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بشير 5
بشير 5
SUMMARY: Blockchain offers a drastically new way to record, process, and store
financial transactions and information, and has the potential to fundamentally change the
landscape of the accounting profession and reshape the business ecosystem. In this
article, we introduce two types (i.e., permissionless and permissioned) of blockchain and
lay out their technological features. We further discuss implications of blockchain to
auditing and elaborate on opportunities and challenges of the two types of blockchain to
auditors. We conclude by making specific recommendations for auditors to adapt, adjust,
and elevate themselves to the role of strategic partners in blockchain implementation.
I. INTRODUCTION
K
nown as the underlying technology for cryptocurrencies such as Bitcoin, blockchain has
been regarded as one of the most important disruptive technologies after the internet
(Swan 2015; Yermack 2017). It has wide-ranging implications for data processing,
transmission, storage, and security (Brandon 2016; Gross, Hemker, Hoelscher, and Reed 2017),
and has the potential to create a new ecosystem for the handling of accounting information (Dai
and Vasarhelyi 2017; Kokina, Mancha, and Pachamanova 2017). Although blockchain technology
is still in its infancy, the Big Four accounting firms and many financial institutions have already
noticed blockchain’s potential and actively engaged in its experiments, development, and
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Liu, Wu, and Xu A20
investments (Bajpai 2017). Deloitte, for instance, took the first step in launching a blockchain
initiative in 2014 (Deloitte 2016). Ernst & Young (EY) became the first advisory firm to accept
Bitcoin for its services in 2017 and, more recently, rolled out a number of applications and services
to facilitate the commercial use of blockchain technology across the enterprise (EY 2017). KPMG
has partnered with Microsoft in joint projects that use cases that apply blockchain technology to
business propositions and processes (KPMG 2017). PWC launched its digital asset services using
blockchain technology in 2016 and planned to adopt blockchain in live production systems by 2020
(PWC 2017).
In this paper, we introduce blockchain and lay out possible impacts of blockchain on
accounting and auditing practices. We also make recommendations for strategies and action plans
for auditors involved in the ecosystem of accounting information.
FIGURE 1
Comparing Fund Transfer Processes in Traditional Digital Ledger and Blockchain Systems
Real-Time. Because transactions are posted to the blockchain nearly as soon as they
occur, blockchain technology provides nearly real-time transaction records and reconcil-
iation of accounts.
Hosting of Smart Contracts. Blockchain accommodates smart contracts by embedding
programming code. These programs can execute transactions and create corresponding
ledger entries when certain contract conditions are triggered. Self-executing smart contracts
allow timing of ownership transfers from one party to another in a decentralized environment
(Kosba, Miller, Shi, Wen, and Papmanthou 2016).
1
Miners are users with extensive computational resources that can be used for transaction validation purposes.
FIGURE 1 (continued)
Panel B: The Fund Transfer Process in a Blockchain Network
blockchain (AICPA and CPA Canada 2017). On the other hand, a centralized agency with
override privileges is allowed in a permissioned blockchain and might undermine the credibility of
the blockchain.
transaction records is not distributed to all participants. Instead, some participants may
only have a part of the copy. Whether certain information is restricted or accessible to
certain participants depends on the access-control configuration. Given the confidentiality
protection from these access restrictions, permissioned blockchains will be more suitable
in business environment (AICPA and CPA Canada 2017).
2
Retrieved on June 18, 2019.
FIGURE 2
New Business Ecosystem Based on Blockchain Technology
exposed to scrutiny by more cross-chain participants. This provides third parties an even broader
scope to scrutinize reliability of business transactions.
Cost of Implementation
Based on cost-benefit analyses, organizations will decide whether, to what extent, and how
they will adopt blockchain (Appelbaum and Smith 2018). We provide a list of explicit and implicit
costs of adoption for organizations to consider:
Cost of implementing and maintaining a blockchain.
Repetition and competition between an existing ERP system and a blockchain.
Reconciliation between records on a blockchain, other reports, and physical existence.
TABLE 1
Opportunities and Challenges to Auditors
Opportunities Challenges
Permissionless Examine transaction record on No reversal of erroneous transactions;
blockchain blockchain; No centralized authority to verify the
Develop novel audit process on existence, ownership, and measurement
blockchain transactions; of items recorded on blockchain;
Verify the consistency between items on Data retrieval due to clients’ loss of
blockchain and in the physical world. private key;
No centralized authority to report
cyberattack.
Blockchain technology brings tangible challenges to the audit industry and calls for strategic
transformation in this area (Coyne and McMickle 2017; Lin and Liao 2017). Audit firms’
comprehensive knowledge about business operations and governance will position them as critical
advisors to organizations approaching these new technologies (ICAEW 2017; Raj 2017; Smith
2017; Rapoport 2018). To prepare for the changes brought by this disruptive technology, auditing
professionals need to adjust, and elevate themselves to the role of strategic partner (Karajovic,
Kim, and Laskowski 2019). In the current stage, auditors should consider the following initial steps
to adapt to the new environment:
Acquire competency in blockchain technology and governance of blockchain.
Auditors should be able to assess the costs and benefits of adopting specific blockchains,
and provide advice on blockchain implementation for their clients (Sheldon 2019). Audit
firms could reach this goal by adjusting their hiring and training strategy.
TABLE 2
Blockchain’s Impacts on Auditing Practices
Auditing Internal External
Practices Blockchain’s Impact Audit Audit
Evidence gathering Whole-population investigation replacing the X X
traditional sampling approach;
Direct access to transaction history.
Transaction validation Real-time transaction validation by a community of X X
and verification miners;
Record verification and maintenance by all users.
Compliance evaluation Built-in compliance with most recent standards, X
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