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Journal number 2 ∘ Teona Makalatia
Evolution or Revolution in Accounting and Audit

The purpose of this article is to discuss the opportunity for accounting and auditing in new era of technology. Technology achievements and their impact on accounting and auditing. If it’s possible to increase the current maximal level of assurance, which is reasonable assurance with much higher level. 

Keywords: Accounting, Accounting Data, Audit Data, Auditing, Bookkeeping, Double Entry, Going Concern, Record Keeping, Triple Entry, Assurance, Blockchain, Smart Contracts.

JEL Codes: M40, M41, M42

1. Double Entry 

Data storage technology has been of paramount importance at every stage of human history. Financial accounting is also one of the forms of recording, storing and presenting reports. 

Accounting has undergone a great evolution before it has reached the present day of theory and practice. Modern financial accounting is based on a Double-entry system. During the Renaissance, this system revolutionized the field of financial accounting. It solved the problem of managers being able to determine the accuracy of their own records. Double-entry bookkeeping, in accounting, is a system of bookkeeping so named because every entry to an account requires a corresponding and opposite entry to a different account (Debit/Credit). The accounting equation is an error detection tool; if at any point the sum of debits for all accounts does not equal the corresponding sum of credits for all accounts, an error has occurred. However, satisfying the equation does not guarantee that there are no errors; the ledger may still "balance" even if the wrong ledger accounts have been debited or credited. 

However, to gain the trust of financial reporting users, independent auditors also check the company's financial information. Each audit is an expensive process, which also requires the involvement of the company's accountants and their additional efforts. 

Users of financial statement charged responsibility for financial statement to its management. Management has hired an auditor to express opinion and give reasonable assurance on financial statements. The audit report should be the highest level of credibility. Thus came the independent auditor whose role was and is an independent guarantee of the reliability of financial information. 

2. Achievable Level of Assurance

Whom is the auditor responsible for: the management who hired or the user of the financial statement? Why so many failed audits? Why so many mistakes? Why so many misinterpretations? Why so many misleading users? Where is the high level of assurance? Why can't proper and reliable information be provided even in today's reality? 

Financial statements represent the assertion of management towards the users of the financial statements. 

Each of these assertions has a problem of assurance and credibility. Audit also serves to gain that assurance and credibility. Auditors have to work hard to obtain relevant evidence to conclude that a financial statement does not contain material misstatement. This task becomes even more difficult if someone intentionally hide important information for specific purposes. We are dealing with fraud at this time.

3. Technology today

Today, a new system for storing digital data is introduced, which is called Blockchain. It will have the big impact on history. Blockchain is a huge space for digital recordings. Behind him is not a single person, company or state structure, but a decentralized network of many thousands of computers around the world.

The information is cryptographically printed in blockchain. New information is added to the records once every few minutes, only when all computers declare consent to receive this data. The computer will only give consent when it has obtained proof of the correctness of the new data. Everyone knows how the system works, but no one can change its rules. No part of the process requires human intervention, everything is fully automated. 

If any company or government structure were to take these records, it would no longer be trusted. For example, in the event of a bankruptcy or liquidation of a company, no one would be responsible for the data. But in a scattered network, the system is decentralized. Therefore, one particular weak point no longer exists. Sometimes, some computers may mix, but that doesn't change anything, as other computers continue to provide data security with their own copies and accuracy tests. 

It is probably inadmissible to have and not to benefit from this system today. Blockchain is so far the most important and detailed method of record keeping we have ever had, the open structure of permanent memory that is growing organically. This technological breakthrough has brought the digital money system to Bitcoin. But its impact is far greater than just using an alternative money system. 

These changes certainly have a fundamental impact on accounting and auditing. The biggest opportunities open up using blockchain in accounting. And then of course in auditing too. If accounting has changed fundamentally, it will automatically change, and audits and entire audit procedures will change. 

Is it time to take advantage of modern technological advances and fundamentally simplify accounting, move to a new, much higher degree of assurance? We hear and see the dire consequences of unnecessary accounting and auditing on a daily basis. Among the world's leading countries, huge corporations. 

The change in reporting will automatically simplify the audit process and bring much higher level of  assurance.

4. Triple entry?

Maybe we can make a triple recording system an extension of the traditional double recording system. What is this third? The third includes all accounting records that are cryptographically sealed by a third party. This includes inventory and supplies purchases, sales, taxes, utility payments and other expenses. Side by side, the accounting records of both parties are equal to the specific transaction. The seller's side accounts for the debit to the cash account, and the buyer side accounts for the same transaction, only on their side of the accounting records. This is where blockchain comes in: they create a unified, mutually verifiable, interlocking record system in the public space. Once the information is verified, transmitted, and cryptographically sealed, it is virtually impossible to falsify, modify, or destroy it. 

Blockchain technology will be the next revolution in accounting and auditing: Instead of keeping separate records based on transaction receipts, companies can record their transactions directly in a single registry and create a standing, interlocking system of accounting records. Once all the material is circulated and cryptographically sealed, fabricated or destroyed to cover the activity it is virtually impossible. Such a transaction is in fact equivalent to a notarized copy only by electronic means. All records in the array are permanently stored, cannot be changed or deleted, and every computer on the network that keeps a copy of their records is guaranteed to do so. It is impossible to break the system. All computers on the network need to be hacked, which is practically impossible, and this is proven by the futile efforts of many talented people, including NASA specialists. 

With this technological breakthrough, companies will benefit from many things: standardization will allow auditors to automatically audit the most important financial reporting areas. The costs and time required to conduct the audit will be significantly reduced. At this time, they can bring additional benefits to companies. Spend time on very difficult operations or improve internal control systems. 

The result is a wide range of organizational, technological and procedural provisions. All preventive measures must be properly documented and reported to third parties. 

Blockchain makes it easy to verify the integrity and accuracy of electronic files. One, that every file be assigned an individual hash code. This hash code represents the digital fingerprint for each file. Next, this fingerprint is invariably, timely, sealed in a transaction blockchain. 

At any time, it is possible to confirm the validity of this transaction by comparing it with this printout. If the printouts are identical, the document remains unchanged after the first hashcode is assigned to the database. 

Time stamping can take place at any time during the existence of documents and deliver any subsequent organizational, technological and procedural integrity. It is advisable to make a fingerprint after creating the electronic document before the document is sent to the issuer. Thus, the risk of changing the document over an entire period can be excluded. Normal data storage can be used to archive a document, as the accuracy of the document can be easily verified. 

To confirm and apply this concept, you can do each accounting transaction life cycle in Blockchain, with all its relevant documents. The company's various business processes will be easy to track and control.

Finally, blockchain technology enables the smart contracts, that is, a pre-installed program that will automatically run after certain conditions are met. For example, the invoice will be paid automatically once the goods are received, the relevant specifications will be checked, verified, and the funds in the company's bank account will be available. 

Blockchain technology has the potential to change today's accounting and auditing systems. This could be maximum automation of accounting and auditing processes in line with regulatory requirements. There are many rooms and areas to use blockchain technology. The cascade of new applications one after another will allow us to deliver new, unprecedented services. 

All of this will dramatically change the International Auditing Standards (ISA). Completely different assertions be needed in the audit process and therefore completely different audit procedures will be required. For today the highest form of assurance – reasonable assurance will move to a new stage, we’ll receive the much higher level of assurance. There will no longer be audit sampling, all transactions will be 100% confirmed/audited. Auditors only will require the skills of big data analysis. 


The advantages of a triple entry system are numerous in terms of reconciliation, transparency, trust, and auditing. Triple-entry accounting allows us to reconcile the balance, the transaction, and the reporting process so that organizations can trust their own books. Typically, each party is responsible for maintaining their own financial records. However, this can lead to fraud or other errors. The use of triple-entry accounting reduces this risk by keeping a non-biased record. 

For auditing, blockchain accounting is ideal as it creates a list of transactions, thus it creates an immutable history of all the exchanges within the system which could be mined using analytics. There is a perfect audit trail. 

What do we get? Less routine man-made work, less wasted time, and more efficient and effective use of human resources! Less error and less fraud! The most important - completely new level of assurance and transparency!!!