This article was first published in the May 2017 China edition of Accounting and Business magazine.

‘One might think that as long as humans trade with one another, we’ll have something like the invoice,’ the Asia managing director of a workflow management consulting company told me. ‘But in reality this is not going to be the case. It is very likely that technologies like blockchain would take away the need to send an invoice.’

When a company that has been dealing with invoice management for all its existence gives up on it, you know how near blockchain technology is to adoption for a variety of commercial transactions. When that happens, there would be no need to issue invoices because the transfer of goods and services and the corresponding payment can be done in real time on a distributed ledger.

Simply put, blockchain technology allows many parties to record their transactions in a digital ledger that resides in their computers. Every transaction is time-stamped and linked to the previous transaction by a cryptographic algorithm known as a ‘hash’. Every user’s ledger is replicated and synchronised across the network of users regardless of where their computers are in the world.

‘Instead of keeping separate records based on transaction receipts, companies can write their transactions directly into a joint register, creating an interlocking system of enduring accounting records,’ explains Deloitte in a recent article. ‘Since all entries are distributed and cryptographically sealed, falsifying or destroying them to conceal activity is practically impossible.’ 

Blockchain technology also allows the writing of smart contracts: computer programs that can execute an action when certain conditions are met. For example, the program can self-execute to pay one party after checking the distributed ledger and confirming that delivered goods have been received and sufficient funds are available – ‘an invoice paying for itself’.

Blockchain can also make accounting and auditing as we know it obsolete. ‘It can be gradually integrated with typical accounting procedures: starting from securing the integrity of records to completely traceable audit trails,’ Deloitte suggests. ‘At the end of the road, fully automated audits may be reality.’  

All of this has implications. What will accountants and auditors do when double-entry bookkeeping is no longer necessary, and verifying the integrity and compliance of the company’s accounting can be done with automation? 

The easy answer is that accountants and auditors will be able to shift their focus from manual grunt work to the examination of very complex transactions, internal control mechanisms, analytics, forecasting, strategy-setting, business partnering and other value-added activities. Blockchain technology will enable full automation, but it cannot substitute for human judgment.

Perhaps its adoption in invoicing, accounting and auditing may not be as imminent as the managing director fears, given the cost involved, absence of standards, scalability issues and privacy questions. Or perhaps things will move much faster than most people imagine.

Regardless of the timing, what is clear is that blockchain and other technologies will further disrupt the accounting and auditing profession. Finance professionals should acquire the judgment-based skills and experience required in the post-blockchain world now, before events overtake them. 

Cesar Bacani is editor-in-chief of CFO Innovation