What is blockchain?
Blockchain’s origins lie in accounting practices. Its technology is based on an auditable record of financial transactions. As a distributed, decentralised ledger, blockchain permits information to be viewed but not copied or altered. There is no central version of the blockchain, and it is not owned by a single party, but allows for multiple stakeholders to record and check their interactions, whether that be tracking goods, to the correct application of an indirect tax. These records are stored in groups called blocks. Each block is time stamped and linked to the previous block. It is incorruptible and unalterable, making it ideal for recording transactions without requiring a central authority.
What does it offer tax and accounting?
Data transparency is what blockchain does best. It offers a solution to an ongoing challenge for the tax function in an organisation – access to the full suite of tax-relevant information across the business. With mounting global pressure to comply with stringent anti-tax avoidance measures (in particularly BEPS), such visibility over its tax affairs will help an organisation avoid harsh penalties and reputational damage.
The top applications of blockchain for tax and accounting:
- Traceable audit trails
- Automated audit processes
- Transaction authentication
- Tracking asset ownership
- Development of ‘smart contracts’
- Asset registry and inventory system
The key benefits of these include:
- Reduced audit costs and time
- Evolution of auditor role to apply time and skill to tasks of greater value
- Fraud detection, particularly for transactional taxes of GST, withholding tax, insurance premium taxes, and stamp duties
Blockchain and our future
As businesses move away from siloed ventures and towards collaborative relationships, they need technological platforms that not only cultivate interconnected ecosystems, but provide clarity over these complex transactions. Blockchain has much to offer, but as with any system, good governance will be the key to success and as tax, accounting and audit professionals, we have a central role to play here.
Written by Nicholas Wong, Director of Product Management, Thomson Reuters
- Predicted ATO audit activity trendsfor 2021 & 2022 - 17 August 2021
- Tax audit claim stats all accountants in Australia will want to know - 14 July 2021
- The ATO Commissioner’s Annual Report, and all that may follow - 2 May 2018