How TEA guarantees trust in accounting

Coin Geek

2 days ago

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Traditional accounting systems are notorious for fraud and errors, especially double-entry bookkeeping. In today's economy, enterprises need a clear picture of their finances to save money where they can, and for this, they need 100% accurate information.
With all the frontier technology available today, enterprises must find a way to guarantee their books are accurate, both for themselves and for auditors. Ironically, the solution lies in a concept that was fleshed out by Ian Grigg in 2005, but before we get there, let's examine the shortcomings of double-entry accounting.
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'The first one is the oldest one, which is that you can have several books. You can show one book to the tax authority, and you can show another set of books to the bank and they could be different,' shared former auditor Torje Vingen Sunde, Co-founder & CTO of Abendum.
'The other shortcoming of double-entry accounting is that they are in data silos. They don't talk together,' he said.
Blockchain and artificial intelligence (AI) expert Konstantinos Sgantzos, head of the environmental subsector of Megalopolis lignite mining directorate, is also a close friend of Grigg's and greatly admires his work. When asked to elaborate on the shortcomings of double-entry accounting, Sgantzos described it as 'an opinion' rather than a truth.
'You know, it is my opinion that my book says that, and that is true. And your book has your opinion. And we need to sink our opinions. So, it is my word versus yours. And if it happens to me and I lose the book, what happens? I must accept your truth from mine,' Sgantzos told CoinGeek.
According to Grigg, double-entry accounting simply represents the founder's view of the company's situation.
'It's not reality,' he said.
The solution to these challenges associated with traditional accounting systems can be found with Triple Entry Accounting (TEA), a concept Grigg is the co-inventor of.
'Triple entry accounting creates a set of records which are facts, as opposed to the old way, which is a set of records which are opinions. On those facts, you can automatically analyze them, such that part of the process of auditing is done for you automatically by the software and other parts are a lot easier,' Grigg explained.
'Now, this completely changes the paradigm of accounting. Accounting's no longer an opinion,' he said.
Triple entry accounting does not turn bad people into good people. It creates a system where the full set of real transactions can be verified and cannot be altered or ignored.
A @iang_fc explains, what Sam Bankman-Fried did by leaving out key transactions could not happen with… pic.twitter.com/64NyWCUAza
Sgantzos added, 'Triple-entry accounting basically expands upon double-entry bookkeeping. In essence, we had this debit and credit books, and the triple-entry accounting adds a third record that is basically a cryptographic proof that both books are in sync.'
Juan Ignacio Ibañez, the General Secretary of the MiCA Crypto Alliance, is also a triple-entry accounting enthusiast who elaborated on the system's use cases.
'What it gives you is reliability at the basis of the bookkeeping, which then translates into reliability for the entire accounting edifice, and it also solves the problem of reconciliation by turning reconciliation from an activity to necessity, intrinsic reconciliation that is always there,' he shared.
While reliable bookkeeping means reduced costs and increased efficiency, Ibañez said its easier for some industries to upgrade than others.
'The potential for triple-entry accounting in supply chains, for example, could be massive, but it will take a long time. More financial industries have more short-term potential, but I just think auditing in itself is the main industry to be disrupted in the short run,' he said.
One question to be answered is whether triple-entry accounting systems should be blockchain-enabled. Blockchain itself may be an iteration of triple-entry accounting, but it can also enhance it. According to Grigg, it all depends on your environment.
'The easy answer is yes, just use a blockchain. It's not the only way. It might not be the best way. So the question then is, why would you use a blockchain?'
'This always comes back to the question of what's your environment? Who are your people? Are you in an adversarial world where if you and I are doing trade and I happen to be a bit naive, can you screw me over? And if that's the world we live in, blockchain is great for that because it locks everything down,' Grigg explained.
For Sunde, who is looking through an auditor's lens, integrating a public, scalable, global blockchain such as BSV into a triple-entry accounting system is very important.
'With the introduction of blockchain this become much more feasible because this global ledger, you can use that to log everything. It makes it more compatible,' he said.
Ibañez pointed out how utilizing blockchain brings decentralization to the triple-entry accounting system.
'The role of a third party in TEA is very limited, but you still need a third party for timestamping, ordering, you decentralize that bit as well with blockchain. And at the same time, you have an entire messaging and a data storage network that can be global, so it increases the potential of triple entry accounting,' he said.
Blockchain-enabled or not, triple-entry accounting is clearly an enormous upgrade for accounting systems across all industries. Thanks to triple-entry accounting, we can build a more transparent accounting future, guaranteeing with 100% certainty that our numbers are always accurate.
Watch: Triple Entry Accounting with Ian Grigg