Compiled by Mesharck Terence Odumo
Taking into consideration the capabilities of Blockchain technology, this article examines the important
issue of acceptance of this technology for reliable financial reports by the producers and users of financial reports. The main reason for the adoption of this new technology would be the perceived usefulness as a result of the positive impact on the qualitative characteristics of information. This article suggests the perceived contribution of blockchain technology to reliable financial reports. The world is complemented by increasing changes. The acceleration of these changes is extraordinary, consequently, they affect people, organizations, and societies in different ways.
One of the most crucial changes is the emergence of new technologies, which usually have many potential benefits. In whatever way, the development and deployment of these technologies are not sufficient to enjoy their benefits, technology must be taken into account by the users (Shafiee, 2014). Commonly, nowadays accounting and traditional financial reporting likely have a risk of inadequate analysis and misrepresentation of information among users. Consequently, commercial markets and users of financial information need arrangements and conditions to increase openness in the reporting process. Therefore, achieving a series of the appropriate financial reporting system to solve these problems is critical (Bozorg, 2006).
Generally, information technology is one of the critical tools used and the development of information
technology is part of the path to improvement. It paves way for advances in technology in such a way that they prepare the appropriate conditions for establishing information systems within organizations which have led to many changes. In addition, they have led to positive consequences in the forms of economic relations, business practices, and exchanges between companies (Arab Mazar Yazdi & Hassani Azar Dariani, 2006). One of the most important features of information and communication technology is the high speed of transmission and data processing, ease of access to information, the possibility of electronic exchange, lower costs, and high-quality data transfer.
Accountants, meanwhile, are one of the most concerned with the consequences of changes in the world of information and communication technology, because these changes are directly related to how they perform day to-day tasks and process improvement from traditional reporting limitations and upgrading periodic financial reports to continuous business reporting (Arab Mazar Yazdi & Hassani Azar Dariani, 2006). Therefore, they have to use technology properly. In other words, the role of information in the organization has become vital with the advent of information technology, information providers, especially auditors and accountants should be pioneers in using existing software and they have to provide better services to the stakeholders.
Actually, due to the fact that providing timely, reliable, and comparable information to the stakeholders is essential to help viable decision-making process as well as to have an efficient capital market, this goal is attainable with the emergence of technologies such as blockchain (Bagherian & Kasgari, 2007). In other words, technology has the potential to evolve financial reporting, and companies can report other theoretical bases of using advanced technology for financial reporting can minimize the absence of information symmetry between management and other stakeholders. For this reason, companies use advanced technology in order to reduce the negative effects of information asymmetry. Technology is changing at an unprecedented rate. This is a trend that can only continue to grow in the coming years as big minds continue to develop things to make everyday life easier and more accessible to everyone.
Non-stop technological evolution has led to the development of blockchain, a peer-to-peer-based distributed network that enhances value exchange by recording and transmitting it in an intact manner. Blockchain is considered the second wave of change in the structure of computing. Providing useful information for decision-making is one of the fundamental goals of financial accounting and reporting. One of the qualitative features in providing the information is reliability and relevance of information. The recent financial scandals in some organizations such as Enron’s case also some cases in Kenya cause investors’ confidence in financial reporting systems to weaken and the quality of financial reporting is an
important factor in determining the credibility and reliability of financial reports and statements.
As a result, determining the quality of accounting information resulting from financial systems and its results have been of interest to many stakeholders but not limited to investors, managers, legislators, and (ALSaqa, Z. H., Hussein & Mahmood, S. M., 2019). In the current sensitive situation and due to the weakness in financial systems, it is helpful to think of a way to improve it. The emergence of blockchain technology is likely to improve accounting and financial reporting, and the effect of blockchain technology on improving accounting and reporting quality of financial information. This article is
tied to the possible frameworks of using blockchain technology in future financial accounting and reporting that will be created to financial accounting and reporting.
Arguments for Blockchain as a precipitate for reliable financial reports If we want to provide a simple definition of blockchain, we can say that blockchain is a system for recording information and since it uses encryption to record information, it is impossible to delete and manipulate information, so the reliability of data stored in this system is very high. In his study in 2019, Kozolinsky suggested that blockchain use in the accounting process is in the form of collecting, grouping, and streamlining information. Ease of access and information provision reduces the distance between receiving information and entering it in the database. Thus reducing risks of errors in accounting processes which allows the company to avoid misrepresentation of information in accounting. Blockchain integrates all levels of accounting to create an integrated database and automatic report generation, and ensure effective operational control.
The role of information in the organization has become vital with the advent of information
technology, information providers, especially auditors and accountants should be pioneers in using
existing software and they have to provide better services to the stakeholders.
Blockchain technology through instant transaction validation, speeds up the automation of manual operations, thus making it possible to adapt more quickly to the latest regulations (Liu, M., Wu, K.. & Xu, J. J, 2019). In a study entitled Accounting and Auditing at the Time of Blockchain Technology, it was articulated that technology improves performance when it comes to operations (Schmitz, J., & Leoni, 331-342). In cases of instantaneous performance improvement, increase of speed with automation of manual operations, timeliness of information, accuracy, decentralized ability to track records, transactions, events, ensure the reliability of the information, etc. The possibility of implementing the accounting approach “threeway registration”, reduces fraud, and increases the capability of accurate financial statements helping accountants to prepare accurate financial statements.
Like mindedly, Bonsón, E., & Bednárová, M, (2019) in their study entitled Blockchain and its implications for accounting articulated that this reduces fraud,and increases the comparability of disclosed information to users. In the cases of improving information timeliness, decentralization(audit), thereby reducing the problem of information asymetry, increasing accuracy and precision and reducing the costs of inherent audit representation, the immutability of records , reducing Human error, non-manipulative, increase comparability disclosures help to facilitate the exchange of information, keep accountants consistent, and provide fair financial reporting.
ALSaqa, Z. H., Hussein, & Mahmood, S. M. (2019). The Impact of Blockchain on Accounting Information Systems. Journal of Information Technology Management. Journal of Information Technology, 62-80.
Arab Mazar Yazdi, M., & Hassani Azar Dariani, E. (2006). Security in XMLBased Financial Reporting Services on the Internet. The Accountant journal, 64-74.
Bagherian & Kasgari, A. (2007). Electronic Exchange, Standards and Intelligent Regulatory Networks.
Bozorg, A. M. (2006). Introduction to the Concepts and Applications of Expandable Business Reporting. Official Accountant Quarterly, Third Year, 83-90. Liu, M., Wu, K.., & Xu, J. J. (2019). How Will Blockchain Technology Impact Auditing and Accounting:
Permission less versus Permissioned Blockchain. Current Issues in Auditing.
Schmitz, J., & Leoni. (331-342). Accounting and auditing at the time of blockchain technology: a research
agenda. Australian Accounting Review.
Shafiee, M. (2014). Technology Development in Conceptual Age: Definitions, Concepts, and Requirements. 1-10.
Wu, J., ong, F., & Li, C. (2019). Application of Internet of Things and Blockchain Technologies to Improve
Accounting Information Quality.
The author is an Accountant at MUA Insurance Kenya Limited and a member of ICPAK