Blockchain Revolution

GOOGLE TRANSLATE FOR BUSINESS: NEW FRAMEWORKS FOR
ACCOUNTING AND CORPORATE GOVERNANCE
“Accountants are like mushrooms—they’re kept in the dark and fed shit,”
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said Tom
Mornini, CEO of Subledger, a start-up targeting the accounting industry. Accounting
has become known as the language of finance, unintelligible to all but a few disciples.
If every transaction is available on a shared, globally distributed ledger, then why
would we need public accountancies to translate for us?
Modern accounting sprang from the curious mind of Luca Pacioli in Italy during
the fifteenth century. His deceptively simple invention was a formula known as
double-entry accounting, where every transaction has two effects on each participant,
that is, each must enter both a debit and a credit onto the balance sheet, the ledger of
corporate assets and liabilities. By codifying these rules, Pacioli provided order to an
otherwise ad hoc practice that prevented enterprises from scaling.
Ronald Coase thought accounting was cultlike. While a student at the London
School of Economics, Coase saw “aspects of a religion” in the practice. “The books
entrusted to the accountants’ keeping were apparently sacred books.” Accounting
students deemed his challenges “sacrilegious.”
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How dare he question their “many
methods of calculating depreciation, valuing inventories, allocating on-costs, and so
on, all of which gave different results but all of which were perfectly acceptable
accounting practices,” and other nearly identical practices that were nonetheless
deemed entirely “unrespectable.” So Tom Mornini is by no means the first to criticize
the profession.
We see four problems with modern accounting. First, the current regime relies
upon managers to swear that their books are in order. Dozens of high-profile cases—
Enron, AIG, Lehman Brothers, WorldCom, Tyco, and Toshiba—show that
management doesn’t always act with integrity. Greed too often gets the best of people.
Cronyism, corruption, and false reporting precipitate bankruptcies, job losses, and
market crashes, but also high costs of capital and tighter reins on equity.
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Second, human error is a leading cause of accounting mistakes, according to
AccountingWEB. Often the problems begin when Randy in finance fat-fingers a
number into a spreadsheet and, like a butterfly flapping its wings, the small mistake
becomes a big problem as it factors into calculations across financial statements.
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Nearly 28 percent of professionals reported that people plugged incorrect data into
their firm’s enterprise system.
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Third, new rules such as Sarbanes-Oxley have done little to curb accounting
fraud. If anything, the growing complexity of companies, more multifaceted
transactions, and the speed of modern commerce create new ways to hide
wrongdoing.
Fourth, traditional accounting methods cannot reconcile new business models.
Take microtransactions. Most audit software allows for two decimal places (i.e., one
penny), useless for microtransactions of any kind.
Accounting—the measurement, processing, and communication of financial
information—is not the problem. It performs a critical function in today’s economy.
However, the implementation of accounting methods must catch up with the modern
era. Consider that in Pacioli’s day, audits were done daily. Today they happen with the
cycles of the moon and the seasons. Name another industry where five hundred years
of technological advancement have increased the time it takes to complete a task by
9,000 percent.