Block chain inspired solutions for accounting, auditing, and taxation
FAR, the Swedish Tax Agency, Kairos Future, Visma, Fortnox and FAR members Deloitte, PwC, KPMG and Grant Thornton have been working on solutions inspired by the block chain for accounting, taxation, and auditing.
Truth can now be digitalized
Block chain technology may come to cause some of the most disruptive opportunities for human society in decades. It’s been said it will replace the dollar as common currency for the world, replace gold reserves in central banks, and remove control over world trade from nations and legislators in favor of virtual companies and markets governed by technology. It’s now been ten years since Bitcoin launched, and so far, only the value of cryptocurrency has come near the visions that were initially promised.
Was The Economist wrong when it named block chain “the trust machine”? Perhaps not, but the interpretation of the trust machine has probably been overly focused on a world-spanning technology; as a single block chain, rather than several networks.
AI is a tool for interpreting information. For example, interpreting the likelihood of a certain face belonging to a certain person, or if there are any factors connecting cyclists to people who buy waterproof clothing. The block chain, on the other hand, is a combination of a number of technologies that make it possible to establish a common truth, i.e. one that doesn’t allow room for interpretation. Who signed this document? When did this truck leave? Has anyone read the patient journal? Has the bookkeeping been changed since the accountant signed the annual report? When answering straightforward questions like these, there is at least the possibility of an objective truth. This type of verifiable fact can now be established digitally with technology inspired by the block chain. We say “inspired by”, because there doesn’t always need to be a complete block chain to establish sufficient faith in the information therein. We don’t need flawless information, just a sufficient degree of ongoing trust. At least as important is our ability to collect all data in a central database. We can be certain of the truth without losing integrity and anonymity in the process.
Over the past few years, we have explored opportunities for using the block chain in real estate transactions and food safety tracking, and now we’ve moved on to exploring the possibilities of using the block chain in taxes, accounting and auditing. The core hypothesis was that these fields contain many possible applications for technology that confirms truth and empowers trust. Our hypothesis has been proven correct.
Within the framework of this project, we’ve identified five areas where block chain technology can contribute to securing information, streamlining work, and creating benefits for society as a whole.
Digital receipt management
Managing receipts digitally has been broadly requested in the age of accelerating digitalization. The legislation around cash registers has made it possible for cash registers to produce an electronic receipt, but if it’s to be counted as an expense it must be saved in its original format. This has caused the digitalization and automation of receipt management significantly slow down. A completely digital receipt management, which also streamlines automatic posting is estimated to generate a value (in Sweden) of more than ten billion SEK.
Legal requirements for personnel ledgers have been instated in a wide range of Swedish industries, intended to reduce the presence of unregistered employees. The Swedish Tax Agency has developed a manual personnel ledger for this purpose, but a personnel ledger can also be managed electronically. By use of a block chain solution, the format of the personnel ledger can be chosen freely. It is sufficient that a digital verification copy is saved outside the company’s own systems. The value of a digital personnel ledger is considered to lie mostly in reduced unregistered labor and simpler management procedures for businesses.
Special income tax, SINK
In various contexts there have been arguments in favor of bookkeeping, internal and external accounting, tax payments etc. to be done closer to the time of the transaction. The advantages are among others that it gives businesses better materials for decision making, and that accounting and auditing both become more relevant.
Digitalization is, in itself, good grounds for accounting in real time. Expanded opportunities for automation and machine-to-machine (M2M) communication, as well as expanded opportunities for intelligent automatic risk management systems, makes manual work with tax revision or payments superfluous.
When tax debt occurs, it’s ideal that the tax can be paid as soon as it can be finally determined. Since taxes are a priority claim and the board of directors has a solidarity responsibility towards these payments, it’s an advantage for many parties if tax debts in businesses can be eliminated or prevented. Special income tax, or SINK, is a tax that is finally determined already during the time of salary payments. This tax can, therefore, be paid instantaneously.
Proxies and powers of attorney
Proxies or powers of attorney are often used in many different contexts, both by private individuals and by businesses. It’s especially common for businesses to give power of attorney to e.g. accountancy consultants to act as tax agents, and represent the business in relations to banks etc.
Proxy relationships are easy to establish. All that needs be done is signing the relevant documents and, in some cases, provide witness. The difficulties usually occur afterwards. “How do I know the document is valid? How does my business know what proxies we employ? How do I cancel a power of attorney, and where can the document be found?”
We have focused on what we believe to be the greatest benefit here, which is streamlining and securing the work with proxies and powers of attorney in banks, organizations, and with consultants and accountants. The value of this solution is estimated to be great, especially as it can serve as grounds for a wide range of powers and authorizations.
The management of business intelligence is relevant in many perspectives. Businesses are interested in reporting and sharing information in a standardized fashion, and sometimes in sharing certain information with other actors than authorities. Other actors are interested in receiving information about businesses, e.g. when a private individual is buying some service.
In situations such as these, it is of course central that the information can be handled with a high quality of data, secure IT protocols and with a suitable degree of anonymity for both the sender and receiver of the information.
A joint service for business intelligence contributes to making already available information more accessible – useful in a world where “open data” is more and more popular.
Naturally, we do not yet have all the answers. We don’t know which laws that need changing, nor have we finalized all technical specifications or processes. We believe we have developed solid starting points for further investigation and testing. These are suggested solutions which we believe will work. We hope that we can inspire more means of using new technology and thereby benefit society.
By Magnus Kempe