Blockchain-based solutions are the perfect fit for the accounting industry; that is one reason why Bitcoin-based triple entry accounting firm Abendum was selected by the Financial Supervisory Authority of Norway as a participant in its regulatory sandbox.
A public, transparent, tamper-proof ledger that both parties can verify can significantly increase efficiency in the accounting industry, especially come tax time and audit season.
Today happens to be the tax deadline in the United States, the final day that U.S. citizens have to pay their taxes. If you think filing taxes is hard on the individual and business level, just think of all the work that auditors must do to obtain evidence for the businesses and individuals they are auditing—fortunately, Abendum solves that problem.
Abendum has created a solution that increases efficiency across the board in the accounting industry, especially in the auditing process.
Recently, CoinGeek had the chance to talk to Abendum CEO Stephan Nilsson and CTO Torje Sunde to learn more about the solutions that Abendum has created for the accounting industry.
“[The solutions we have created at Abendum] are based on a series of pain points that I experienced when I worked at a big four audit company,” Sunde said.
“In particular, the process of getting external confirmations, which is basically when you have a transaction and an auditor wants to verify the transaction with the counterparty—which takes a lot of time. But by using a public ledger and basically leaving a trail of all the economic activities in a public shared ledger, we can simplify the process immensely for an audit.”
Abendum has found a way to make the audit process far more efficient than it currently is, and the Bitcoin blockchain plays a crucial role in creating this efficiency. On Abendum, three entries are made; one by the sender, one by the recipient, and the third, on the public blockchain—in other words, Abendum is disrupting the accounting industry with triple-entry accounting.
“Triple-entry accounting does not replace double-entry accounting, it extends it. The third element is to leave this trail on a public ledger. [As an end user], you won’t actually feel much of a difference,” Sunde said.
“What happens is that your traditional system is extended, you will write to the public blockchain, and your counterparty will also use this ledger, this shared database, so afterward, an auditor can look at this ledger, at this trail that both parties leave on the public blockchain.”
Abendum’s solution not only makes the life of auditors easier, it also solves a pressing problem that enterprises around the world face—invoice fraud.
“All companies today have the problem that they receive false invoices; people are trying to send false invoices to make the company pay without checking it. We saw this problem this year in Norway, a company paid big amounts of money to a wrong account and then it was just gone, [but triple-entry accounting prevents problems like that from occurring,]” Nilsson said.
“What we are doing right now is allowing an accountant to upload a document, and digitally sign it so we know it’s really from him or her; and by doing that, it’s now registered in the blockchain, and then you can send it to the receiver. When the receiver receives it, they can now see that, okay, this invoice has been signed by someone I know so I can trust it.”
“So just by doing this first simple step, by signing the invoices digitally, we can kill off the whole false invoice industry and make it much more secure and let the company’s CFO sleep well at night because they will know that what they are paying is going to the right company and that it is a real invoice.”
“The next step is then, the recipient receives this signed invoice, and if they now sign it as received and accepted, we have this triple entry functionality. Then when the audit is coming, both actors have already signed it, the auditor can see, okay it’s signed by both, I don’t need to call anyone I can just accept this as a true document, they can go out on the blockchain, and that is a tool we are giving the auditor, they can now run the report and verify, this invoice is actually signed, it’s in the blockchain, so I can accept it as a proof.”
Triple-entry accounting has the ability to disrupt the accounting industry as we know it. Triple-entry accounting significantly increases efficiency in the accounting industry by reducing costs associated with human labor and time. It is every company and government’s goal to be more efficient, which is one of the reasons why Abendum was selected by the Financial Supervisory Authority of Norway as a participant in its regulatory sandbox.
“We were just taken up to the Norwegian Financial Authorities sandbox,” Nilsson said.
Sunde added, “When we applied we were describing the benefits this could have to society as well as to the industry and we were the only project that was selected this year to participate in this regulatory sandbox. That in itself is a really interesting development, that now we are seeing interest from regulators to see if we can make solutions that can make the industry better and society better.”
“Right now we are doing beta testing with the regulators so if anyone is interested in blockchain and accounting we would love to have them contact us, internationally and in Norway.”
“At this stage, all perspectives are very valuable, at this stage, we are going to clarify some regulatory problems that can arise, so to have a lot of perspectives is good because different problems can be raised.”
“In any company there is an accountant that does the accounting, so even accountants that are not very good with technology in this space would be very nice to talk to because then we get to see it through their eyes.”
If you are interested in being part of the Abendum beta, you can get in contact with the Abendum team by visiting Abendum’s contact page or by sending a message to Stephan Nilsson or Torje Sunde, whose contact information you will be able to find on the Abendum website.
Abendum’s current focus and future plans
In its earliest stages, Abendum is a major asset to auditors.
“The biggest cost and problem today in accounting is for the auditor to verify that the invoice you sent actually came from you,” Nilsson said.
“What the auditor has to do today is call your financial reporter and say ‘can you send me a copy of that invoice,’ or ‘can you verify that you actually paid this invoice,’ and so on–that takes a lot of time and costs a lot of money.”
“However, by putting [that data] signed on the blockchain like we do in our system today, we can jump over that step because it is already signed and verified, so the auditing can be done in real-time more or less and we can save 60-80% at least in auditing costs.”
Auditing is a time and labor-intensive job, an auditor must go out and hunt for records that serve as evidence of the accounting entries they are trying to verify, and as you can imagine, that is not always an easy job.
“When you are an auditor there are certain requirements in terms of what you have to do and this is related to gathering sufficient and appropriate audit evidence and this demands a lot of labor,” Sunde said.
“This labor is expensive in this industry because it requires highly educated people to do it. So when you increase regulatory requirements, you need to also do more labor; or, [you can] use new technology, this is where this becomes very interesting with Abendum. There is a market window opening to use this technology [Abendum] and to solve these pain points that all sides of the industry are experiencing.”
Although it is geared toward auditors and accountants in its early stages, Abendum has plans to launch features that enterprises, employees, and even consumers will find beneficial. When asked what Abendum has in the pipeline, Sunde said,
“Right now we have an MVP in beta testing, we are also looking to make things more automated, and are focused on commercializing quickly.”
“[We are also working on] this idea that to visualize a financial statement on a map would be interesting.”
“It can give us a lot of information that is reliable, [it can allow us to] pull not only financial data but more. You can add metadata to the data. For example, one non-financial data point you can add is the location of the parties. This can be a great tool for auditors or anyone who wants a very quick understanding of the scope of a business beyond the profit and loss side, you will be able to visualize this on a map.”
Nilsson went on to talk about more features that Abendum has in the pipeline: “More reporting tools, more tools for the board room, more tools for the CFO, more for the people inside and outside of the company to get a better overview and a quicker overview of the financial status of the company.”
“Like Torje, said, having the financials on a map, where you have different thickness of lines depending on how much money is coming in and different colors for money coming out and so on, there are a lot of interesting things we are planning to do there.”
“And more integrations for different kinds of accounting systems. So now we have a plugin for SAP, and we are talking about other plugins for other accounting softwares, there is a lot in the pipeline here because we get so much information in the system that we can extract a lot of reports and analyze this data and learn from that.”
“Another step is to offer companies the means of electronic exchange of messages just like we already have at UNISOT. Instead of sending the invoice via email or EDI, we can now send that via the blockchain which makes it more secure, auditable, and encrypted.”
From tools that give you a quick and visual understanding of a company’s financial health to tools that will allow more businesses to integrate Abendum’s triple entry accounting solution, the team at Abendum has a lot in store for the future. The accounting industry is ripe for disruption, and Abendum is on the path to disrupt it.
“I really think the audit industry needs this now, this innovation of double-entry accounting is 700 years old, and there has been a missing piece up until 2009, so we’re now, kind of in a pioneering period in historical terms in accounting,” Sunde said.
“What double-entry accounting did to the western world, that’s why the western world is so rich and developed compared to the rest of the world that is less developed,” Nilsson said. “Now if we can start using triple-entry accounting and being even more efficient, then this is the next generation that can evolve society as a whole to a completely new level. Bernie Madoff and Enron were some of the biggest criminals in misusing accounting, and Abendum can prevent that from happening again.”
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