Malta will host the first international conference on triple entry accounting on November 10 and 11. What is it all about and why is it revolutionary in today's new evolving digital space?

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Triple entry accounting, or TEA, is a new way of creating transactions to manage the accounts of business. It goes beyond single entry and double entry accounting as a revolutionary step to a better way of knowing what the position of a firm is, in a value sense. The building block of a TEA system is a signed record that establishes a transaction between two business partners, signed by a third independent party. These records allow for the creation of a more solid accounting framework that is more immune to various frauds and failures. It’s even possible to build a double entry layout from TEA records, which makes it relatively easy to use all the centuries of processes and decades of computer programs that have been built up over the centuries of double entry tradition.

The birth of TEA

The earliest thinking was by accountant Todd Boyle in the late 1990s, who observed that for each important entry on the books of a firm, there was a matching entry in the partner firm. For example, when company A buys a book from company B, both of them have entries referring to that same event.

Todd Boyle asked: if the two entries refer to the same event, why can’t they be the same entry? This was a profound question. His thoughts led to a design for private parties to run a general ledger service that allowed firms to post their joint transactions into a centralised service. In this way, firms ensured they had the same data, and it was posted in three places: at the service, and at each firm.

For Boyle’s design to work, everyone had to do it, everyone had to subscribe - a tall order! Computer scientist Ian Grigg approached the problem from a different direction. He showed that if an application was built with triple entry in mind from the start, then that application could impose its order on users - his designs for digital cash and financial instruments exhibited a pattern of receipts that were created by the servers and then shared with the 2 participants to a trade. Same record, three copies!

“In triple entry accounting, we use cryptography to prove up front that we have the same entry, and share it among three parties, the payer, the payee, and the notary.”

Although Grigg’s designs saw only limited commercial success, an offshoot was his paper “Triple Entry Accounting” which documented the topic from the perspective of a working implementation of a payments system. Since then, many have followed, chief of which is Bitcoin, which adopted the concept with its variant of data entries known as UTXO, and its miner consensus as the third party.

In double entry accounting, security and robustness was achieved by means of having two linked entries, one on the asset side and another on the liabilities side of a balance sheet, that supported each other. In triple entry accounting, we use cryptography to prove up front that we have the same entry, and share it among three parties: the payer, the payee, and the notary.

What does it achieve?

TEA changes accounting by creating a more solid framework of data. Instead of the accounts being the opinions of the company, as they are now, the accounts are based on events that actually happened between companies. As they create the records together, they become self-proving facts of the event.

This represents a much better foundation for accounting - you can’t just make up transactions anymore, so disasters like Barings Bank are eliminated. Add to that a technique such as blockchain that ensures you have all the records, and it becomes much harder for fraud or simple error to undermine the total accounting picture.

High-profile failures in the crypto field such as FTX or the earlier Mt.Gox failure have shown the need for better accounting. At their core, these failures were based on bad accounting, and could have been avoided if the accounting was built on a complete set of facts, not a tapestry of opinion.

But challenges still remain. Although we have shown it is possible, there are many uncertainties relating to how, where, and why to deploy TEA further than say blockchain. As it is still an esoteric subject, it is currently led by academics and entrepreneurs prepared to take risks on the new and unproven. We are therefore holding an event to bring together the thinkers in this space to present and cross-pollinate ideas about triple entry accounting.

The advantage of Malta? Malta is a good location for Europe, as it has a strong airport with many flights, especially discount airlines, which makes it a lot easier to bring a large group together without busting the budget. It is also relatively warm, which attracts busy people who need help in getting a little vacation time, combined with some work. The island has many competitive venues, and as an island with a strong tourist trade, it is relatively easy to put together an event.

The triple entry accounting conference will take place at the Salini Resort Hotel from November 9 to 11. It will bring practitioners, researchers, and regulators together to discuss triple entry accounting and obtain insight into its future trends and services. To register, visit https://teaconf.org/.