The Chartered Accountant • Journal of ICAI May 2022 • Vol. 70 • No. 11 • pp. 92–97 (Journal pp. 1396–1401)
TECHNOLOGY

Blockchain Accounting: Applications and Implications

CA. Anima Chordia & Prof. Shurveer S. Bhanawat

Chartered Accountant & Academic Scholar / Professor

Blockchain is the technological talk of the decade and being termed as the technological revolution after the internet by the experts. We often hear this term in relation to cryptocurrencies. However, the world of blockchain is far beyond cryptocurrencies and now spreading its wings in changing almost every field. It is expected to be a transformation and would impact various industries like supply chain, health, education, logistics, food, banking, insurance, automobile, and many more. However, it is being said that blockchain is going to be the biggest disruptor in the area of traditional accounting practices. This paper aims to give insights about the concept of blockchain technology, understand the application of blockchain in the area of accounting, its advantages and challenges, information about early adopters of blockchain accounting, and the concept of triple entry accounting. Finally, we discuss the potential of including blockchain accounting as a part of academic education curriculum. Read on…

Technical Definition & Foundational Mechanics of Blockchain

A Blockchain is a decentralised, distributed and digital public ledger used to record transactions across many computers (participants known as nodes) in an immutable and non-amendable manner such that no record once added can be altered or deleted. As stated in (Dutta, 2020), if a transaction needs to be removed for any legitimate reasons, a new transaction has to be recorded which reverses the previous transaction. Any verified transaction recorded on one computer/ledger is subsequently recorded on all other copies of the ledger across all participant nodes simultaneously.

A transaction is requested by any user on the network, leading to the creation of a block. This block is broadcast to all nodes across the network, validated through consensus mechanisms, added to the permanent chain, and updated synchronously on every participant’s ledger via direct peer-to-peer (P2P) communication. Blockchain possesses the capability to record an infinite number of transactions, with records strictly confined to participants within the ecosystem.

Figure 1: Transaction Lifecycle over Blockchain (Euromoney Learning Framework)

Step 1: Request
Transaction initiated and authenticated by party.
Step 2: Block Creation
Block representing digital transaction is generated.
Step 3: Broadcast
Block sent to every participant node in network.
Step 4: Validation
Nodes validate via Proof of Work (PoW) rewards.
Step 5: Chain Append
Block appended to chain; distributed ledger updated.

Pioneering Enterprise Adopters of Blockchain Accounting

Several forward-thinking multinational institutions and software initiatives have launched practical applications demonstrating the viability of blockchain accounting:

IBM Secure Cloud Blockchain

Enterprise supply chain platform enabling corporations to track high-value physical assets and inventory movements with immutable provenance.

Ethereum Foundation (Balanc3)

Pioneering software platform engineered exclusively for triple entry accounting, smart contract invoicing, and automated digital ledger reconciliation.

Tierion Cloud Receipts

Blockchain-anchored cloud service enabling organizations to issue immutable, cryptographically timestamped digital receipts and audit logs (Sarkar, 2018).

Factom Notary Architecture

Utilizes notary chains to provide proof-of-existence and proof-of-process verification layers for corporate recordkeeping (Karajovic, Kim, & Laskowski, 2017).

Lukka Tax & Verady

Specialized digital asset accounting and tax software proving enterprise durability and institutional reporting readiness (Kunselman, 2021).

Big Four Accounting Firms

PwC, EY, Deloitte, and KPMG regularly deploy research and proprietary platforms to automate audit procedures and enhance assurance quality.

Core Applications of Blockchain in Accounting

Blockchain alters traditional accounting techniques for invoicing, recordkeeping, documentation, and reconciliation. It mechanises physically performed tasks and assignments, simplifying book-keeping and establishing quick, non-amendable records (ICAI, 2018).

“Blockchain is a foundational change in how financial transactions are recorded, maintained, and updated. In blockchain, records are shared with all the users on the network rather than having a single owner like in traditional recordkeeping. A single identical and agreed-upon version of the truth propagates to all users as part of a permanent record which highlights the decentralised and distributed feature of blockchain which is also immutable” — ICAEW (2018).

Blockchain creates a shared junction of permanent accounting records rather than disconnected, proprietary ledgers. Transactions are shared and cryptographically sealed, making post-facto concealment or fraudulent destruction of records practically impossible (ICAI, 2018). By eliminating the time-consuming and expensive reconciliation of disparate accounting registers, accountants gain substantial operational capacity to pivot toward financial planning, valuation, and capital allocation (Pugna & Dutescu, 2020).

Triple Entry Accounting: Deconstructing the Paradigm Shift

Blockchain technology integrates accounting and underlying business operations through Triple Entry Accounting. Instead of maintaining two separate proprietary books (double entry), triple entry maintains three ledgers: one by the seller, one by the buyer, and a third public, cryptographically authorized ledger that represents undeniable, shared evidence of the transaction (Pascal A. Bizzaro, 2019).

Dimension Current Double Entry Practices Potential Blockchain Triple Entry Practices
Ledger Architecture Separate, isolated ledgers maintained independently by buyer and seller. Shared distributed ledger acting as an immutable public receipt between trading entities.
Reconciliation Periodic, labour-intensive matching of bank statements, supplier accounts, and receivables. Continuous, automated reconciliation cryptographically authenticated at transaction inception.
Audit Methodology Post-mortem periodic sampling conducted months after the fiscal period closes. Continuous real-time audit where auditors access an unalterable read-only auditor node.
Fraud Resistance Vulnerable to unilateral ledger manipulation, backdated entries, and fictitious billing. Cryptographically sealed via digital signatures and hash pointers, eliminating backdating.

Figure 3 & 4: Payment Transaction Mechanics (Alice & Bob Case Study)

In Cai’s (2019) seminal model, traditional payment requires checks and bilateral reconciliations between Alice and Bob. In Triple Entry Accounting:

Alice’s Cash Account:
Credit $100 (Outflow)
Validated by Alice’s Digital Private Key Signature.
Bob’s Cash Account:
Debit $100 (Inflow)
Validated by Bob’s Digital Private Key Signature.
Public Ledger (The 3rd Entry):
Digital receipt recording Alice -$100 and Bob +$100, verified by network consensus and accessible directly to independent auditors.

Five Defining Features of Triple Entry Accounting (Febrero, 2018; Vijai et al., 2019):

  • Tamper-Proof Record: Distributed immutability prevents alteration or deletion.
  • Permissioned Distributed Ledger: Enterprise-grade access control ensuring confidential corporate operations.
  • Double Entry + Cryptography: Traditional debits and credits augmented with asymmetric cryptographic keys.
  • Validated, Secure & Private: Transaction validation occurs without exposing proprietary strategic data.
  • Digitally Signed Receipts: Time-stamped cryptographic receipts serving as irrefragable legal evidence.

Figure 5: Accounting Information System (AIS) Based on the BC-IoT Model (Wu, Xiong, & Li, 2017)

The BC-IoT model illustrates how physical economic events (purchasing intentions, delivery confirmations via IoT sensors) trigger automated smart contracts. The smart contract validates conditions, creates a timestamped block in the economic event ledger, automatically generates accounting event entries (Accounts Payable / Accounts Receivable), and compiles real-time general financial reports, historical cost schedules, and individualized management accounting reports without human intervention.

Implications of Blockchain in Accounting: Exhaustive Analysis

Nine Strategic Advantages

  1. Error Reduction: Exponential increase in available, validated accounting information with drastic error reduction.
  2. Role Elevation: Accountants pivot from clerical bookkeeping toward smart contract verification and document validation.
  3. Real-Time Access: Instantaneous visibility into enterprise financial health and liquidity positions.
  4. Resource Reallocation: Freeing manpower for high-margin strategic advisory, mergers, and corporate planning.
  5. Continuous Reporting: Elimination of month-end closing lags through real-time ledger compilation.
  6. Reduced Follow-up Costs: Automated workflows drastically lower transactional chase-up and dispute overhead.
  7. System Advisory Roles: Accountants position themselves as trusted advisers guiding enterprise blockchain architecture.
  8. Substantial Audit Cost Savings: Audit time and fees decline considerably as core financial records are verified algorithmically.
  9. Tax Fraud Mitigation: Inherent transparency curtails fictitious invoicing, circular trading, and tax evasion.

Nine Operational Challenges

  1. Confidentiality Vulnerability: Recording massive transaction volumes poses acute risks to proprietary corporate data.
  2. Managerial Judgment Persistence: Complex accounting estimates (impairment, fair valuation, useful lives) cannot be automated by code.
  3. Professional Inertia: Conventional accountants risk obsolescence by failing to lead blockchain solution design.
  4. Infrastructure & Security Deficits: High capital expenditure requirements for IT infrastructure and cybersecurity.
  5. Regulatory Rigidity: Smart contracts require high architectural flexibility to absorb rapid real-time statutory amendments.
  6. Nascent Enterprise Maturity: Enterprise blockchain platforms remain in early stages with limited real-world production testing.
  7. Inability to Prevent Physical Theft: Blockchain cannot prevent physical misappropriation of assets, mathematical calculation mistakes, or biased estimates.
  8. Accounting Verification Limits: Cryptographic authentication confirms data transfer, but cannot independently verify substantive payment economic rationale.
  9. Skill Gaps: Severe deficit in multidisciplinary accounting professionals combining book knowledge with technical prowess.

Reforming the Academic Accounting Curriculum

Educational institutions must adapt to maintain trust, efficiency, and relevance in the information era (Kaur & Oswal, 2020). Triple entry accounting has the potential to fundamentally alter accounting education and replace outdated textbook formulas (Samaduzzaman, 2020).

From Routine Bookkeepers to Analytical Professionals

For centuries, accounting curricula have taught double entry bookkeeping exclusively. However, future Chartered Accountants and auditors will examine transactions recorded on distributed networks. If students are not trained in triple entry accounting, smart contract auditing, and consensus protocols, they will be incapable of conducting statutory audits of modern enterprises.

Universities and professional bodies should introduce specialized diploma courses, undergraduate/postgraduate practical labs, workshops, and webinars focused on blockchain accounting, forecasting, resource planning, and IT governance.

Conclusion: The Transformational Horizon

Blockchain is an opportunity rather than a disruptor to accounting and audit services. While realism is essential—as Pascal A. Bizzaro (2019) astutely observes, benefits are often oversold while implementation costs and hurdles are undersold—the long-term trajectory is undeniable. Blockchain will not eliminate accountants; it will eliminate mechanical drudgery, elevating professionals into critical thinkers and strategic facilitators (Kunselman, 2021).

“This technology opens up new opportunities. Accountants and auditors’ skills will need to expand to include an understanding of principle features, functions, and implications of blockchain technology. But sadly, some auditors and accountants who fail to understand and adopt this technology may lose his/her career” — Samaduzzaman (2020).

Scholarly References & Literature Citations

  1. Euromoney Learning (2020 / 2021): How transactions get into the blockchain. Available at: https://www.euromoney.com/learning/blockchain-explained/how-transactions-get-into-the-blockchain
  2. ACCA (2020): Blockchain features and implications for accountancy. Available at: https://www.accaglobal.com/pk/en/student/sa/features/blockchain.html
  3. ALSaqa, Z. H., Hussein, A. I., & Mahmood, S. M. (2019): The Impact of Blockchain on Accounting Information Systems. Journal of Information Technology Management, 63–80.
  4. Bizzaro, P. A., Garcia, A., & Moore, Z. (2019): Blockchain Explained and Implications for Accountancy. ISACA Journal, Vol. 1, 1–10.
  5. Cai, C. W. (2019): Triple-Entry Accounting with Blockchain: How Far Have We Come? Accounting and Finance.
  6. HighRadius Corporation (n.d.): How blockchain fills the gaps in A/R processes. Blockchain: A Game-Changer in Accounts Receivable.
  7. Coyne, J. G., & McMickle, P. (2017): Can Blockchains Serve an Accounting Purpose? Journal of Emerging Technologies in Accounting.
  8. Dutta, T. (2020): Blockchain fundamentals, immutability and transactional reversal principles.
  9. Karajovic, M., Kim, H. M., & Laskowski, M. (2017): Thinking Outside the Block: Factom and Proof-of-Process Layers.
  10. Kaur, S., & Oswal, N. (2020): Technology and Education Revolution in Accounting.
  11. Kunselman, J. (2021): Blockchain in Accounting: Transforming Financial Records.
  12. Pascal A. Bizzaro (2019): The Economics of Blockchain in Professional Accountancy.
  13. Potekhina, A., & Riumkin, I. (2017): Blockchain and the Future of Audit and Verification.
  14. Pugna, I. B., & Dutescu, A. (2020): Blockchain Technology Applications in Accounting.
  15. Samaduzzaman, M. (2020): Triple-entry accounting and educational curriculum reform.
  16. Wang, Y. (2017): Designing Privacy-Preserving Blockchain-Based Accounting Information Systems.
  17. Wang, Y., & Kogan, A. (2018): Designing Confidentiality in Enterprise Distributed Ledgers.
  18. Wu, H., Xiong, K., & Li, C. (2017): Application of Internet of Things and Blockchain Technologies to Improve Accounting Information Quality.