Toward Blockchain-Based Accounting and Assurance

Abstract

Since 2009, blockchain has served as a potentially transformative information technology expected to be as revolutionary as the Internet. Originally developed as a methodology to record cryptocurrency transactions, blockchain's functionality has evolved into a large number of applications, such as banking, financial markets, insurance, voting systems, leasing contracts, and government service. Despite such advancements, the application of blockchain to accounting and assurance remains under-explored. This paper aims to provide an initial discussion on how blockchain could enable a real-time, verifiable, and transparent accounting ecosystem. Additionally, blockchain has the potential to transform current auditing practices, resulting in a more precise and timely automatic assurance system.

Auditing with Smart Contracts

“…As business organizations continue to adopt blockchain and smart contracts to improve business process efficiencies (Tapscott and Tapscott, 2016), it is important for external auditors to understand the opportunities and challenges that these technologies offer (Dai and Vasarhelyi, 2017;Rozario and Thomas, 2017).…”

“…With blockchain technology, the execution of smart contracts becomes feasible as the oversight responsibilities are distributed to the participating nodes (Buterin, 2014;Dai and Vasarhelyi, 2017). Pre-defined business logic can be agreed upon by contractual parties, programmed, and stored on the blockchain ledger.…”

“…An illustration of a smart analytical procedure was described above, however, it is important to note that simpler, yet new smart audit procedures can be developed. For instance, since blockchain enables the secure tracking and monitoring of various IoT devices, the audit firm can design an internal control test to verify the actual location of the goods and compare that to the expected location of the goods (Dai and Vasarhelyi, 2017;Rozario and Thomas, 2017) to assess the risk that goods may be shipped to the incorrect location. Since business organizations have begun to explore the synergies of blockchain and IoT (IBM, 2017), it is reasonable to infer that auditors would have to design new audit procedures that would help them assess the risk of material misstatement more precisely.…”

Accounting and Auditing at the Time of Blockchain Technology: A Research Agenda

“…Blockchain technology (BT) – also known as distributed ledger technology (DLT) – is a system in which transaction records stored in blocks are maintained across several computers linked to a peer‐to‐peer network that uses algorithms to verify transactions (Coyne and McMickle ; Dai and Vasarhelyi ; Kokina et al. ) .…”

“…Those parties do not always have a legitimate interest in recording transactions accurately. Therefore, double‐entry bookkeeping is said to have only limited ability to provide comprehensive assurance for the correctness of companies’ financial statements (Dai and Vasarhelyi ).…”