(As originally published in FEI Canada F.A.R. member e-newsletter, December 2017)

Blockchain – revolutionizing the way the finance function operates

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By: Abhishek Sinha, Partner in EY Canada’s Financial Services Advisory practice

Blockchain is the technology behind bitcoin – you know, the virtual currency that everyone keeps talking about! But what’s the fuss behind the blockchain buzzword, and how will this technology start to make its way beyond currencies and insert itself into our everyday business processes?

In layman’s terms, blockchain is a continuously growing, linear list of records. When a new record (block) is added, it is timestamped and linked to the previous record to form a list (chain) – a process that prevents previous records from being changed or manipulated in the future.

This list of records is hosted on a shared virtual database. Through the database, the list of records is distributed across a vast network of institutions, individuals and geographies; and can be accessed, verified and shared by anyone with the appropriate permissions – alleviating the need for a central authority. This ultimately creates an integrated, efficient and transparent means of storing, sharing and verifying data.

As you might have already guessed, there is a variety of financial and accounting applications behind blockchain. While the technology is currently used most commonly for payments and exchange, it has the potential to revolutionize the way the finance function operates. Here are a few things to think about.

Traditionally, CFOs play three key roles in their organization: execution, enablement and development. The EY report Blockchain: How this technology could impact the CFO outlines how blockchain has the potential to impact each of these roles and redefine the finance function.

Execution: One of the top objectives for any CFO is to create a solid, trustworthy financial basis for their company. This is where blockchain can help. It’s a trusted data source where all transaction records, once created and confirmed, cannot be altered or removed from the ledger. This means organizations can maintain data integrity while reducing the possibility of fraud, allowing for a greater focus on more complex transactions and internal controls.

Enablement: Every organization has the goal to be strategically aligned across all business functions, but it’s easier said than done. Luckily, blockchain can provide the foundation for transforming organizations from a silo system to an integrated network. Blockchain-based applications enable reconciliations between departments and subsidiaries to become nearly instantaneous, transparent and verifiable. When project performance can be reviewed in real time, leadership will be able to adjust funding appropriately to maximize return on the overall invested portfolio.

Development: The transparency of blockchain may result in many supply chains operating on publicly visible distributed networks – making both public and private transactions more visible to competitors and shareholders. With this increased visibility, organizations will have to establish how they use a combination of private and public blockchains to track and share relevant information with the market.

Overall, blockchain technologies will arm the CFO with the necessary tools and capabilities needed to be strategic, efficient and transparent. The reduction of manual effort alone will free up time for the finance function to focus on value-add activities, ultimately leading to greater cost savings and increased investment in strategic decisions that contribute to improved shareholder value.