With all the technology adoption taking place, tax & accounting professionals need to identify where to focus, and learning blockchain may be a good start
One question these professions should be asking is: Which technology will create the most impactful transformation — artificial intelligence (AI), robotic process automation (RPA), cloud use, or blockchain?
Cloud and RPA have the ability to solve many process and capacity challenges, and that explains the tremendous adoption growth we have seen over the past year and a half. AI is appearing in more operating systems and software solutions that are used by the tax & accounting profession. And AI promises to augment the deep knowledge and analysis that is expected from industry professionals.
However, that often means that the impact of blockchain is being underestimated by many in accounting. Although many are aware of the term blockchain, many people are still quite uncertain what it means fully, which makes it more difficult to imagine the transformation it can and is driving. To be future-ready is to be aware, adaptive, and predictive.
Indeed, there are predictions that blockchain will be the new operating system at some point in the future — are you aware and adapting to these changes?
In short, blockchain is a decentralized, secure, distributed ledger; and the name comes from the way the data is structured in blocks. As data is added to the blockchain it is verified by everyone in the chain. Blockchains can be public, such as with Bitcoin, or private. The use cases are continuing to emerge as blockchain creates greater transparency and allows for more verification of both sides of a transaction.
Worldwide spending by organizations on blockchain solutions has grown to more than $6.6 billion in 2021, and is expected to reach almost $19 billion by the end of 2024. The total crypto market capitalization has reached $1.88 trillion, as of August 2021.
As banks around the world invest in blockchain technology, the largest use case has become cross-border payments and settlements.
As of May 2021, and estimated 46 million Americans, or roughly 17% of the adult population, owns a share of Bitcoin. Although just one type of cryptocurrency in existence, Bitcoin is the largest by market share and is regarded as the most well-known crypto-asset. Surveys of Americans show millennials are especially interested in investing in crypto once they learn more.
Some of the key drivers of blockchain adoption include: globalization and commerce with countries that don’t have access to centralized banking; lower risk of expanding into markets outside the U.S.; and an increasing interest in the growing value of crypto assets, says Kacee Johnson, senior director of strategy and innovation at CPA.com. Though digital currency has been volatile, the value is continuing to grow, she adds, and investors, not just millennials, are taking notice.
Companies like Visa and Mastercard are responding to this demand as well. This summer they both partnered with technology companies to release crypto reward credit cards. And now, companies like Paypal are looking at accepting crypto payments.
In fact, more companies are looking into if and how they should accept cryptocurrency as payment. This trend will generate questions for accounting professionals as colleagues and clients will need to know how to track assets, what tools collect payments, and how do they account for and report this.
At the 2021 Blockchain Symposium, hosted by the American Institute of CPAs (AICPA) and CPA.com, one business shared how it went to their accounting professionals for advice in this area. Their accountant was uninformed on blockchain and provided no information, so the business leaders did the research themselves, found the technology, learned how to report it, and launched the initiative without the support of their accounting team. The company saw how accepting crypto-payments reduced their liabilities and costs. The business did not let the lack of knowledge in their accounting team stop them from going after the benefits of implementing a crypto-payment method.
The second leading use case of blockchain at this time is supply chain. Wal-Mart is in its third year of using blockchain with suppliers. Blockchain offers tremendous trackability in the supply chain process; for example, wineries can use it to track seed to bottle; and farms can track from the field to the store. In the event of a problem, such as a batch of bad produce, an agriculture group — rather than recalling all lettuce that may have been contaminated — can track which field had the problem and which stores received that produce. This significantly reduces waste and financial losses.
Businesses and individuals are embracing the reduced risk and opportunities the various use cases of blockchain presents, opening the door for reporting and compliance liabilities. The IRS formed a partnership with TaxBit in May to help enforce the reporting of crypto-assets on business and individual tax returns. Further, the AICPA and the U.K.’s Chartered Institute of Management Accountants (CIMA) released non-authoritative guidance on accounting and auditing of digital assets. The purpose is to “help auditors consider the potential risks unique to the digital assets environment,’” says Diana Krupica, CPA, and lead manager of emerging assurance technologies for AICPA & CIMA.
Not surprisingly, discussions are happening around the world regarding national digital currencies, with the U.S. holding a hearing in June to discuss the virtues and threats of a digital currency. Part of the discussion revolved around the dominance of the U.S. dollar in the world economy, but if we don’t digitize the dollar, it could become like the best flip phone in 2006, according to U.S. Sen. Tom Cotton (R-Ark.).
Just like in the U.S. Senate central bank digital currency hearing, there is still a lot of predictions being made; however, what we must acknowledge is the indicators of disruption are happening as well. There are multiple technology companies offering solutions, and what once seemed like a joke now has the attention of a good percentage of Americans with regulations in place and developing further. These are all tell-tale signs of a disruptive technology.
Ron Quaranta, the CEO of the Wall Street Blockchain Alliance, says “we will be hard pressed to find any large public companies that will not have crypto on their balance sheet or investing in the technology in some way over the next 2 to 5 years.” Quaranta warns about letting incumbency bias impede accounting firms from making the investment now. Tax & accounting firms should start learning blockchain, or they may soon be left behind, he cautions.
CPA.com’s Johnson also noted that accounting professionals or firm leaders who think their clients are not investing in cryptocurrency, or accepting digital assets as payment, are most likely not having the conversations with their clients and missing out on an advisory opportunity.