A future triple entry accounting framework using blockchain technology

A future triple entry accounting framework using blockchain technology

There is no
point in establishing a better payment and invoice
mechanism than the means of communication and
negotiation. This concept is perhaps best seen
in the SWIFT system which is a messaging system,
first and foremost, to deliver instructions for
payments. For example offers and acceptances form a wider
transaction but seldom encapsulate the entire
fulfillment and payment cycle. Even if there has been a payment
accompanying a PO message,
the customer then waits for fulfillment. When she posts the transaction,
her software stores it in her local GLT and also
submits it to the shared repository service’s GLT. Auditing issues arise where construction
of the books derives from the receipts,
and normalisation issues arise when a
receipt is lost.

• The development of double-entry accounting opened the realm of accounting into a whole new world.
• A blockchain database is decentralised, replicated and shared; it is a distributed ledger.
• But I’m happy that our Peer For Peer Foundation is in a position to do it now.
• No longer are bills
  and salaries paid using conventional monies;
  many transactions are dealt with by internal
  money transfers and at the edges of the
  corporation, formal and informal agents work
  to exchange between internal money and
  external money.
• All you would have to do is remove a line in the ledger and that money no longer exists, there would be no way to verify, no way to audit, no way to reconcile for people to agree.

Likely, only the owner’s family or in times
long past, his slaves could be trusted with
the enterprise’s books, leading to a supportive
influence on extended families or slavery as
economic enterprises. You can use audit trails to track transactions that get posted to the general ledger. If your cash balance appears to be excessively high on your balance sheet, you can investigate the transactions made to the cash account to see if they are correct. However, due to the checks and balances provided by double-entry bookkeeping, this is less likely.

Credits

It’s an interesting concept, given that it would be a significant departure from double-entry accounting, which the world of business has relied on for hundreds of years. There remain some weaknesses in strict comparison
with double entry bookkeeping. Firstly, in
the Ricardo instantiation of triple entry
accounting, the
receipts themselves may be lost or removed,
and for this reason we stress as a principle that
the entry is the transaction. This results in three
active agents who are charged with securing
the signed entry as their most important
record of transaction. The server has to accept each new transaction
on the basis of the available balance in the
effected books; for this reason Ivan needs
those books to be available efficiently. Due to the greater number of receipts and
books (one for each user account), both
receipts and books will tend to exist, in
direct contrast to fourth normal form.

• Previously, in single entry books, the fraudster
  simply added his amount to a column of choice.
• The electronic contract software is programmed to work when all of the required details are fulfilled.
• It directly draws from and integrates elements of accounting (bookkeeping techniques), cryptography (signatures and hashes), and computer science (especially networks and state machines).
• Many blockchains are publicly viewable or easily exposed to external viewing making them transparent with blockchain networks.
• This shows that the prevailing accounting and auditing system has only been moderately successful in the prevention and detection of fraud.

“The question no longer remains ‘if’, but has now changed to ‘when and how’”. Both of these imperitives meld signed receipts in
with double entry bookkeeping. As https://accounting-services.net/understanding-double-entry-and-triple-entry/ we end up with
a logical arrangement of three by three entries,
we feel the term triple entry bookkeeping
is useful to describe the advance on the older form.

A Slightly Less Brief History of the Signed Receipt

Triple entry accounting can be thought of as a way of agreeing on the objective. Triple-entry accounting is an enhancement to the traditional double-entry system in which order counting entries involving outside parties are cryptographically sealed by a third entity thus placed side by side to the bookkeeping entries of both parties. Transactions of a third entry in the system entered into the blockchain is both a receipt and a transaction’s proof that something happened between two parties which goes beyond the receipts that each party holds in a double-entry system.

Solving Frauds

For example, message digests with
entanglement form one simple and
effective form of signature, and
public key cryptosystems provide
another form where signers hold a private
key and verifiers hold a public key
[MB]. In this essay I avoid
comparisons, and assume the basic property
as a reliable mark of having been seen by
a computer at some point in time. Computer science introduces concepts such
as transactions,
which are defined as units of work that are
atomic, consistent,
isolated, and durable
(or ACID for short). The core question for computer scientists is how to add an
entry to the assets side, then add an entry to the liabilities
side, and not crash half way through this sequence. This makes more sense when considered in the context of the
millions of entries that a computer might manage, and a
very small chance that something goes wrong; eventually
something does, and computers cannot handle errors of that
nature very well. A correct entry must refer to its counterparty, and
its counterpart entry must exist on the other side.

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In the words of the ICAEW, “by lowering the walls around each company’s internal accounting and making entries directly on the blockchain, the bookkeeping allows for the transactions to be recorded faithfully, verifiably, and identically by each party”. Instead of recording entries on independent ledgers, the parties could record it on one big, decentralized, public, blockchain-based ledger, which could pave the way for a completely new methodology of accounting. As the entries would be made on immutable, decentralized ledgers, there would be next to little or no scope left for forgery. In fact, in his research paper, Grigg even goes as far as saying that the mutual fund scandal of 2003 would have shown a clear audit trail had the system been in place then.

The advantages of a triple entry system are enormous in terms of reconciliation, transparency, trust and auditing. Triple-entry accounting allows us to reconcile the balance of transactions and reporting processes so the organizations can trust their own books. The idea about triple-entry accounting is instead of each firm having their own books, the transaction will go through a software program running autonomously which includes everything about that transaction. This may record what the product was, the prices, who the seller is, who is the buyer is, all digitally signed. This can also have a hash that links to further public documents so the books are now linked together by this third entry. The other exciting aspect is that this third entry could also be potentially be viewed for external reviewing or auditing purposes.

Improved Accountability

This reduces
support costs by dramatically reducing problems
caused by differences in information. For the most part, these concepts simply reduce
to “how do we implement double entry bookkeeping” ? As this question is well answered in the literature,
we do no more than mention it here.

Blockchain Technology in Auditing: A Revolution in Transparency and Security

Within the full record of the signed receipt,
the user’s intention is expressed, and is
fully confirmed by the server’s response. A reviewer such as an auditor can confirm the
two sets of data, and can verify the signatures. If we can assume that the the record was originally
created correctly, then later errors are revealed,
both of an accidental nature and of fraudulent intent. Double Entry has always been the foundation
of accounting systems for computers. In the opinion of this author at least, single
entry bookkeeping is incapable of supporting any
enterprise more sophisticated than a household. Given this, I suggest that evolution of complex
enterprises required double entry as an enabler.