Blockchain and Accounting Governance: Emerging Issues and Considerations for Accounting and Assurance Professionals

Abstract

Blockchain technology has been a disruptive force in currency, supply chain, and information sharing practices across a variety of industries. Its usage has only recently expanded into assurance and financial reporting. This paper explores blockchain's impact in these areas and provides guidance for organizations and auditors utilizing blockchain by addressing financial data integrity issues, financial reporting risks, and implications for external auditors and firms' corporate governance practices. Organizations utilizing blockchain must adapt their policies and procedures over internal controls and counterparty risk assessment to address increasing regulation over the distribution of financial data while their audit committees must be prepared to address these challenges leading up to financial statement preparation. External auditors need to assess blockchain implementation as a financial reporting risk and balance the potentially more reliable and timelier audit evidence obtained from blockchain-based reporting systems against the related increase in internal control testing.

The Use of Blockchains to Enhance Sustainability Reporting and Assurance*

“…For this research, we will focus on the simplified definition of blockchain: an immutable, distributed, and decentralized digital ledger designed to record and transmit information across parties (CPA Canada et al, 2017;Dai and Vasarhelyi, 2017;Sheldon, 2019;Stein Smith and Castonguay, 2020). Under the simplified definition, blockchains can be either public or private.…”

“…Once access rights are established, the parties to private blockchains must determine how consensus and authentication are determined, what rights additional authorized users are given, how authorized users may be added to the blockchain, and the amount and quality of the information that is to be stored or transmitted on the distributed ledger. Together, these considerations form the blockchain's governance (Stein Smith and Castonguay, 2020). Like traditional internal controls or a corporation's tone at the top, the stronger the governance, the more reliable the information.…”

“…In addition to the aforementioned policies and procedures that must be operationalized for blockchain to be effective in sustainability reporting, there must be buy-in by those charged with governance and policy setting: the board of directors, the audit committee to the board of directors, and senior management (Stein Smith and Castonguay, 2020). Without the support of senior leadership and governing members, private blockchain solutions to sustainability are unlikely to be successful.…”

“…Furthermore, governance considerations and involvement by the board cannot be limited to the initial implementation or launch. The involvement must be comprehensive and ongoing (Stein Smith and Castonguay, 2020).…”

“…Since its introduction as a platform for mining and transacting in cryptocurrencies, it has expanded into the financial services, supply chain and logistics, stock registration, and auditing and assurance industries. While there is not yet an established standard definition of blockchain, most definitions recognize that "blockchain is a digital ledger created to capture transactions conducted among various parties in the network" (CPA Canada, AICPA, and UWCISA, 2017) and that the ledger is distributed, decentralized, and-if designed effectively-immutable (Dai and Vasarhelyi, 2017;Sheldon, 2019;Stein Smith and Castonguay, 2020). The decentralized and distributed nature of the technology creates a mechanism for users on the blockchain, called nodes, to be able to maintain control of the information posted without relying on the other individual members involved.…”