Abstract:The novelty, ambiguity, and the lack of official guidance surrounding cryptocurrency transactions impose additional audit risks that should be considered during client-acceptance and retention and planning audit procedures. We develop a four-quadrant model to assist auditors in client-acceptance and continuance decisions and identify cryptocurrency risks that should be considered during audit planning and audit evidence gathering.
“…While the main challenges consist of obtaining evidence over the existence, ownership, and valuation of cryptoassets, they argue that these issues are substantial but not insurmountable. Vincent and Wilkins (2020: 1) propose a model that auditors can apply during “client‐acceptance and continuance decisions to identify cryptocurrency risks that should be considered during audit planning and audit evidence gathering.” One important facet of the risk assessment is evaluating the control environment of a prospective audit client. For instance, client management may possess the ability to override blockchain‐related internal controls under a proof‐of‐work consensus mechanism (Rückeshäuser, 2017).…”
This article provides a review of the accounting blockchain literature, with a focus on current trends and recommendations for future research opportunities. Our review identifies seven main areas: (i) future of blockchain technology, (ii) impact on the accounting function, (iii) auditing considerations, (iv) financial reporting for cryptoassets, (v) case studies, (vi) governance, and (vii) taxation. The article aims to bridge the gap between practitioners and academics by providing a review of both areas of literature and highlighting common ground between the two arenas. While academics have begun to explore how the accounting profession might change in response to blockchain, this research is limited primarily to the auditing field. Practitioners, for their part, have expanded their scope to also devote significant attention to the financial reporting and taxation of cryptoassets. Expanding the discussion of accounting and blockchains beyond their current concentrations in auditing and accounting information systems, we call for more research on the impact of blockchain technology in other areas such as corporate governance or the intersection of accounting and society.
“…While the main challenges consist of obtaining evidence over the existence, ownership, and valuation of cryptoassets, they argue that these issues are substantial but not insurmountable. Vincent and Wilkins (2020: 1) propose a model that auditors can apply during “client‐acceptance and continuance decisions to identify cryptocurrency risks that should be considered during audit planning and audit evidence gathering.” One important facet of the risk assessment is evaluating the control environment of a prospective audit client. For instance, client management may possess the ability to override blockchain‐related internal controls under a proof‐of‐work consensus mechanism (Rückeshäuser, 2017).…”
This article provides a review of the accounting blockchain literature, with a focus on current trends and recommendations for future research opportunities. Our review identifies seven main areas: (i) future of blockchain technology, (ii) impact on the accounting function, (iii) auditing considerations, (iv) financial reporting for cryptoassets, (v) case studies, (vi) governance, and (vii) taxation. The article aims to bridge the gap between practitioners and academics by providing a review of both areas of literature and highlighting common ground between the two arenas. While academics have begun to explore how the accounting profession might change in response to blockchain, this research is limited primarily to the auditing field. Practitioners, for their part, have expanded their scope to also devote significant attention to the financial reporting and taxation of cryptoassets. Expanding the discussion of accounting and blockchains beyond their current concentrations in auditing and accounting information systems, we call for more research on the impact of blockchain technology in other areas such as corporate governance or the intersection of accounting and society.
“…It was clear from our interviewees that standards on how to account for cryptoassets were viewed as important (cf. Vincent & Wilkins, 2020): There are tax implications, obviously. Again, if you are holding your cryptoassets, you need valuations and what the tax treatments are, the tax law itself is not clear.…”
Section: Resultsmentioning
confidence: 99%
“…Client ownership of cryptocurrencies poses unique challenges to audit engagements. According to Vincent and Wilkins (2020), inherent risk would be high for cryptocurrency assets or transactions that exceed materiality levels allocated to account balances. If so, auditors need to collect indirect and entity‐level evidence that reflect an understanding of why clients deal with cryptocurrency transactions, in particular, how it is linked to the entities' business strategy.…”
Section: Literature Review and Research Questionsmentioning
Blockchain is claimed to disrupt the external audit function by enhancing the reliability of both external and internal audit evidence. This study examined the impact of client use of blockchain technology on audit risk and audit approach. It referred to the Australian Auditing Standard ASA 315 Identifying and Assessing the Risks of Material Misstatement and van Buuren et al.'s continuum of audit approaches to frame semi‐structured interviews with 28 blockchain stakeholders including audit partners. The study found that blockchain clients are perceived to be riskier than other clients and that inherent and control risks are amplified. The audit approach is not definitive with two likely approaches: a combination of direct, indirect, account‐level and entity‐level evidence and an increase in indirect and entity‐level evidence. This study's findings are useful for audit practitioners, standard setters and regulators.
“…According to SEC public statements regarding cryptocurrency "…there is substantially less investor protection than in our traditional securities markets, with correspondingly greater opportunities for fraud and manipulation" (Clayton 2017, no emphasis added). The PCAOB recently announced it has added virtual assets as a key area for future inspections (Vincent and Wilkins 2020). This raises the stakes for auditors and makes risk identification a critical task.…”
Section: _____________________mentioning
confidence: 99%
“…
Cryptocurrencies pose several risks that impact the inherent risk assessments of auditors. The SEC has issued warnings about the risks (Clayton 2017), and the PCAOB lists virtual assets as a key focus area in future inspections (Vincent and Wilkins 2020). This study examines how accounting professionals perceive the inherent risks associated with cryptocurrency based on their likelihood of occurrence and expected impact on financial statements.
Cryptocurrencies pose several risks that impact the inherent risk assessments of auditors. The SEC has issued warnings about the risks (Clayton 2017), and the PCAOB lists virtual assets as a key focus area in future inspections (Vincent and Wilkins 2020). This study examines how accounting professionals perceive the inherent risks associated with cryptocurrency based on their likelihood of occurrence and expected impact on financial statements. We find the risk of determining cryptocurrency value is perceived as having the highest likelihood of occurrence, and unauthorized private key access has the highest impact. Combining the evaluations of likelihood and impact, we rank the risk of ineffective exchange-level controls as having the highest inherent risk. We also find that inherent risk judgments are negatively correlated with cryptocurrency experience. Professionals with prior cryptocurrency experience, or who work for a company planning to process cryptocurrency transactions, rate inherent risk lower than those with less experience.
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