How blockchain will change accounting with Dr. Sean Stein Smith
Dr. Sean Stein Smith, DBA, CPA, is an Assistant Professor at Lehman College in New York. He is a member of the 2017 AICPA Leadership Academy and was named a "40 Under 40" in the accounting profession for 2017 by CPA Practice Advisor.
Dr. Sean Stein Smith: I was going back and forth with her, trying to get this date on the books, and then I asked her some other question. I asked her some other non-meeting question, and then Amy answered me, and she told me that, actually, she was an AI bot.
Blake Oliver: Welcome to the Cloud Accounting Podcast, a show for accountants, and bookkeepers using cloud technology to make their jobs more strategic, and impactful. I'm Blake Oliver-
David Leary: And I'm David Leary.
Blake Oliver: Today, as our special guest, we have Dr. Sean Stein [00:00:30] Smith on the podcast. He is a CPA, and assistant professor at Lehman College in New York. He's a member of the 2017 AICPA Leadership Academy and was also named a 40 under 40 in the accounting profession for 2017, by CPA Practice Advisor. Sean, thanks so much for joining us today.
Dr. Sean Stein Smith: How you guys doing? Happy to be here.
David Leary: Sean, I'm really excited you're here. I feel like I've seen you a lot, at a lot of conferences; we've crossed paths all the time. I don't know anything about [00:01:00] you. You're like, "Oh, it's the guy that's always overdressed [crosstalk] conferences. Suit and tie, regardless of anything else. Fill me in. Who are you? How did you become who you are? You're a PhD. We really would love to understand how you got here.
Dr. Sean Stein Smith: Yeah, sure, and probably the ... I took a pretty normal path, at first. I graduated high school; I was in college doing my undergrad; I got my undergrad in [00:01:30] accounting. Then, I rolled it into a five-year master's program to get those 150. Then, I ended up sitting for the exam; passed all four parts of my CPA exam. Then, I went to work. Up until that point, it was all pretty straightforward. Then, I was working in the industry; worked for a few firms in the industry for, I'd say, about seven, seven and a half years. [00:02:00] While I was working in the industry, I kept having this thought, over, and over again, that I wanted to do something more. I wanted to be different, to really pop out.
In the part of the country that I'm from, the greater NYC area, it's awfully tough to stand out, cuz there are thousands of people that have their MBAs, or CPAs, and [00:02:30] are totally qualified. I kept looking for ways, and opportunities that I could make myself pop out. At that point, then, I started to actually look into getting my doctorate, but I didn't want to get a doctorate in accounting, because I figured that was already boring enough. I was already boring enough, so I didn't want to get a doctorate in accounting. I [00:03:00] actually ended up getting a doctorate in corporate strategy, and innovation.
David Leary: Oh, all right.
Dr. Sean Stein Smith: Yeah, yeah, a little different. All of that really opened up a whole new way of analyzing problems, businesses, and opportunities. I've been trying to use what I learned about strategy, and about innovation, and about finding opportunities in the market to help [00:03:30] me chart a path that I think is pretty cool, and that I think does help me pop out in the marketplace.
Blake Oliver: Sean, you are a teacher, or professor. Are you teaching accounting, or are you teaching strategy? What are you teaching, and what are you telling your students about the future of accounting?
Dr. Sean Stein Smith: Excellent questions, Blake. I'd say probably the actual course content that I cover is [00:04:00] all of that normal stuff, intermediate to advanced accounting, and advanced accounting theory - all those really fun classes. What I'm trying to do, more, and more, is to weave in some of the topics that I'm the most passionate about, and that I really think are gonna be driving tremendous change out there, for anybody working in accounting, or in finance, and maybe anything to [00:04:30] do with blockchain, AI, or anything to do with, also, the cryptocurrency area. I'm trying to, more, and more, weave those topics into the courses that I teach, and any presentations that I'm doing.
David Leary: Well, that's great to hear, because when I was taking advanced accounting, the most advanced we got, from a technology perspective, was flowcharts that showed tape drives, and- [00:05:00]
Dr. Sean Stein Smith: It's a little different out there, now.
Blake Oliver: Yeah, I'm glad I know the symbol for a tape/disk backup system [crosstalk] good to know.
Dr. Sean Stein Smith: It comes in so handy.
Blake Oliver: Yes.
David Leary: Well, especially with cloud accounting.
Blake Oliver: Yeah, cuz you definitely wanna take it outta the cloud, and put it onto a tape drive.
Dr. Sean Stein Smith: That's the point, right?
Blake Oliver: Just in case there's a nuclear attack, yeah.
David Leary: Sean, I know you dropped that magic word 'bitcoin,' blockchain. I feel like, at a conceptual [00:05:30] level, most people in our space, including me, and possibly Blake, we understand blockchain, because of how that will affect audit. It kinda goes very hand in hand. It's very easy to understand, but how's blockchain gonna affect all the rest of these industry, like small business transactions, payments? What's your spiel, and your thoughts on that?
Dr. Sean Stein Smith: I'd agree with that, that, at this point, probably everybody has a general idea, and an [00:06:00] overview, obviously, of what blockchain is. It's a decentralized data management system, basically. Some of the applications out there that are gonna impact payments, and transaction processings ... I do wanna just toss out a caveat, now, in that, really, a lot of the work going on is still in that pilot-stage phase, but the underlying infrastructure of how a private [00:06:30] blockchain would work would actually get rid of a lot of the friction, and the time delays, when it comes to payments, and transactions. For example, when any of us, who go either on to Amazon, or out, and we purchase something on a credit card, it's a relatively quick, and painless process for us, usually. It takes about, what, 10 [00:07:00] seconds? Then, the actual confirmation, and the settling of that transaction, on the back end, can take two to three days to actually settle.
If the merchants, and the customers, and everybody is using a cryptocurrency, whether it's bitcoin, or something else that we haven't even heard of yet, if we are using a cryptocurrency running on a blockchain platform, [00:07:30] because all of those transactions are uploaded on a continuous basis, and then pinged out to everybody else in that network, including the merchant, and the customer who are engaged in that transaction, right now, it's a much faster, and much more efficient sort of back-end office settlement of those transactions. That was [00:08:00] a long way of saying that basically anything that has to do with the passing of information from party A to party B, that is gonna have any sort of confirmation built into it is gonna be changed.
Blake Oliver: I wanna go back to something that David said. He sorta glossed over this blockchain affecting audit question, which I keep hearing about. People keep writing how blockchain is going to reduce the audit; it's going to reduce your billable hours, your audit, because you're no longer gonna have to be doing whatever. [00:08:30] I'm never really clear on what it is that you're not going to be doing, having not done audit myself. It just seems to me that, for blockchain to really make a difference with audit, first, most transactions would have to be occurring on a blockchain, which is not going to happen for a really long time, it seems to me. Second, the information that's on that blockchain is really just how much value was transferred, and from who to whom, and when. All these other details, such [00:09:00] as how the transaction is classified, according to GAP, is not going to be on the blockchain, and you still have to audit that. Is this really going to change audit or is this overblown hyperbole [crosstalk] Set me straight, Sean.
Dr. Sean Stein Smith: I'd say that probably, right now, the hype, and the buzz around blockchain probably has gotten a bit out in front of how it actually works, right now. In [00:09:30] order for the blockchain to actually have a big impact on an audit, you are totally right, most of the information that is gonna be audited is gonna have to be on a blockchain. If you even take a higher-level view, in order for the information, and the transactions to be on the blockchain, that is also gonna mean that all of the organizations that are involved are gonna have to be on a blockchain platform, and that all of those [00:10:00] different blockchains are gonna have to talk to each other. As we all know, anytime that any two or three companies try to get their IT systems to work together, there are always gonna be problems.
The blockchain, right now, is that buzzword. It's like catnip for us, right now. I do think that there are some questions that still have to be answered, and, even at a more basic audit level, all [00:10:30] of the information can be on that blockchain, but if the underlying controls, and processes, as to who can upload information onto the blockchain, who can verify data on the blockchain, and then, who is in charge of managing access, in terms of both access into the blockchain, and access to the public-key, and the private-key setup to actually encrypt that that information - all our [00:11:00] internal controls - if those internal controls aren't good, aren't up to par, then the audit, itself, isn't gonna be worth anything.
Blake Oliver: Yeah, that's a fantastic point, because we might be doing fewer confirmations ... Cash confirmations are a big deal, right now. We might be doing fewer of those, but then, the work might- should definitely increase, when it comes to internal-control testing, because blockchain is so complicated. Actually, that's [00:11:30] a follow-up question I have for you, which is how are auditors gonna be able to audit the blockchain, when they don't understand it?
Dr. Sean Stein Smith: That's a great question, Blake. Probably one of the few instances, right now, of a firm actually auditing information on a blockchain ... I do wanna take a step back, first, though, and emphasize the point that there are some great services out there that can actually allow a individual to then go trace back a [00:12:00] block of information. The individual block, itself, via its hash ID, but, at a institutional level. The only case that I've really seen of a accounting firm being able to audit information on a blockchain was at one of the Big Four firms that has launched a pilot program, with a portion of the information at one of their clients. It's coming, but, it's [00:12:30] not coming as fast as everybody might think, right now, based on the headlines.
David Leary: I think you're saying this is still catnip. It's super-super early. It's still a pilot. Where are we in this? What I mean by that is there's a lot of web standards. There's a standard for OpenID. There's web standards that everybody agrees to use for [inaudible] even going back to the '90s - what defined a multimedia PC, and what defined a multimedia PC 2? There's associations, and there's been [00:13:00] standards set that everybody's agreed upon. Even your Wi-Fi. This is why your laptop works, when you go to Starbucks, and it works when you go to your home, because all those Wi-Fi connections are all based on standards. Is there a governing board, yet? Is anybody trying to build standards? Are you the president of this, Sean? Is this happening yet, in our space? I just don't see this all happening without there being some agreed-upon communication mechanisms, if you wanna call it that.
Dr. Sean Stein Smith: No, and [00:13:30] that's an excellent point, there, Dave. There are a whole bunch of groups out there trying to put together some ideas, and some sort of working guidelines, but, as far as I know, there is no governing body. There is no oversight board, who is overseeing the [crosstalk]
David Leary: You've found your next project.
Dr. Sean Stein Smith: Yeah, right? Actually, that point [00:14:00] also raises a interesting point that, in 2017, alone, there were over 900 different cryptocurrencies launched. Each of those individual 900 new cryptocurrencies launched had to run on their own individual blockchains. There are hundreds, and thousands of different [00:14:30] blockchains out there, right now. Due to the nature of the concept, itself, the blockchain is a decentralized idea. Basically, due to how the concept works, and how the technology works that underpins it, there is no one person, or a council, or a group of people overseeing those exact issues, like is information stored on company A's blockchain going [00:15:00] to be able to be interfaced with anything else? The answer to that, right now, is a no. There is nobody out there doing that, right now.
David Leary: It sounds like it's just a huge adoption challenge ... It almost feels like if you're with firm A, you're on Blockchain A. If you switch to firm B, you've gotta put it in a different server, and you gotta track your blockchain differently on their technology stack.
Dr. Sean Stein Smith: Absolutely.
David Leary: It's kind of interesting.
Blake Oliver: If [00:15:30] accountants, controllers, CFOs wanna learn more about blockchain, and how it affects the accounting profession, where can they go? I haven't seen a whole lot of stuff online. There's not like a clearinghouse of information, at this point, about blockchain, and the accounting profession; or is there, and I just haven't found it yet?
Dr. Sean Stein Smith: No, I'd say that probably the one thing that's coming out, and it's coming out, actually, relatively soon ... I know that I've been doing some work with the AICPA. They're actually [00:16:00] developing a course certificate program, as we speak. I've been doing some work with them, and some other individuals, who they've called in to help them get this up and running. I believe that they're gonna be rolling out that program within the next four to six weeks.
There are some other groups out there. The Accounting Blockchain Coalition based here on the East Coast, and there is the [00:16:30] Wall Street Blockchain Alliance that I've been working with, also. There are different groups, and bodies out there. There's the Blockchain Council. There are different groups out there, who are trying to help educate people in all industries. As far as anything for accounting, and finance, specifically, right now, I'd say that you should see some of that coming [00:17:00] out, either in the next month, or so, or definitely by the fourth quarter of this year.
David Leary: Kind of relating this back to where we're at, we're still doing lots of paper checks, correct? In the States, right? Zillions of paper checks, still. Maybe, if somebody's not really even ... When you talk blockchain, you kinda need to be taking a step back ... If the paper check's on a blockchain, you'd be able to see ... After you write that check, and you hand it to whoever you hand it to, every single person that holds that check, as it moves through the whole process, up through the ACH clearinghouses, and back down, you [00:17:30] would be able to know who's touching that check along the way, and you'd be able to see that on the chain.
Dr. Sean Stein Smith: Yes. Any piece of information that's uploaded. and is then added into the blockchain, then anybody, at any point in time, has access to then see what is going on with that data.
David Leary: Do you see checks going away, when we have blockchain, or do you think it just accents checks?
Dr. Sean Stein Smith: I think that paper checks are probably [00:18:00] gonna go away for some other reasons; just cuz it's more efficient to do things online, as opposed to going away just because of a new technology platform. I'd say that checks are probably gonna fade away, due to the current tools out there.
Blake Oliver: Blockchain, artificial intelligence - these are all fun things, as you said. A little bit of catnip ... Maybe it was David who said that at the beginning. Let's talk a bit, along these lines, more about practical steps that we can take [00:18:30] now to improve efficiency, automation in our accounting departments, and our firms. Is there anything other than eliminating paper checks that is your favorite technology of the moment that people can actually go, and buy, and use right now?
Dr. Sean Stein Smith: I try to not endorse any specific tool, or any specific firm, usually, just to avoid any conflicts for me, but, I'd say probably two to three concepts [00:19:00] that I always try to emphasize, whenever I'm working with anybody is if there are any processes, or any emails, even that you have people on your staff, either at the staff level, or even at a senior level ... If there are any emails, or any processes that happen over, and over again, make a basic template that has most of that [00:19:30] information. Then, as the month changes, or as the individual client name changes, then that information can be updated. Don't manually do it over, and over again, each, and every month.
Actually, here's a funny story. One of the biggest manual time-wasters, on my end, personally, is trying to book appointments; whether [00:20:00] it's interviews, phone calls, in-person meetings, whatever it is. I was going back and forth with Ed Kless, I guess, back in February. I was going back and forth with him, over email, trying to book a time for us to get together to record a episode of his show. He tagged his admin, Amy. I was going back and forth with her, trying [00:20:30] to get this date on the books. Then, I asked her some other question. I asked her some other non-meeting question. Then, Amy answered me, and she told me that, actually, she was an AI bot, and that she was only able to answer questions that had to do with booking appointments for Ed. I was surprised, because I thought that I was dealing with a person. [00:21:00]
Any of those types of processes, anything that has to do with any calendar management, any voicemail management, even, or even if you work at a firm, or if your firm has a client that has a robust online portal, online chat function ... Any of those areas are ripe to be automated. Currently, [00:21:30] there are tools out there, right now, and there are firms out there, right now, that really offer out-of-the-box options that, pretty much, firms can tweak, customize, but are able to get up and running.
Blake Oliver: That's a great point. Anything that is going on in email, right now, can probably get out of email, and be automated. It makes sense, because email's been around for, what, 30 years? We oughta have some better solutions by now.
David Leary: I love, Sean, that you're the PhD in accounting, and [00:22:00] you're coming out, and you're telling people automate stuff, but you're not even telling them to automate accounting stuff, yet. Just do your email; do your calendar appointments, like really at a higher level ... To start there. The benefit of that is huge, and it ripples into the rest.
Blake Oliver: Well, it makes sense, because probably 50 percent of what we do in the accounting profession has nothing to do with accounting. It's just administrative crap. It's just scheduling appointments. It's sending documents back and forth. It's not anything that we got trained to do, and [00:22:30] if we can get rid of that, then we can just spend twice as much time on the stuff that we actually got into the profession for.
David Leary: There's not Email 101 class that Sean teaches?
Blake Oliver: We should create that-.
Dr. Sean Stein Smith: No.
Blake Oliver: It could be an online class- how to get outta email. We'd just be salespeople for Slack, right?
Dr. Sean Stein Smith: David brought up a excellent point. Actually, automating the accounting function is off, still, in the future. I'm always a big pusher [00:23:00] of automating all of that junk work, all of that lower-level work, so that we have more time to actually spend on doing the accounting, and getting it right the first time, as opposed to having to go back over, and over it again.
Blake Oliver: Yeah, great points. Sean, if folks wanna connect with you online, learn more about what you're up to, where can they do that?
Dr. Sean Stein Smith: I'm pretty easy to find online. Probably the two best places to find me are on Twitter, @SeanSteinSmith, and on [00:23:30] LinkedIn, at Sean Stein Smith.
Blake Oliver: David, if folks want to get in touch with you, suggest stories for the show, give us their feedback, where should they do that?
David Leary: The easiest place is on Twitter. I'm @DavidLeary. What about you, Blake?
Blake Oliver: I'm @BlakeTOliver. Sean, it's been great having you on the show. Thanks, so much for your time.
David Leary: Yeah, thanks, Sean.
Dr. Sean Stein Smith: Awesome, guys. My pleasure.
David Leary: Bye everybody.