massey explained. “We see, in all industries, the use of smart contracts enabling better relationships.”

Smart contracts “are happening organically anyway,” he continued. “It’s not just the systems, but the organizations that are decentralized. It’s likely now that transactions are validated somewhere other than where management is sitting.”

“There’s a real variety of use cases, and those are what are super-exciting,” said Cieslak during the panel discussion. “Some of what is going to be done with blockchain, has never been done before.”

The implications are especially exciting for certain industries, like the recording industry, an example many speakers cited when describing how intellectual property, like songwriting credits, can be coded into blockchain-enabled smart contracts. Speakers and panelists urged attendees to educate themselves on the technology and assess how it can apply to their clients and industry verticals.

“Every company innovation in this space is putting forth solutions,” said Massey. “In L.A., in entertainment, in media, [you can] lock down intangibles like the rights of a song or movie. What if you lock that down in a blockchain solution, before you had to pay for it? It’s a significant evolution in song and movie rights. It’s hitting every industry. It’s relevant to every single one of them. Think about your clients, and what’s relevant to them.”

Crypto, currently

Many people are familiar with blockchain as the technology behind cryptocurrencies like bitcoin and ethereum, and Deloitte's Massey dedicated a portion of his session to addressing those virtual currencies, as did other panelists at the conference.

All panelists stressed the status of cryptocurrency as property, based on guidance issued by the Internal Revenue Service in 2014.

Stephen Turanchik, an attorney in the tax practice at law firm Paul Hastings, spoke about the perplexing nature of cryptocurrency taxation during another conference session. He explained that virtual-currency exchanges are not required to report to the IRS, so “a lack of detection, and the ability to hide it, still exists.” But, he continued, “if you think that gives you the license to commit tax fraud, think again.”

On July 2 of this year, the IRS announced its virtual currency compliance campaign, and it will be conducting more audits on virtual currencies, Turanchik warned the audience.

The IRS is also stepping up outreach and education efforts, and soliciting taxpayer and practitioner feedback for these campaigns. The service is urging taxpayers with unreported virtual currency transactions to “correct their returns as soon as practical,” Turanchik reported, though the IRS is not contemplating voluntary disclosure programs.

“The IRS simply doesn’t have the technical expertise to give guidance in this area,” Turanchik said. He cited a “John Doe” summons the IRS served to virtual-currency exchange Coinbase in November 2016, seeking customer data. Before the petition was granted, the IRS had to narrow the scope of the summons, to Coinbase users with accounts of at least $20,000 in any one transaction type, in any single year between 2013-15.

Overall, Turanchik explained, there is a “significant lack of transparency” in the cryptocurrency space, which he said keeps him busy, and provides big opportunities for tax preparers.

Source: accountingtoday.com Written by: Danielle Lee

What accountants need to know about blockchain

The phrases blockchain and artificial intelligence are mentioned so frequently in academic articles, practitioner publications and the general media landscape that they may have overshadowed the previous hot topic of data analytics.

With all of the coverage, debate and questions surrounding these areas, it would be relatively easy to get lost in the weeds with what these technologies mean for the accounting profession. In addition to, and compounding, the potential confusion surrounding these topics is the somewhat justifiable fear that these technologies will automate large functions of the accounting profession. Accounting professionals, trained and educated in quantifying data, analyzing different streams of information, and increasingly technology savvy, are facing the reality that technology may surpass, and ultimately, replace many practitioners.

Such a perspective, however, only represents a partial and incomplete view of the implications that blockchain and artificial intelligence will have on the profession. Bitcoin may be the most commonly associated term and aspect of blockchain technology, but that only represents the proverbial tip of the iceberg. Although some organizations are indeed using bitcoin for processing transactions, are accepting payment from customers in bitcoin, or the other various cryptocurrencies, this is only one potential implication for the accounting profession. Regardless of whether an accountant works in public practice, private industry, academia or a consultative capacity, it is critically important to understand the potential changes that are coming.

Blockchain technology has the potential, and already is, changing how the accounting profession operates and will navigate the business landscape moving forward. While the specific implications of these changes will differ from organization to organization, and some of these changes will occur faster than others, there are some themes that appear to be consistent. Clearly, this short list is not meant to be all-encompassing, but rather is meant to focus the conversation on the changes blockchain is having in a manner that is productive and applicable to practitioners.

To do that, however, accountants need to understand what exactly blockchain technology is, and what is might mean for the profession. Let’s take a look at three things every accountant needs to know about blockchain

1. Blockchain secures information and reduces alterations.

Although the basis for the spread of blockchain technology is the internet, and some uses have involved criminal enterprises, the basis of the technology is the encryption that secures transactions and records. To put it simply, every transaction that is conducted using blockchain technology is encrypted, the involved participants are identified by a string of characters, and after a certain period of time has passed (which may vary) all of these transactions become part of the block. After this block has been finalized, it is broadcast to all parties associated with that network, or chain. If it is altered at a future date, reviewers of the block (record) will be able to identify when due to time stamp functionality. Clearly this technology will lead to changes in not only how audits are performed, but will also drastically reduce the amount of time needed to verify or confirm certain balances.

2. Blockchain will reduce errors.

Especially as it pertains to accounts payable or accounts receivable, the potential for blockchain to be accretive from the very beginning is a relatively straight forward concept. Building on point 1, if the participants in a certain transaction are identified, the time and date of the transaction is verified, and the associated data is secured, the possibility of errors decreases dramatically. Specifically, the number of transposition corrections, verification of payments, and other lower-value activities can be automated by blockchain and ultimately replaced with higher-value activities. Reducing errors, both during the audit process itself as well as during ongoing operations, will add value to clients in a quantifiable manner. This may certainly place some current accounting jobs in jeopardy, but also provides numerous opportunities for accounting practitioners willing to learn, and eventually master, blockchain technology.

3. Accounting will become real time.

Just like doctors are increasingly able to monitor the health of patients in real time thanks to advances in technology, blockchain technology will help enable accountants to monitor financial performance in real time. Due to the fact that blockchain technology is based on, and leverages, an internet-based and decentralized platform, it will be simpler than before to track and monitor the inflows and outflows from a business. Building on the increasing utilization of cloud computing technology by both accounting organizations and client firms, this facet of blockchain represents a logical step in this same direction. Leveraging these advances in technology, and the ability for both business owners and accountants to keep abreast of changes in the business will only help accountants elevate their position to that of trusted business advisor.

Blockchain technology is already disrupting the accounting profession, and will continue to do so moving forward, but it will deliver both opportunities and challenges. Understanding the implications and possibilities of this technology on the profession is essential for practitioners seeking to keep up to date and relevant in a rapidly changing marketplace. Technology tools can provide opportunities, and CPAs have both the mindset and opportunities to take advantage of them.

Source: Accounting Today

Can employees be paid in cryptocurrency?

Bloomberg

Can your small business clients start paying employees with cryptocurrency? In a short answer, yes. And companies are already doing it.

So what does that look like for the average employee? What can they do with these cryptocoins? How do they pay their mortgages? Do supermarkets take these currencies? Seriously, how do people live real life on digital coins?

Let’s find out.

When a company first approaches its employees about paying them in cryptocurrencies, like Bitcoin and Ether, employees might be a bit apprehensive. It might take some good, old fashioned education to get people on board with receiving digital coins instead of pay check or cash. And that’s fine. Change takes time to be accepted. It helps to know that there are other companies already doing this and it’s working out for them. What also helps is the growing list of corporations and businesses that actually accept cryptocurrencies, such as Bitcoin.

While there are many pros to paying employees with cryptocurrency, there are also a number of drawbacks for the employee.

Some of the pros associated with this practice highlight cheaper payroll runs, ease of implementation, and ease of international transfer without high conversion fees. Cryptocurrency can also be used to buy other cryptocurrencies for future profit potential.

Some of the cons associated with paying employees cryptocurrencies, however, include capital gains tax: Employees would have to pay tax on any profits they saw above and beyond what you paid them. While it’s great if the coins go up in value, the employee might not appreciate losing most of it to the taxman. Another con associated with paying employees with cryptocurrency is the risk of losing money. Sure, a lot of cryptocurrencies are stable and do well, but markets are volatile and employees could end up with less than what you intend to pay them.

Still, working for a living has always had its risks and there is no guarantee that your fiat currency is going to be worth the same amount tomorrow. If your client is a startup looking to draw out some really great talent, offering cryptocurrency payments might attract the tech-savvy applicant that is looking to break into a new and upcoming field. Cryptocurrency also provides startups with an easy way to pay people.

What’s more, ICOs (initial coin offerings) can fund companies to get their business and technology off the ground, freeing up cryptocurrency to pay employees with the digital currency. Operating capital is vital to the success of a new company, and certainly an ICO is a great way to build a nest egg for operations.

The bottom line? We used to talk in terms of decades when we would reference the future. But big changes, like paying employees with cryptocurrencies, are already happening. If business owners continue to think and operate like nothing is changing, they are going to find themselves left out in the cold, holding money that is worthless, and scrambling to change their ways when it might already be too late.

Source: Accounting Today