Blockchain technology is not only changing the way in which financial transactions and information are recorded, processed, and stored, but it is also changing the way audit firms work. This article aims to explore how blockchain technology affects the audit industry. This research uses 17 accountants as a sample to conduct a qualitative study. The results show that this technology can affect accounting firms on six key levels. Blockchain technology will give audits The teacher brings the following conveniences:
(1) Save time and improve audit efficiency
(2) Support audits covering the entire sample instead of audits based on sampling techniques
(3) Focus on internal control testing rather than transaction substantive testing
(4) Establish a continuous audit process
(5) Play a more strategic audit role
(6) Development of new consulting services
The use of blockchain technology emphasizes the need to establish a clear and coherent system and new audit standards for audit work, so that auditors can use this technology flexibly and strengthen audit work.
Keywords : Blockchain technology, audit, audit process, innovation, Crypto technology
JEL code: M42
Blockchain technology, like other new Crypto technologies (robot technology, big data, analysis technology, artificial intelligence, etc.), not only changes the way companies conduct business, but also changes the way that different stakeholders process and communicate information . This technology originated from Crypto (mainly Bitcoin) and is now considered to be one of the most powerful new technologies after Internet technology.
Obviously, the audit industry will also be changed by such changes. In fact, blockchain technology can fundamentally change the way audit companies work and the way they design and develop their businesses.
Blockchain technology can create potential opportunities for the audit industry to develop new services, and it can also bring changes to existing services. Existing services may be replaced in whole or in part by technical systems (Appelbaum et al., 2017).
Realizing the huge development potential of blockchain technology, audit companies invest more than US$3 billion in this technology each year (Smith, 2018). For example, in 2017, Ernst & Young (EY) began accepting Bitcoin consulting services. As the first company to accept Bitcoin consulting services, it invested in the development of applications and services to promote blockchain technology in its Application in business.
KPMG and its partner Microsoft have launched new services based on blockchain technology to help companies implement business process optimization (KPMG, 2017). Deloitte created the first blockchain technology laboratory in 2016. PricewaterhouseCoopers launched a Crypto asset service using blockchain technology in 2016.
Like other new technologies, there are some challenges and opportunities brought by blockchain technology, and auditors need to understand. Their profession may be replaced by other companies engaged in new technologies. In fact, companies must enhance their flexibility and innovation and integration capabilities in an uncertain environment. This will be the only way to maintain competitiveness and meet future challenges. (Ayerbe et al., 2020; Dupont, 2019).
At the same time, blockchain technology involves IT risks, that is, unauthorized access and threats to identity, which may also have an impact on traditional auditing processes and business development. According to research by Alles (2015), the acceptance of advanced technologies and blockchain by audit clients will become a catalyst for auditors to adopt these technologies.
Blockchain technology combined with other Crypto technologies can change the audit process by modifying the way auditors access data, collect evidence, and analyze data (Rozario, Thomas, 2019). Auditors can only choose to integrate these technologies, change their organization and processes, and risk losing legitimacy in the audit market.
Aware of these risks, the Big Four accounting firms (Deloitte, Ernst & Young, KPMG and PricewaterhouseCoopers) are working with 20 Taiwanese banks on a joint pilot project aimed at providing new accounting services. The purpose of this cooperation is to test a new blockchain platform that allows auditors to directly verify and confirm transaction evidence and facilitate the assessment of external accounts receivable, which is a heavy audit task (Zhou, 2018).
More specifically, audit companies no longer manually evaluate audit evidence, because transaction information is easily obtained through blockchain technology tracking and verification, which saves audit companies a lot of time.
In this context, few studies have attempted to understand the impact of blockchain technology on the audit industry (Smith, 2018; Liu et al., 2019). Most research focuses on other Crypto technologies such as big data, analytics, and artificial intelligence, while ignoring the impact of blockchain technology on the audit industry (Manita et al., 2020).
Blockchain technology presents some of its own characteristics that are different from other technologies. The blockchain contains information, which is protected by encryption, verified and authenticated by all users. Therefore, it should have different effects on the profession.
Smith (2018) reviewed the existing research on blockchain technology in the accounting field and discussed the benefits and challenges that this technology may bring to the accounting industry. He pointed out a series of potential impacts of this technology on the accounting industry. He specifically concluded that blockchain will allow auditors to save time on repetitive tasks, such as the confirmation and verification of amounts, and focus their attention on higher-level tasks, such as the design of preventive tests and intelligent analysis of data. .
Liu et al. (2019) tried to discuss the opportunities and challenges that two types of blockchains (public blockchains and consortium chains) may bring to internal and external participants. Their research finally put forward a series of recommendations to professionals to adapt to this technology and develop their business.
Desplebin et al. (2018) used a forward-looking approach to explore the changes that this technology might bring to the accounting and auditing industry. Their research summarizes a series of possible scenarios that reflect the evolution of the accounting industry in terms of data security, dematerialization, coordination, and fairness in accounting information.
This research is still theoretical and not based on empirical research, and some studies try to explain this technology (Carlozo, 2017). Other studies have either synthesized articles on this topic or considered forward-looking about the possible impact of this technology on the accounting industry (Liu et al., 2019; Smith, 2018). The reason for this choice may be the difficulty of obtaining information and the fact that most companies do not use this technology.
Auditing companies (especially the Big Four accounting firms) are investing a lot of money to develop this technology and to acquire new tools and control procedures developed through its advantages. Therefore, in-depth study of the impact of this technology on audit activities requires on-site investigations. In this context, this research aims to study the possible impact of blockchain technology on careers, auditing processes, and business development processes.
This research is beneficial to auditors and blockchain technology. At the theoretical level, by explaining how blockchain technology will change the profession of auditors and the new challenges it faces, the literature on the impact of blockchain technology in the field of auditing can be enriched. At the management level, this research can not only inspire professional auditors to understand the possible evolution path of their audit process, services and development of new business opportunities, but also inspire the technical and organizational challenges they will face.
This research can inspire audit regulatory agencies to revise audit standards based on technological developments. Finally, it can also guide universities and colleges responsible for training auditors to master relevant technologies, critical thinking and improve data analysis skills. These skills are required or developed by auditors to meet new market needs and face Challenges for the future.
This article mainly discusses the impact of blockchain technology on the audit industry from the following aspects. First, we defined the blockchain technology, introduced the current research status at home and abroad and the research methods of this article. After that, we proposed and discussed the main research results, emphasizing the main contributions and limitations of blockchain technology.
Conceptual framework and literature review
First, we will introduce what blockchain technology is, what its characteristics are, and how it works. At the same time, we will focus on the application of this concept in the field of auditing.
Blockchain: evolution, advantages and types
1. What is blockchain?
In 2008, Satoshi Nakamoto invented Bitcoin, bringing blockchain technology into the public eye. Crypto is a specific way of using blockchain technology, which makes point-to-point transactions possible without the existence of a third-party organization.
Some researchers define a blockchain as “a network composed of peer-to-peer nodes (ie, users’ computers) with immutable transaction data and openly traceable networks” (Swan, 2015; Tapscott and Tapscott, 2016; Drescher, 2017; Shelton, 2018). Based on this, to put it simply, blockchain technology is a technology for storing and transmitting data. Thanks to this technology, it is possible to know the source of the data in circulation, and every change in the data is recorded by the block.
The new data will be automatically stored in a block, and the block will be connected to the block where the previous data is recorded to form a blockchain. Blockchain allows direct transactions between users without the need for trusted third parties (Gruber, 2013; Singer, 2015). According to the research of Delahaye (2014), this technology can be compared to a large notebook or an open book. Everyone can access it for free, but no information can be deleted or destroyed.
2. Features and advantages of blockchain technology
The analysis of the definition of blockchain revealed three main characteristics of the technology:
Transparency and traceability: The blockchain contains information that cannot be modified or deleted and is shared by users. In addition, every operation performed is clearly recorded in the blockchain, so each path of stored information changes can be traced. In fact, the longevity and consistency of the system is guaranteed by copying the records it creates in the memory of other computers (network nodes). Transparency and traceability will increase user confidence in adoption.
Data security protection: The data recorded in the blockchain is protected by encryption, authentication, verification, and unalterable methods, because the block eliminates friction errors and reduces risks. In fact, the standard that needs to be verified by a set of nodes greatly reduces the risk of malicious behavior, hijacking or hacker attacks. The nodes control each other, which makes it possible to achieve secure data protection without a central authority. Users can also be anonymous.
Decentralization: Blockchain technology makes transactions easy without the need for a central network, which provides control and governance of the system. In fact, the verification of the data recorded on the blockchain is not performed by specific participants, but by the rules of the blockchain. If we combine this technology with smart contracts, it is possible to achieve value exchange between the two parties without an intermediary.
Therefore, eliminating middlemen will likely increase productivity and efficiency, and reduce transaction costs such as inspection and audit fees. These characteristics make blockchain technology a revolutionary technology that can guide companies to design new working methods and organizational forms, and change Their business model.
In this sense, Beck and Müller-Bloch (2017) believe that blockchain does not represent incremental technology (including adding some functions to existing technologies), but a radical innovation, because it establishes beyond the existing New standards for technology and practice (Utterback, Acee, 2005; Bates, 2011).
Blockchain technology allows transactions to be recorded as a single event, verified by the community. This process is very effective for companies because it eliminates the need for companies to enter and store transactions in multiple databases, save time, and greatly reduce human error and fraud.
Although this new technology can bring a company a competitive advantage, it is not without risks, because it requires fundamental organizational changes, providing new skills, new tools and working methods, which can subvert the old practices (Dewar , Dutton, 1986; Adams et al., 2006). The invention of blockchain technology is often compared to the Internet because it has great potential to produce fundamental changes in multiple industries (Lepak et al., 2007; McLean, 2016).
Therefore, blockchain technology will challenge companies, guide them to intensify innovation, and rethink their business models when their survival is impacted.
3. Blockchain type
There are two main types of blockchains mentioned in the literature, namely, public chains and consortium chains, which are what we call permissioned blockchains and permissionless blockchains.
In the case of a public chain, the architecture is open, which means that anyone can access it and conduct transactions. In fact, according to O’Leary (2017) research, public chains allow network participants to contribute to the blockchain by accessing or sending transactions. For example, this type of blockchain is used in Bitcoin (O’Leary, 2017; Smith, 2020).
The consortium chain provides an architecture that can be registered and traded, but only provides access and usage rights to specific participants. Therefore, this type of blockchain imposes restrictions on the identity of network nodes that allow transactions to be verified and transaction interests.
For example, we can refer to transactions between multiple organizations or transactions between a group and different branches. Smith (2020) pointed out that unlike the unauthorized blockchain of the Bitcoin blockchain, this type of blockchain can either select the members that can join the blockchain or limit the rights of the members.
Burns (2019) pointed out that the market value fluctuations in the field of crypto assets in 2018 have allowed people to pay attention to the potential of blockchain technology, especially the practical application of the technology. According to Smith (2020), the role of alliance chains in trade and adoption is more attractive to companies. However, this classification of consortium chains and public chains is simplified. In fact, there are multiple classifications based on the criteria considered, such as different technologies, different ways of community governance, and so on.
In recent years, blockchain has aroused the interest of more and more researchers in different fields such as finance, marketing, and supply chain. However, as far as we know, few people have studied the application of blockchain in the audit industry. Brender et al. (2019) pointed out that although the blockchain finance sector has caused great changes, the auditing and accounting industries have been ignored by academic research. Research in this area is not enough to cover the impact of blockchain technology on all auditing industries.
Most of the current research focuses on the relevance of blockchain technology in the audit process and its ability to optimize existing audit procedures (Dai, Vasarhelyi, 2017; Smith, 2020; Yemark, 2017; Liu et al., 2019; Kokina et al., 2017). The research of Yermack (2017) proved that blockchain technology can guarantee the accuracy and reliability of transactions and realize real-time information disclosure. Kokina et al. (2017) outlined the application of blockchain technology in large audit companies and discussed its main opportunities and limitations.
Smith (2018) analyzed the possible impact of blockchain technology on the accounting industry. He also comparatively analyzed how the process will change as this technology becomes more and more common. Accounting firms have invested heavily in blockchain technology from a financial, technical or human perspective. However, the implementation of blockchain is still in its infancy. The automation of accounting and auditing tasks presents challenges and opportunities for accounting and auditing professionals, forcing them to evolve to keep up with this change. With this change, technology can replace certain accounting or auditing tasks, and accounting and auditing professionals will play a more strategic role.
Dai et al. (2019) discussed how the use of blockchain and smart contracts can reorganize the current audit process and promote the emergence of a new generation of auditing, the audit 4.0 era. They proposed a framework that summarized the areas where blockchain technology and smart contracts need to be applied to help implement audit 4.0. They proved that these technologies can solve two key issues, namely data integrity and the normal operation of the intelligent audit module. They also proved that these technologies can help establish a continuous and real-time audit process, which will promote the emergence of 4.0 audit.
Smith (2020) studied how smart contracts and blockchain-based applications change the audit process and studied the interaction between them. He said that in order to be effective and efficient, blockchain technology must be integrated with existing technology systems. Smart contracts allow blockchain technology to be combined with other technologies and adjust the application of the blockchain platform at the enterprise level.
Desplebin et al. (2018) expounded the role of blockchain technology in innovation in a forward-looking way. These innovative proposals will affect the accounting and auditing industries. The author believes that blockchain technology will become the “core technology” of internal control, ensuring the information certainty of stakeholders such as institutions, shareholders, and customers. This technology will simplify verification errors and fraud and ensure the reliability of reports.
In a study focusing on alliance chains, O’Leary (2017) studied alternative configurations of different blockchain architectures, which can be used to collect and process transactions in different fields, especially accounting, auditing, supply chain, and others. Type of transaction information. He also proposed that blockchain technology can be used to process data derived from other technologies (such as databases and data warehouses).
Liu et al. (2019) discussed the impact, opportunities, and challenges of two types of blockchains (namely, public and private) on operators. New audit activities are emerging because of blockchain technology. Auditors can verify the existence of Crypto assets and prove the consistency between the physical world and the information on the blockchain. In addition, there is no central authority in the blockchain, which makes it difficult for auditors to perform this task and have to find new ways to verify assets.
As part of the internal control audit of financial information, Sheldon (2019) discussed the impact of blockchain technology on ITGC (General Information Technology Control), which auditors are more concerned about, and the risks in the audit process that blockchain technology can eliminate. The author emphasizes the importance of blockchain user participation, including companies, auditors, and regulatory agencies.
The reliability of the data generated by blockchain technology depends on the support and normal operation of ITGC, because the blockchain is still an integral part of the IT infrastructure (AICPA and CPA Canada 2017). A good understanding of how these data are controlled, queried and extracted is very important for users who make decisions based on these data, especially auditors who can use blockchain.
Rozario and Thomas (2019) studied how blockchain and smart contracts affect the audit paradigm of financial statements. The author attempts to propose a conceptual framework for external auditing of the blockchain, in which a smart audit program (a smart contract) can autonomously execute the audit program and disclose the audit results to different participants in a near real-time manner. They showed that the use of blockchain for auditing financial and non-financial data has the potential to improve audit quality and reduce the expectation gap between auditors, financial users, and regulators.
Dai and Vasarhelyi (2017) try to discuss how the audit ecosystem changes with blockchain technology to be more transparent, real-time, and verification. They believe that with the development of blockchain technology, we tend to be more accurate and efficient automatic insurance systems, which has changed the current auditing practices. Smart contracts related to the blockchain can be used for the secure storage of account data, instant sharing of relevant information with related parties and improving the verifiability of business data. A new accounting information system can be generated and recorded on a secure blockchain.
However, these works are theoretical, and there is no empirical research on the impact of blockchain technology on auditing. The complexity of this technology and its limited applications seem to explain why there is less research. In fact, as pointed out by Smith (2018), accounting firms have recently begun to experiment, develop, and implement blockchain in business operations.