Blockchain Technology and Its Potential Impact on the Audit

Introduction

Background

[5]Since the initial of Blockchain technologies back in 2008, it has continued to proffer improved gain of actual-time data entry and move via the digitization of data via the systematic machine-studies abilities. The presentation of real-time data provides other ways of introducing stakeholder reliance with the introduction of smart contracts, which improves the necessity of successful financial dealing exercise. However, [6]Notes a possible hint on minimizing the responsibility of CPA auditors across financial organizations is adhere to the instructions. [7]The blockchain consensus mechanism and cryptographic perspectives offer an enhanced aspect of the security and integrity of financial transactions, thereby reducing the potential of tampering with the audit trail processes. The fusion of the cryptographic mechanisms for deals with smart contracts provides an enhanced approach towards the management of financial transactions while managing the audit trails for improved efficiency in the appraisal process. [8]There is also evidence linking the potential positive benefit of blockchains in the improvement of financial supply chains through the automatic monitoring of the current financial results through embedded smart contracts in the blockchains. The digital transformations arising from blockchain technology incorporations in the audit processes have a potential aspect for improving the financial auditing process through the evaluation of the audit trails.

A number of the past researches were reviewed to study the impact of blockchain tech on the audit exercise. This section highlights the summary of the literature review. [9]Erbguth and Morin state that blockchain tech in the form of data structure that allows users to maintain ledgers digitally and verify those with the help of the various algorithms. The ledger can be accessed by all the participants that are connected by the network. All the transactions that are taking place in the system are recorded correctly using this technology with any human errors. [10]Kehoe reveals that the confidentiality of the details of the users is also maintained in the system. [11]The transactions done under blockchain technology are immutable; thus, the accuracy of the records can be maintained easily. [12]The technology allows the system users to maintain transparency to a great extent.

[13]Schatsky and Muraskin argue that the core patterns of the business applications can be determined using the security and decentralized features of the blockchain technology.

Blockchain technologies present an opportunity for improving the financial transactions and auditing process while also posing a challenge in the determination of their application in light of the existing difficulties across financial institutions. [14]The launch of blockchain initiatives by large commercial companies continues to stimulate the desire and adoption of blockchain technologies among other firms with the perceived benefits of managing digital asset services and utilization in a variety of applications and services. The increasing disintegration of activities within different sectors in the economy provides a more focused approach towards necessitating changes in the audit profession. However, it has been challenging to assess and determine the potential impact resulting from the adoption of blockchain technologies across the financial sector.

There have been global calls for auditors to contemplate the impacts of sophisticated audit analytics such as smart contracts to remain relevant and continuously deliver quality audits in a complex in the accounting world. [15]In this sense, Dai notes that organizations and external auditors should understand the challenges and opportunities offered by smart contracts. Currently, internal and external auditors can develop in-house data analytics tools or buy devices from audit software firms such as ACL and IDEA. [16]Utilizing smart contracts as an audit analytics tool is necessary for meeting audit parties’ demands for timely reporting of audit results in a transparent manner. Even though, auditors can upload smart contracts to the cloud platform to make them publicly available, saving audit results of audit procedures on the cloud on a real-time basis is an enormous task. Since planning entails, numerous cost-benefit analyses such as timing, accounts which need to be assessed as well as the level of audit processes, shifting towards smart contracts are probably feasible from a cost-effective perspective.

[17]Blockchain technology can sway many file storing procedures, involving how transactions are processed, initiated, authorized, and filed. Alteration in business strategies and methods may influence the back-office functions like financial reviewing and tax preparation. [18]Unconventional auditors need to analyze this technology for them to be able to foster it to their clients. [19]Both the functions and qualifications positions of the CPA auditor can alter when new techniques emergences. For instance, models for getting ample and recommended audit prove may demand one to consider the blockchain and the traditional stand-alone general ledgers. [20]Besides, there would be a more significant normalization and openness in accounting and reporting; this means an opportunity for a more efficient way of data extraction and description.

This technology may present new opportunities and constraints to the assurance and audit experts. Meanwhile, in most instances, the CPA auditor’s strategy may take other forms; the traditional assurance and audit services will still be essential in their way. [21]As the two fields are evolving from day to day, with the audit procedures containing innovations in information analysis and automation, the blockchain technology may provide an essential influence on how the auditors execute their functions. [22]Moreover, CPAs may find it necessary to broaden their knowledge set to anticipate the necessity of the business world since the blockchain technology is applied on a large scale.

The blockchain tech has impacted the financial sector in many ways. [23]The impact on the financial sector is much more than the other sectors of the economy. The role of the auditors has also changed with the emergence of this technology. [24]To serve the clients in a better way, the independent auditors need to gain deeper insights into the blockchain technology. The auditors will now need to audit the blockchain ledgers also in addition to the general ledgers to accomplish the auditing process. [25]The transparency has increased in accounting, which demands more efficiency in the data extraction process. The blockchain technology has brought new challenges and opportunities for audit professionals. The chartered accountants and auditors need to enhance their skill set to retain their existence in the profession.

[26]A smart contract refers to the PC procedure that digitally expedites, administers, and proves negotiations of transactions and allows the execution of credit dealings without third participants.  Smart contracts are determined to offer superior safety measures and even lead to minimization in other dealings associated with an agreement. [27]Successful execution of a smart contract is essential for auditing various cryptocurrencies have plant then in the struggles towards automating firm operations. [28] External auditors should take consideration of the effect of complex audit analysis in conjunction with a smart contract as new digitization. Thus, they may retain their significance and develop worth to the general public via the distribution of audits that are of good standards in the sophisticated environment, which is vital.

The purpose of the study is to describe the emergence of the blockchain tech and what influence it has put on audit practices. I will also find how the financial and information technology auditors are using the blockchain technology in their profession of the auditing. The role of the auditors has changed to a great extent after the emergence of the blockchain digitalization. This dissertation will assist in resolve the changing role of the auditors. The educational institutions can also get a glimpse of the changed skill set of the auditors from this study and can make the required changes in their research.

Problem Statement

Despite the fact that many researchers conducted previously with the focus on the gains of blockchain IT, the adoption of this digitization still presents various challenges to provide an entire evaluation of their responsibilities in the audit procedures. In this paper, more emphasis will be allocated to smart contracts that transform auditing and accounting exercises. [29]Blockchain digitization via smart contracts automatically take efforts that involve sharing and proving the messages. The amalgamation of smart contracts and blockchain tech might make sure that the results are carried out accurately and thus do away with possibilities of human error and fraud. [30]Intelligent contracts may profit business firms, specifically the finance sector, in performing high volume sales. [31]Smart contacts may also aid various organizations by minimizing the expenditure on the appropriate procedures of sales. More fundamentally, this study will focus on intelligent contracts blockchain digitization and its impact on auditing. [32]Quick contract blockchain modernization may be applied in various sectors such as banks, real estate, and the medical and healthcare industry, among other areas.

Blockchain technologies present an opportunity for improving the financial transactions and auditing process while also posing a challenge in the determination of their application in light of the existing difficulties across financial institutions. [33]The launch of blockchain initiatives by large commercial companies continues to stimulate the desire and adoption of blockchain technologies among other firms with the perceived benefits of managing the digital asset services and utilization in a variety of applications and services. The increasing disintegration of activities within different sectors in the economy provides a more focused approach towards necessitating changes in the audit profession. However, it has been challenging to assess and determine the potential impact resulting from the adoption of blockchain technologies across the financial sector.

Aims and Objectives of the Study

The core of the study is to find out the effects of the smart contract on accounting and audit exercises.

Objectives

• To analyze the usage of smart contracts in the department of finance.
• To discover the effects of smart contracts on audit experts.
• To evaluate the alterations that a smart contract has initiated to auditing practices.
• To assess the alterations function of the auditors while examining auditing practices.
• To research the new qualification set for the auditors.

Research Questions

1. What is the potential effect of smart contracts on audit practices in the finance sector?
2. How will smart contracts impact the audit profession?
3. What skills are required for auditors to effectively execute their roles using smart contract blockchain technology?
4. What measures should companies embrace to enhance the effective integration of smart contract blockchain technology in accounting practices?

Literature Review

 Blockchain technology

History of Blockchain Technology

Even though blockchain technology is new in the 21^st century, it has earned a rich history dating back in 2008. Here is a brief history of its development that is and recognizable.

2008 – Satoshi Nakamoto published Bitcoin: A Peer-to-Peer described as the only electronic cash system at that time.

2009 – The first complete transaction of Bitcoin (BTC) was recorded.

2010 – Laszlo Hanycez, a programmer in Florida, completed the first purchase, where around 10,000BTC’S (worth $60) were transferred.

2012 – Blockchain and cryptocurrency started to spread to cover larger areas. They were first mentioned on TV shows.

This year the Bitcoin magazine was initiated for the first time.

2013 – BTC reached $100/BTC for the first time.

2014 – Gaming sites started accepting payment via Bitcoin. PayPal also announced Bitcoin integration.

2016 – Tech giants like IBM announced blockchain models for cloud-based firms/business solutions. The Government of Japan legitimized blockchain and cryptocurrencies.

2017 – Bitcoin obtained $1,000/BTC for the first time.

2018 – Facebook committed that it would start a blockchain group and develops its cryptocurrency.

[34]A blockchain refers to a modernized ledger generated to encapsulate transactions carried out among different bodies in a system. The applied technology is a peer-to-peer, Internet-systematized supplied accounting that incorporates all sales because they are developed. [35]All individuals and businesses applying the shared database are known as the “nodes” bridged to the blockchain. Every node has to retain its identical copy of the ledger.

[36]Since the introduction of tablets, people have recorded a change of goods and services as they move closer to the digital world. Recording transitions in the digital edge have become strenuous, whether it is the exchange of cash between two or more people, or it is documenting the movement of goods from a supplier to the end-user or even making contraction agreements. The development of commerce and trade in the market place has created an extensive network of disparate systems that ate venerable to fraud, error, and mi-interpretation. [37]Blockchain technology has the opportunity to block any desperate transactions that can result from fraud, inaccuracy, or even misinterpretation of information. The blockchain offers a secure mode of dealing with every purchase accorded a unique code that is applied to keep the transactions safe from fraud and errors. [38]It provides a unique and synchronized system for all business networks to ensure that the transaction recorded is maintained. Blockchain technology records every single transaction that happens between different business firms.

[39]The blockchain ledger notes each pattern of the dealing from the start till the end; the weather is a single sequence or multiple sequences. As sale happens, it is put into a block, and each block is bridged block before and under it. [40]A block transaction is grouped to generate an irreversible chain; a fingerprint of every purchase is appended on each block. Bleaching this security is not secure and only needs a certain level of experience or expertise. Blockchain is ideal for noting the refining, mining, and supply of one of the most expensive goods in the world. This capability is contributed by the fact that blockchain can trace the path of a diamond from its mining, refining, and even distribution because it adheres to a particular security policy. [41]While blockchain works with all forms of transaction, three main features make blockchain unique from the rest, and this is because it is permission, ledger, and safe to conduct transactions with.

Blockchain digitization proffers the abilities to change firms to all sorts, from diamonds to flowers, monetary dealings. [42]It frees some financial flows, span protocols, lowers sales expenditures, and more essentially offers safety mechanisms among different stakeholders. From this analysis, I believed that blockchain could elevate businesses to make high returns just lie the internet has done for interaction/communication. Developing new strategies of work to provide time for innovation and creativity and change.

Characteristics of a Blockchain

As a supplied modernized ledger and near actual-time, a blockchain has many special features that can range to a variety of industries:

Irreversibility	[43]A blockchain has a confirmed file of each transaction ever conducted on that blockchain. This avoids using the item twice.
Censorship resistant	[44]The economic policies develop into a blockchain strategy proffer monetary Rewards for the private parties to continue ratifying new blocks. T implies that a blockchain keeps up improving without an “owner.” It is also expensive to censor.
Near real-time settlement	[45]A blockchain allows the near actual-time settlement of transactions, Therefore minimizing the risk of non-payment by a single participant.
Distributed ledger	The peer-to-peer distributed connection has a general history of transactions. A blockchain is supplied, highly present, and maintain a safe file of evidence the transaction happened.

[46]Blockchain (Bitcoin) is the latest digital technologies that are expected to cause large scale and fundamental change in the political, social, and economic relations and organizations of organizations. Blockchain technology is an append on a database that allows people to access a wide range of transaction history as well as verify the validity of the records. [47]In light of this, Mohanta revealed that blockchain technology leverage distributed ledgers to ensure transactions are consistent over time. In this case, distributed ledgers are freely configurable to each application, which enables it to correspond to the developing blocks of the blockchain digitization.[48]Nugent argued that blockchain technology promotes the execution of transactions in an organization. In this case, the focus will be given to Ethereum blockchain technology, the second largest after Bitcoin. Ethereum, a blockchain, allows organizations to view terms of the contract, which eventually creates inherent risks related to confidentiality.

[49]Although most studies advocate the use of smart contract blockchain technology in auditing practices, there is a gap in knowledge on how the technology will address various issues, including cybersecurity, commoditization of core services, and fraud. The current auditing practices take a relatively long time, which is costly to most organizations. Therefore, the study indents to investigate if the issue of cost and time will be efficiently solved by smart contract blockchain technology. [50]Authors acknowledge that blockchain-based smart contracts have a wide range of usages and may proffer tremendous profits. These profits may incorporate new business strategies, fewer intermediaries, and lower costs of processing, among others. North discovered that integrating smart contracts with blockchain digitization may provide a higher degree of inquiry accompanied by improved abilities to perform activities in real-time to minimize the expenditure.

 

 

The theoretical framework of blockchain technology

Several pieces of research have been done on this technology, and their results have been marvelous. Many studies indicate that the initiation of the real-world technology option is supposed to contribute to a lot of changes with the introduction of new IT. New tech that spurred up a few years ago seemed quipped expensive, but over time, their prices dropped down. [51]The same situation is expected with blockchain tech. even though this device is more costly, it is strongly believed that its prize will be able to drop, and it will be one of the effective means to portion message between open and close firm connections.

[52]Based on P2P (peer-to-peer) topology, the new tech associated with Bitcoin is a DLT (distributed ledger tech) that permits data to be kept in a multiple of servers to allow many people on the system get the data they need. [53]In this system, it is strenuous for one party to gain full control of their games and connection. For various businesses, this tech holds successful dealing of transparency, which offers it with an opportunity to develop secure real-time interaction network other organizations around the world to aid for various things from supply chain to payment systems to healthcare and real estate transactions. [54]The hype surrounding this new tech is the DLT, which is structured in a paradigm to aid in the transfer of data. Various vendors have rushed to analyze how the DLT works to assist them in saving time and cost; this is an exercise that has taken different dimensions in multiple industries.

Even though this new tech will not change the traditional database related to corporate, it does extend to other storage and movements of transactional information. In most of the instances, these forces are typically driven by fintech (financial technology) investments. [55]Research conducted by various scholars from south America suggests that blockchain usage is on the rise, and its adoption for application will be able to gather more than $10.6 billion come 2023 in terms of its revenues. [56]The report realized by ABI research shows that most of the income figures will come most properly from software services and transactions. In the meantime, the adoption of the tech will remain reasonable, as the alterations are momentum. [57]A principal analyst Bennett known for her Forrester research recorded that DLT is a long term strategic initiative, here failures and disappointments are always prevalent. This procedure is illustrated in the figure below.

 

How Blockchain Works

[58]Blockchain is a general balance sheet develops around the P2P network made hare available for the public to and thus developing invariant record of sales every time it is stamped. This process enables it to connect to the previous transactions. [59]each time a deal is appended, that information is added on a block in a chain-like structure and thus name blockchain tech. Once any data is added on the network, it cannot be erased, and the system can only be revised by consensus among different parties in the network. Many organizations are working hard to improve blockchain processes and the standardization of their software versions. Other organizations are on the countdown to develop their release that they can apply to in DLT. With this tech, pages in a balance sheet of sales or transactions are structured in the form of a block. [60]The structured block usually influences the blocks that are next to it, this connection via cryptographic hashing. When a block is completed, it develops a unique security code which tires it to the other neighborhoods, thus creating a series of blocks, this is illustrated in the following figure in the Bitcoin blockchain.

 

In the contemporary world Blockchain system has been gaining a lot of popularity because of the bitcoin that is highly a hyped cryptocurrency that accepts payment deals over a free operation. [61]The payment transactions in the network are accepted because of encryption, which allows the sales to be made without exposing the identities of bitcoin owners. From this structured mode of transactions, other forms of cryptocurrency like Ethereum, which is a blockchain application platform has emerged to make deals better.

Public vs. private blockchains

An on-going debate on a public and private blockchain system has aided a lot in understanding the concept of the network. P2P system ledger can be controlled autonomously to trade data among different participants. With this form of tech, there would be no need to introduce the user administrator. [62]Private blockchain permits various organizations to generate a centralized form of administration that own different sales systems that can apply in inter-organization with other participants. [63]Besides, this tech can be utilized for smart contracts automation to perform certain functions when the required conditions are met. For instance, Walmart and IBM developed a blockchain system based on the supply chain to trace various products from the farm to their firms, and this was after some batch of lettuce resulted in some of their customers becoming sick because of using e-coli. Because of this issue, the companies have requested their suppliers to put their data on the blockchain database. Provided that the data set by their suppliers can be traced via smart contract eradicating human errors would be much more comfortable.

[64]Other business firms like De Beers that manage over 34% of the global diamond manufacture have also opted to apply this tech to automatically trace their diamond. The application of the tech has enabled the firm to enhance its authenticity by minimizing exploitations in the company. With the incorporation of the supply chain in blockchain, a smart contract can be applied to approve and strengthen the process of transfer of assets like real estates, among other assets. [65]The moment specific considerations are made between the two parties (buyer and seller) and their funding firms, the traded commodity can then be proved swiftly on the distributed ledger technology. For instance, the introduction of the real estate mobile application set to take place in New York will allow all the real estate clients and agents to observe all the available offers through various online platforms. This new tech permits easy access to multiple mortgages, property title, home, and legal surveillance via Ethereum, and this will lie in the encrypted blockchain balance sheet.

How safe is blockchain technology

Most scholars argue that most systems are complicated to hack; in the new error, blockchain tech topology has emerged as one of the most secure techs in the world today. [66]Alex, the founder of Northwest Passage Ventures (NPV), a firm that invests in blockchain tech, argues that the system must accept that the dealing is valid. This process implies that to hack the system or network will have to cut all the software and security systems put in place for the web. This process is arduous to bleach into, thus making the blockchain network hard to hack, making it more secure.  [67]The computing gadgets necessary for blockchain tech are many, Alex mentions that because of the number of PCs involved, the bitcoin supply chain can harness around 10-100 times highers provided that their computing energies are structured together.

 

[68]According to Apte and Nikolai, Blockchain fidelity is dependent on appropriate audit procedures to determine whether transactional records are accurate at the time they are entered in the blockchain. As such, it is impossible to devalue transactional ledgers to hide or change transactions, thereby making the audit process more effective, transparent, and efficient. [69]McComb and Smalt (n.d) note that blockchain-based transactions are visible to all stakeholders and participants hence increasing trust and audibility. Besides, blockchain technology increases information accuracy since multiple parties are involved in validating inputs, therefore reducing the strenuous nature of auditing processes. If blockchain technology is used in audit function, it provides reliable audit evidence that is usable as part of attestation engagement.

Despite these benefits in the auditing sphere, some kinds of literature critique the application of blockchain technology in audit processes because of its risks and challenges. For instance, Apte and Nikolai (2016) note that blockchain technology does not improve the necessity for quality audits even though it aid in the delivery of unadulterated and correct records. Further, they argue that blockchain technology is was not intended to, and is not able to replace traditional auditing and quality procedures needed at each stage of creating a transactional record (Apte and Nikolai (2016). Even though the technology faces challenges such as the one discussed herein, blockchain and smart contract technologies have a huge potential as far as ethics, contracting, quality auditing, and legal enforcement are concerned (Klotz, 2018). The considerable potential is because the technologies improve the integration, immutability, transparency, and friability in a manner that significantly.

Smart Contracts

Dai and Vasarhelyi established that intelligent contracts are algorithmic account holders on the blockchain that enables individuals to access the history of transactions. These technologies would allow accountants to effectively and accurately distribute revenues among the account holders. [70]According to Macrinici, smart contracts are part of the blockchain technology used by organizations due to the high customizability they add to transactions. The smart contract enables businesses to automate the process of contracting, monitoring, and enforcement with minimal intervention of people.

Besides, smart contracts incorporate the automation of legal agreements in garrisoned in a system that can obtain external data and use them to upgrade internal sales mechanically. Intelligent contracts are increasingly adopted because of the high level of effectiveness. [71]In light of this, Dai and Vasarhelyi proposed that smart contracts are currently applied in blockchain technology because of their intelligence, credibility of transactions, efficiency, and automation. Smart contracts automatically execute functions for real-world scenarios based on individuals’ needs. For instance, when all the conditions are reached, this technology executes transactions automatically depending on the present rules without external intervention. [72]Therefore, Miller and Bentov claimed that the deployment of smart contracts in particular transactions could help an organization to save time and cost. [73]Yu mentions that the host characteristic progresses to conquer the interest of many institutions that incorporate auditors who need to understand the mechanical and the manual aspects of the smart contract concepts evaluation. The element of efficiency enables smart contract to execute transactions at a sufficient speed as well as solve potential problems associated with a transaction more efficiently.

[74]in their study, it is essential to assess the influence of blockchain on the audit practice, note that the auditing practices are focusing more on the use of Information Technology while embedding the integral aspects of different information systems. Besides, the study notes that more focus will on sustaining continuous audit improvements across the financial sector. [75]Smith also supports the study by emphasizing that the auditing practice will shift from the conventional role of verification towards the strategizing of aspects involving data interpretation and integration. Through the study, it is apparent that the value of audits will increase through the ability to effectively convey accurate information on a timely basis. Axelsen, Green, Coram, [76]Ridley emphasizes that smart contracts will shift the business strategy through the need to embed information systems in their operations reinforced through the implementation of the blockchain as part of their operations. The study notes that smart contracts will streamline the audit practices with firms focusing on collaboration. [77]Besides, Dai argued that smart contracts provide an opportunity for achieving precise and timely assurance with the compliance requirements and regulations relating to the audit practice. [78]in a bid to assess the influence of blockchain on business practices, specifically, the aspect of smart contracts on audit practices asserts that it is possible to track transactions through real-time, thereby reducing the potential conflicts that may arise from the need to reverse transactions. The study points out the integral role of smart contracts in promoting efficiency and confidence in accomplishing business transactions and negotiations. Nonetheless, smart contracts will pose security issues in the audit practice necessitating the need for organizations to continuously increase their security perspectives in handling financial transactions.

[79]The adoption of smart contracts in financial institutions has considerable impacts on auditing practices. [80]According to Zou, smart contracts provide an opportunity for designing the test controls to match the existing practices of unit testing. The study notes that through the formal verification of techniques, the smart contracts promote an enhanced approach towards the authentication procedures undertaken by auditors during financial transactions. [81]Wang pointed out that the use of smart contracts has shifted the audit practice towards embracing better aspects of the security of transactions. In this regard, smart contracts have eased the pressure on the potentials for financial frauds as the smart contracts provide an opportunity for providing real-time accounting practices. [82]Shyshkova revealed that smart contracts enhance the adoption of accounting practices due to the increased reliability in transactions among corporations. The study points to the increasing need for auditing practices to embrace the multiplicity of concurrent transactions through the increased speeds of transactions. Smart contracts have the potential to reduce the follow-ups required while undertaking audit procedures, thereby increasing the aspects of certainty relating to the identity and authenticity of transactions. [83]Therefore, smart contracts automate the auditing practices and processes, reducing the costs and risks of involving different auditors in ascertaining the validity of transactions.

[84]Financial auditors are the persons that administer the various transactions that are taking place in the system, and he ensures the accuracy of the transactions and presentation of the financial statement in the right way.  To accomplish these objectives, they need to understand the information technology and financial reporting system of the client. Auditing practices help in providing quality assurance to the different stakeholders such as shareholders, government. The different types of audits, such as financial, operational, governance, have similar features, and are conducted systematically.  The audit practices help in maintaining the trust of the public. The confidence of the stakeholders on the firm increases with the help of these practices. Auditors will need to possess a specific set of skills in accomplishing their activities due to the introduction of smart contracts as a basis for verifying transactions in finance. Smart contracts as computer-based aspects operated in the blockchains will necessitate auditors to acquire advanced proficiency and skills in computer knowledge. Smart contracts often require online and offline perspectives towards initiating and completing financial transactions through the use of specific procedures throughout the audit process. While the use of smart contracts for auditing may involve simple to complex requirements, it is evident that auditors will need to comprehend their working mechanism in undertaking financial operations. [85]Similarly, a study by Zikratov pointed out the need for auditors to gain tech literacy, including the operations of different tools and platforms while recognizing how the various components of the blockchain provide the basis for undertaking specific decisions. The study notes that technological literacy in the basic skills in developing and initiating communication of information will provide the basis for auditor knowledge in specific perspectives. [86]Although Asharaf and Adarsh established that implementation of blockchain technology in the organization majorly requires investment in infrastructural developments. They claimed that auditors imperatively need to undergo further training to acquire relevant skills for using the technology.

[87]The audit provides an overview of the financial position of the company based on the predetermined guidelines. There have been many scams in the finance of companies in recent years., many new regulations have been imposed to maintain financial reporting in the system to avoid scams.  Blockchain technology allows business technology to record transactions transparently and securely. [88]The technology allows the completion of the financial audit efficiently. The audit reports can be generated automatically with the usage of blockchain technology. The work of the auditors gets simplified with the help of blockchain technology. [89]The need for manual work decreases and each transaction can be traced easily. The time and cost required to conduct the audit also decrease to a great extent, with the help of blockchain technology. [90]Many firms such as Deloitte, Price water house Coopers, Ernst, and young have implemented the blockchain technology. [91]The process of verification of third parties gets automated with the help of the blockchain technology.  This lead to a decrease in auditing practices. The details of each transaction are broadcasted to the participants of the whole network.

Gaps in the existing researches

Even though blockchain has excellent potential, the tech is still in its early stages of development; the tech herefore is likely to get hiccups in their technology that they apply in their business firms and CIOs. The setbacks include real issues associated with software that is involved in blockchain. In recent years this technology has been bleached despite strict security measurements. The increase in IT knowledge has created a lot of gaps tech, because of this reason, many hackers have emerged. The hacking of this system has been typically made via a cryptocurrency application like the bitcoin. The real issue has been that smaller chains with fewer nodes have been subjected to fraud, with this thieves have been gaining control of the system. In the previous years, there have been 51% hacks on the Ethereum, and this perhaps is some of the reasons why blockchain is not impenetrable to gaming. This high percentage indicates that there are some people for being in control of the CPU system. On many occasions, it is proved that these attacks are directed toward blockchain with fewer computation, this is because such nodes seem to be controlled by individuals whose mostly seek control through PoW (Proof of Work) consensus automation. This bleach causes some concerns on the essence of blockchain to audit. It makes many people concentrate on the weakness of tech instead of its impact on the audit.

Despite the rapid growth and development in blockchain technology, there is still a gap in knowledge concerning the potential impacts of smart contracts on auditing practices. [92]Research reveals that smart contracts will improve the efficiency of business processes and have different use cases in the financial system, healthcare, supply chain, internet of things, insurance, and digital right management. As a consequence, there is insufficient information concerning the implementation and use of smart contracts blockchain technology in auditing practices. Auditors are expected to gain deeper insights regarding the challenges and opportunities associated with this technology. Since the smart contract is still in the infancy stages, more research is needed regarding the technology, and it will benefit the auditing processes.

According to Bruce Schneier, a security professional, blockchain tech systems are said to be secure, and even though they are perceived to be protected, the applications that generally operate above them not be safe. Insecurity issues due to the hacking of the system are always due to software malfunction or hacks. [93]When software has problems, hackers can easily access the information that input in the system. [94]Stealing such data can put many organizations at risk of losing their assets to frauds making their value depreciate. When the company’s property depreciates, most of the advantage is allocated to their competitors, and this put many auditors at risk of losing their jobs because the institutions that they work for may view them as lazy and incompetent employees who cannot safeguard the company’s data. [95]Blockchain normalization organizations such as start-ups suggest new consensus procedures and strategies for enhancing nodes and information maintain work to allow transactions to the overall scalability.

One of the core issues encountered when performing various transactions has been scalability. In other words, it can be simply be put as its capability to complete dealings in the near real-time. [96]Scalability is an issue with cryptocurrencies like bitcoin and Ethereum’s. If a supplied balance sheet is to obtain adoption by FinTech organizations and compete with payment systems. [97]These issues create a gap in the auditing of the various system in the financial field. A sustainable solution needs to need to be developed if this issue is to be dealt with appropriately. Once the gap created by scalability is dealt with accurately, it would be easier to address the other problems associated with blockchain analysis.

Even with the different researches that have been conducted which lay more emphasis on the essence of blockchain technologies, the debut in the acceptance of blockchain tech still makes it challenging to proffer a complete evaluation of their responsibility in the audit operation. Additionally, the different requirements for undertaking the audit process further complicates the process despite the adoption of critical perspectives of smart contracts integrated through the blockchains. [98]As such, the limited studies in determining the potential implications of blockchain technologies provide the rationale for undertaking to understand their influence in the financial audit process.

The existing studies indicate that the integration of smart contracts in the auditing practices will have both positive and negative impacts. Additionally, these studies revealed that blockchain technology would have both a positive and negative effect on auditors. However, most of the studies have focused on the role of blockchain technology in accounting and auditing rather than specifying the type of technology. The study focused on smart on how smart contracts will impact auditing practices and professionals to address this gap. Hence, the primary aspects covered include the implication of smart contracts in the finance sector, impacts of smart contracts on the audit profession, and the role of auditors in using the smart contract in conducting auditing practices.

 

Research methodology

Research Design

In this dissertation, a mixed-methodological strategy will be applied. Here the author will affect both the quantitative and qualitative approaches will be utilized. The quantitative aspect of the research will focus on an objective evaluation where information is numerically, statistically, and mathematically gathered via different surveys, polls, and questionnaires. In qualitative analysis, more focus will be laid in scientific approaches that are typically applied to gather data via open-ended interaction and convention. The information collected via this strategy is essential and will be used for discussion. To meet the requirements of the dissertation, qualitative and quantity research was conducted. The purpose of qualitative research appreciated samples obtained from other smaller samples, which methodology the results obtained are always measurable and quantifiable. In quantitative researcher, numbers are given the opportunity. Getting the data from a vast multitude of people makes the data to be more measurable. Collecting data via this methodology ensures that there is a complete description analysis of the subject and objective.  I this research, I could not use only qualitative research because, in this strategy, more emphasis is laid on the skills and capabilities of the researcher. When the stress is laid only in this model, the outcome may not be reliable because they are obtained from one’s interpretation and analysis.

Sampling Technique

Sampling is categorized into two, probability and non-probability sampling. Probability sampling proffers the same opportunity to focus on the population that is targeted. On the other hand, the non-probability sampling unequal opportunity is presented. In the quantitative data gathering, simple random sampling will be applied and will have 60 employees who will fill the questionnaires administered to them. There are two categories of the sampling techniques named as probability sampling and non-probability sampling. Probability sampling has an equal chance of being selected. I have chosen the random sampling technique for this study. The model of suggestive sampling was applied in this dissertation. This strategy is a non-probability sampling method, where samples are collected according to the data, experts, and associations related to the subject that is under discussion. The sample members who were preferred selected had a unique association with the phenomenon under research, enough and useful work experience in the field of auditing.  Active and productive involvement in many sections of smart contract initiatives and collaboration, and evidenced research history and understanding of raw data concerning the audit. In the context of this dissertation, the participants of this research were 60 employees who will fill the questionnaires administered to them.

Data Collection Methods

In qualitative research, a purposive non-probability sample consisting of 40 employees from companies that have implemented blockchain technology in their audit practices will be used. This section will describe the method that is used in conducting the study, techniques that will be used in collecting the data, and processes that will be used in the analysis of the data. There are three types of research methods named as qualitative research, quantitative research, and mixed approach.  I will use the quantitative method of analysis for this study. There are two data collection methods named as primary data and secondary data.  The primary data technique involves the collection of the data by the researcher himself. Secondary data consists of the collection of data from secondary sources. I will use the primary data collection technique for this study. I will collect the data with the help of the questionnaire and interviews, and the data will be analyzed with the help of the regression model.  The auditing practices will be the independent variable, and the impact of the blockchain technology on the auditing practice will be the dependent variable. We will choose the 40 companies that have implemented the blockchain technology in their organizational environment and will study the impact of the technology on the audit practices of these companies.

Data collected can be primary or secondary, whereby primary data is the data obtained from first-hand sources such as experiments, interviews, and surveys. In contrast, secondary data involves collecting data from secondary sources such as journal articles, government publications, and company reports. Primary data collection will be used in this study, and the techniques to be used include questionnaires and interviews. The quantitative data collected from surveys will be analyzed through the regression model, while the qualitative data from interviews will be analyzed using a thematic approach. The auditing practices will be the independent variable, and the impact of the blockchain technology on the auditing practice will be the dependent variable.

 

Out of the 60 participants, I was able to interview 10 participants. To start my Interviews, I first wanted to know if the people I was interviewing are knowledgeable of the subject that I was doing my dissertations. I began by introducing myself and the purpose of the interview  I was conducting on them. I then proceeded by asking them some basic questions concerning the topic of research to see whether they under standard my subject area. I first interviewed three people at once, in an enclosed room. These first individuals did not want their identity to be disclosed, o while interviewing them, I had to respect their request. The other seven participants were interviewed separately in both an enclosed and open environment. I had to ensure that I give each interviewee enough time to respond to my interview and even think before giving their response. I also hand to ensure that I am gentle to each of my interviewees for them to be confident with me. Surveys were essential to this dissertation because they offered an explanatory, deductive, and quantitative appropriate of the essay. These approaches were necessary for the thesis.

Questionnaires are one of the essential means that one can use to gather data. In this dissertation, I could not afford to miss them in collecting my data. I prepared several questionnaires that I used randomly to obtain different information from the 40 employees that remained. By the use of this technique, I gave each employee a questionnaire to fill after work, and I was then supposed to pick the questionnaires the following day before work. This would aid me in obtaining a good result that could assist me in the discussion. Finally, I purchased the data from reading various scholarly that were updated. Reading journal articles, government publications, and company reports helped me to formulate a good argument concerning the topic of discussion.

Ethical considerations

This dissertation was subjected to some ethical issues. All the participants were supposed to sign a form of participation. They had to give their acceptable signatures to take part in the research. While conducting the investigation, it was vital to respect the boundaries that were provided by the participants to ensure that their identity is hidden from the public. Each participant was agreed to take part in the research were allowed to express themselves in the language that they feel they are comfortable in.

Data analysis

The methods used in this research were instrumental. While conducting the interviews, the first group that I interviewed was instrumental; the responses that they gave me were very substantial in the discussions of the blockchain. Generally, all the interviewees gave an answer that was exceptionally that could be essential to the study of this dissertation. The interviewee argued that the definition of smart contracts could be extended to signify different computer programs that use pre-defined instructions and protocols to perform specific tasks based on those instructions. Generally, there are numerous benefits of using smart contracts. These advantages include the integration of trust in trust-less business environments since information is encrypted before being made visible to business parties and the mitigation of risks associated with the fraud. Smart contracts also reduce human errors since they perform accurate mathematical calculations besides leading to process efficacy since they are self-executing. They also argued that smart contracts are software agents that automatically fulfill tasks of pre-defined and blockchain-based contract conditions on behalf of human users. One of them intimated that Szabo introduced smart contracts protocols in 1994 to execute terms and conditions outlined in contracts, which include enforcement, contract verification, as well as performance phases of an agreement. Research on software agents started in the early 1980s to develop computerized programs that assist human beings in monitoring the performance of events.

The data that were obtained from the various journals, government publications, and reports gave an accurate picture of what blockchain tech is, and it is essential in the audit. Most of the data gathered through this methodology stated that blockchain technology is ledgers in which transactions and events are recorded in chronologically connected blocks and verified through consensus algorithms. Blockchain technologies are widely adopted for data auditing and accounting practices because of their intrinsic feature of providing tamper-proof pieces of evidence.  The blockchain invention is suitable for auditing features and data accounting. Further, they assert that blockchain invention has attracted a lot of interest from audit stakeholders because of its fault-tolerance database and provenance financial tracking ability. In the auditing sphere, blockchain technology makes financial transactions immutable (irrevocability), hence enhancing the trustworthiness and accuracy of financial records and audited financial reports. The autonomous, secured, and decentralized capabilities of blockchain technology help transform and eliminate intermediary processes in finance, corporate audits, and accounting.

Finally, the data collected through surveys and questionnaires were not that effective because the majority of the participants did not give their responses. Some of them answered the inquiries with their answers that were far from our dissertation. Even though the data obtained through questionnaires were not sufficient, some participants gave a beneficial response regarding our topic of discussion. Around 15 participants mentioned that companies and business organizations are proactive concerning exponential technological changes, but the same efforts have not been applied to the auditing profession. External auditing community, academics, regulators and standard-setters are at the forefront to create initiatives that aim to examine the impact of blockchain technologies in the audit of financial statements to meet the rapid changes in business practices. They mentioned that, in the last three decades, significant transformations had been witnesses in the external audit paradigm. However, the external audit profession is still lagging in terms of innovation in technologies.

 

 

Discussion

Even though there are diverse applications of smart contracts such as safe transfer of property titles and computerized settlement of financial transactions, applications in the auditing domain remain unexplored. In the auditing domain, the definition of smart contracts expands to entail audit procedures such as audit evidence and financial analyses, which are executed autonomously on behalf of auditors. The main objectives of smart contracts in auditing are improving audit efficiency, enhancing audit effectiveness, a timely meeting of stakeholders’ information needs, and the establishment of transparent audit reporting mechanisms. [99]Contemporary audit practices entail sampling financial transactions to obtain any risk of material misstatement through collected audit evidence, backward-looking audit strategy, and acquisition of yearly audit opinions. In modern economies, where commercial databases storing billions of daily business transactions are vulnerable to cyber-security attacks, it is imperative for traditional audit frameworks to evolve since financial statement audits are progressively becoming audited and predictive too.

There have been global calls for auditors to contemplate the impacts of sophisticated audit analytics such as smart contracts to remain relevant and continuously deliver quality audits involved in the accounting world. They are utilizing smart contracts as an audit analytics tool is necessary for meeting audit parties’ demands for timely reporting of audit results in a transparent manner. Even though, auditors can upload smart contracts to the cloud platform to make them publicly available, saving audit results of audit procedures on the cloud on a real-time basis is an enormous task. Since planning entails, numerous cost-benefit analyses such as timing, accounts which need to be assessed as well as the level of audit processes, shifting towards smart contracts are probably feasible from a cost-effective perspective.

Given the complexities of adopting smart contracts to achieve transparent audits, it is vital to analyze the effects of using smart contracts in audit analytics. [100]Smart contracts can perform audit processes while providing more transparent auditing to organizational stakeholders. Nonetheless, using smart audit processes would result in almost real-time audit reporting to stakeholders such as audit inspectors, company investors, suppliers, and customers. Relative to these benefits, smart contracts possess the potential to improve the quality of audits by enabling internal/external auditors to effectively perform audit procedures to allocate vital resources to more demanding audit tasks.

[101]The current audit methodologies prescribe an annual audit opinion, a backward-looking audit approach, and sampling of transactions for collecting audit evidence regarding risks associated with a misstatement of materials. As the financial statements become predictive and progressively automated, the traditional audit models need to evolve to meet the changes in the modern economy where thousands of daily transactions are stored in the databases, which can be exposed to numerous cyber-security attacks. [102]O’Leary stated that external auditors are expected to take into consideration the significant impacts of emerging technologies such as sophisticated auditing analytics and smart contracts. As a result, the auditors can maintain their relevance and also add value to the public through the delivery of high-quality audits in the ecosystem that is complex and large. Furthermore, there is a need to gain deeper insights into the opportunities as well as challenges resulting from these technologies given the fact business organizations are continuously adopting blockchain and smart contracts as a strategy for improving business process efficiency. The implication of a smart contract based on audit analytics needs to be considered despite the inherent complexities to adapt existing that reflects a more transparent and proactive audit model. Existing studies indicate that smart contracts that are deployed on the blockchain facilitate the process of executing an audit procedure and also can offer more transparency to the stakeholders together with real-time audit reporting. Therefore, it implies that smart contracts conceptualization can be extended to incorporate smart audit procedures that enable the provision of more effective and efficient audits.

Blockchain-based smart contracts have emerged as disruptive forces that enhance transparency in the value chain, and research shows that the fusion of this innovation is endlessly transforming auditing through automation of workflows. Thus, they affect the performance and delivery of financial statements. There are increased potentials of autonomously executing audit processes on behalf of the auditors, along with disclosing the results of these audit procedures. However, He and Cong reveal that little research has been conducted to examine how these smart contracts will impact the audit of financial reports by improving audit quality as well as meeting the stakeholders’ information demands in a timely and transparent manner. As a result, the future financial statements audit is expected to change based on the audit blockchain that supports the smart audit procedure. More detailed information is needed to explain how blockchain-based smart contracts narrow down the expectations gap between regulatory bodies, financial statement users, and auditors. The study suggests the application of smart contracts to auditing as enablers for closing the real-time audit reporting together with improving audit data analytics.

The relevance and applicability of the traditional audit model are being questioned across the globe due to increased variety, velocity, and volume of data. Thus, it implies that significant contributions are needed in addition to the existing literature regarding the effect of smart contacts on the auditing processes and how this blockchain technology will change the future of auditing and assurance in the accounting field. Smart contracts application in verification also has the potentials of increasing the accounting profession through the reconciliation of ledgers that cut down the cost of ledge maintenance. Transparency is assured because the blockchain is believed to provide ownership of assets. [103]Little evidence is available to establish clarity or certainty over transaction history and to save time and lessen the burden of auditors due to automation of the system. The complete culmination of the data alteration is expected from the smart contract, which is experienced in the audit reports whereby individuals make attempts to alter information availed on the ledger. Hence through the blockchain technology, it is expected that difficulties will be experienced when trying to change or modify data entered in the accounting and eventually ensure the information on the ledger is free from hacking and remains safe.

The application of smart contracts in the finance sector

Intelligent contracts are increasingly gaining widespread adoption in the finance sector due to the ability to provide credible transactions without involving third parties. What needs to note is that smart contracts provide a means through which documents containing financial information used offline can be recorded online, thus form the basis of financial blockchains. The intelligent contract comprises of specific rules of logic that arise in the form of coded script that can read transactions within blockchain while acting as software agents. Smart contracts are often utilized in making automated transactions in blockchains allowing firms to effectively accomplish their functions.  [104]The study asserts that smart contracts provide a supportive role in the blockchain applications, thereby increasing the reliability of transactions across the online platforms. As such, they provide an opportunity for sustaining business collaborations without the need to focus on manual sales. In a study to assess the implications of blockchain in financial cases noted that smart contracts play a significant role in streamlining the collaboration between the need for physical and virtual transactions. [105]Cuccuru asserts that the ability of smart contracts to reduce the costs of undertaking financial transactions as compared to conventional physical exchanges. Quick contacts provide an opportunity for improving organizational performance not only in promoting the stability of procedures but also enhance speed, efficiency, and clear communication between the parties involved in the transaction. As such, the studies point to the potential role of smart contracts in promoting the effectiveness of online sales.

Blockchain innovations highlight the role of smart contracts in promoting the network security of online transactions. [106]The increasing aspects of hacking and unauthorized intrusion of online platforms necessitate the adoption, and widespread use of smart contracts increases the execution of autonomous transactions. While many organizations often need to execute specific computing actions, they wish to remain anonymous as a way of countering the trust issues enabled by smart contracts. The result of this study highlights the potential security issues in blockchain technology highlight that smart contracts have been applied in financial transactions as reputational mechanisms to determine the trustworthiness of possible engagements. The study emphasizes the importance of smart contracts and blockchain systems in detecting the instances of cyberspace attack on transactions, thereby limiting the potential dangers that may arise due to unauthorized intrusions. Also, the research has highlighted that smart contracts provide a means of overcoming fraud that may occur while performing financial transactions. With the ability to maintain the peer to peer connections among individuals, it is possible to keep track of the operations as the smart contracts enhance the ability to adequately preserve secure transactions. Through the cryptographic techniques, intelligent contracts through the use of public and private keys promote the security and transparency between the parties in a deal without involving third parties.

The impact of smart contract on the audit profession

Smart cards positively influence data analytics while enhancing real-time transactions. Smart contracts have the capability of initiating real-time audits. Through the use of specific nodes, the study notes that smart contracts provide a means of determining the efficacy of various entries by making concurrent verifications, thereby improving efficiency while reducing audit risks. Moreover, smart contracts enable the transparency of transactions by reducing the instances of compromise or fraud during the auditing process. [107]While exposing the information relating to various trades, it provides a means of tracking all the procedural operations, thereby generating transparency. Besides, smart contracts transform the audit practices, thus enhancing accurate means of generating assurance systems. Moreover, smart contracts make it difficult to tamper with the actual results as the audit report generated is divided into various sections promoting the business comprehension of various requirements. In regards to this, it is hard to edit or modify the data generated with the decentralization of the audit process and information promoting the integrity of data.

The role of blockchains and associated technologies in auditing and accounting, it is evident that the audit profession will be more aligned to adhere to the existing laws for compliance with the current regulations. Smart contracts would ensure that the audit profession embeds the relevant laws and legislation for enhanced continuity with the adoption of pre-defined standards for identifying suspicious transactions and information. In this study, to determine the influence of blockchain technologies in the auditing environment, posit that smart contracts the adoption of self-enforcing rules which act as proactive control approaches in determining positive practices. [108]Therefore, it will be possible for auditors in the profession to engage in continuous audits allowing organizations to reduce their vulnerabilities through their online transactions as it expands on the verification of information. Also, the auditors will also need to perform specific functions that will bind them to the smart contract initiatives and authentication processes. As part of a continuous process, the audit profession would need to realign its focus on improving the auditor’s competencies in matching the changes through the use of smart contracts. Smart contracts will shift the auditor’s role from endorsing financial transactions and statements to the determination of the effectiveness of the blockchain aspects through their proper implementation.

The notable mega scandals like Enron 2001 have contributed to the loss of public trust in the sector. Despite smart contracts being invented in the early 1990s, they did not thrive during initial stages because they required trustworthiness. Third parties to supervise their terms and how they were executed, hence posing the risk of contracting parties failing to fulfill their contractual obligations. The need to re-establish public trust has led to more integration of blockchain technology and smart contracts in audit practices to enhance audit efficacy, efficiency, timeliness, and transparency. Recent studies have outlined motivation factors that encourage internal and external auditors to apply smart contracts in auditing functions. These factors are viewed as benefits of integrating intelligent contracts in the auditing domain. For instance, using for astute deals in auditing procedures leads to more transparent auditing. Combining smart arrangements in the audit function makes audit procedures more efficient and tamperproof. On the other hand, smart contracts enable audit firms to audit large deals that are challenging to inspect and verify.

Despite its positive influences, some researchers argue that applying smart contracts in auditing processes presents different security and risk challenges to audit firms, internal and external auditors. In the context of smart contracts’ security, smart contracts, and concluded that they are vulnerable to attacks and can be attacked by bugs. Researchers have proposed different frameworks, such as Oyente, to detect flaws that the efficiency of smart contracts in the field, such as accounting finance and auditing. These contracts could potentially lead to loss of money, but in the context of verification, they could lead to less transparency in audit procedures besides failing to expose audit loopholes. Some companies cite the disruption of traditional business and audit models as the primary reason for rejecting smart contracts in audit practices. Despite these hurdles and challenges, Rationale of the Study

Smart contracts technologies present an opportunity for improving the financial transactions and auditing process while also posing a problem in the determination of their application in light of the existing difficulties across financial institutions. The launch of blockchain initiatives by large commercial companies continues to stimulate the desire and adoption of blockchain technologies among other firms with the perceived benefits of managing the digital asset services and utilization in a variety of applications and services. [109]Increasing the disintegration of activities within different sectors in the economy provides a more focused approach towards necessitating changes in the audit profession. However, it has been challenging to assess and determine the potential impact resulting from the adoption of blockchain technologies across the financial sector. Since blockchain technology is still at the infancy stage, more research should be gathered to establish how different industries can benefit from the intervention. [110]Particularly, smart contracts and their impacts on the auditing process can be examined by identifying its features and implications to the auditors. People feel that the smart contracts will overshadow the auditors’ work, although no empirical evidence exists to confirm this assumption. Auditors also need to learn and understand this technology to ensure time is saved as opposed to manual auditing and analysis, which is time-consuming (Udokwu, Kormiltsyn, Thangalimodzi, and Norta, 2018). The impact needs to be evaluated to identify how the block-chain based smart contracts can allow auditors to focus more on the strategic work and henceforth, deliver future business value. Therefore, it is expected that smart contracts can redefine the role of auditors and general financial reporting.

Different fields, such as finance, education, and auditing, will benefit from the study. Significant efforts will be made in the education sector to ensure that learning is focused on the changes in the profile of audit reporting. Moreover, the research offers background information for academicians and scholars to guide future studies together with literature gaps that will be identified. [111]Managers will also use the results of the study to understand how smart contracts to blockchain technology can improve business efficiency, improve the finance field and make informed decisions on whether to deploy blockchain in the organization’s system. The recommendations can be used by financial auditors to establish the changes in their roles in audit practices. Therefore, it means that the study will offer detailed information on how smart contracts lead to enhanced benefits of real-time information access and flow through the digitization of information through the analytical machine-learning capabilities. Furthermore, auditors and other parties will gain deeper insights on how through the automation of processes, utilization of smart contracts can initiate transactions and monitor the transparency of digital asset and liability trails and henceforth increase the potentials for reducing the redundancy of accountants. Opine that smart contracts have the potential to alter the way organizations perform their financial audit and disclose the results of those audits.

Data provenance architecture that uses blockchain technology to perform cloud applications. Their framework records the history of operations as provenance data that are hashed into Merkle tree nodes. [112]Audit stakeholders, such as external auditors and financial analysts, can immutably confirm the origin of data exchanges. Even though the framework is a novel invention, it does not cover contracts to regulate the usage of collected data. A blockchain application of data auditing framework suitable for the healthcare sector. Fu developed a blockchain-based auditing system for sharing data in cloud systems. [113]The system uses a threshold approach where a specific number of entities must collaborate to determine the identity of malicious users, hence ensuring the non-flammability of users.

Blockchain fidelity is dependent on appropriate audit procedures to determine whether transactional records are accurate at the time they are entered in the blockchain. As such, it is impossible to degrade transactional ledgers to hide or change transactions, thereby making the audit process more effective, transparent, and efficient. [114]McComb and Smalt (n.d) note that blockchain-based transactions are visible to all stakeholders and participants hence increasing trust and audibility. Besides, blockchain technology increases information accuracy since multiple parties are involved in validating inputs, therefore reducing the strenuous nature of auditing processes. If blockchain technology is used in audit function, it provides reliable audit evidence that is usable as part of attestation engagement.

Despite these benefits in the auditing sphere, some kinds of literature critique the application of blockchain technology in audit processes because of its risks and challenges. For instance, blockchain technology does not improve the necessity for quality audits even though it aids in the delivery of unadulterated and correct records. Further, they argue that blockchain technology is was not intended to, and is not able to replace traditional auditing and quality procedures needed at each stage of creating a transactional record. Even though the technology faces challenges such as the one discussed herein, blockchain and smart contract technologies have a huge potential as far as ethics, contracting, quality auditing, and legal enforcement are concerned.

Auditors will need to possess a specific set of skills in accomplishing their activities due to the introduction of smart contracts as a basis for verifying transactions in finance. Smart contracts as computer-based aspects operated in the blockchains will necessitate auditors to acquire advanced proficiency and skills in computer knowledge. [115]Smart contracts often require online and offline perspectives towards initiating and completing financial transactions through the use of specific procedures throughout the audit process. While the use of smart contracts for auditing may involve simple to complex requirements, it is evident that auditors will need to comprehend their working mechanism in undertaking financial operations. The need for auditors to gain tech literacy, including the services of different tools and platforms, while recognizing how the various components of blockchain provide the basis for undertaking specific decisions. The study notes that technological literacy in the necessary skills in developing and initiating communication of information will provide the basis for auditor knowledge in particular perspectives. Although, the establishment that implementation of blockchain technology in the organization majorly requires investment in infrastructural developments. Claimed that auditors imperatively need to undergo further training to acquire relevant skills for using the technology.

[116]The auditors will need to possess technical skills critical towards comprehending the diverse levels of engagements and self-enforcing agreements as expressed in smart contracts perspectives. The findings revealed that with the intelligent contracts involving various aspects of managing peer to peer relationships, auditors would need to comprehend the underlying mechanisms for initiating engagements between public, private partnerships and how they manage their financial transactions through online platforms. The technical skills of data analysis skills are critical for auditors, given the changes arising from smart contracts. The increasing need for business reported information that necessitates insightful scrutiny for effective action. As a consequence, auditors will need to acquire analytical skills for comprehending the information posed across the digital ledger platforms, thereby effectively utilizing the smart contracts for business success.

Auditors will need to understand the security and vulnerability issues given the diversity of appraisals involving internal and external smart contracts across different companies. The frond-end activities involving webpages for users pose significant risks that necessitate auditors to ascertain their credibility and authenticity.  In light of this, there is a need to understand the smart contract infrastructure prospects, which would promote the security of information while avoiding unauthorized access.

Since blockchain technology is still at the infancy stage, more research should be gathered to establish how different industries can benefit from the intervention. Particularly, smart contracts and their impacts on the auditing process can be examined by identifying its features and implications to the auditors. People feel that the smart contracts will overshadow the auditor’s work, although, no empirical evidence exists to confirm this assumption. Auditors also need to learn and understand this technology to ensure time is saved as opposed to manual auditing and analysis, which is time-consuming. The impact needs to be evaluated to identify how the block-chain based smart contracts can allow auditors to focus more on the strategic work and henceforth, deliver future business value. Therefore, it is expected that smart contracts can redefine the role of auditors and general financial reporting.

Different fields, such as finance, education, and auditing, will benefit from the study. Significant efforts will be made in the education sector to ensure that learning is focused on the changes in the profile of audit reporting. Moreover, the research offers background information for academicians and scholars to guide future studies together with literature gaps that will be identified. Managers will also use the results of the survey to understand how smart contracts to blockchain technology can improve business efficiency, improve the finance field and make informed decisions on whether to deploy blockchain in the organization’s system. The recommendations can be used by financial auditors to establish the changes in their roles in audit practices. Therefore, it means that the study will offer detailed information on how smart contracts lead to enhanced benefits of real-time information access and flow through the digitization of information through the analytical machine-learning capabilities. Furthermore, auditors and other parties will gain deeper insights on how through the automation of processes, utilization of smart contracts can initiate transactions and monitor the transparency of digital asset and liability trails and henceforth increase the potentials for reducing the redundancy of accountants.

To assess the influence of blockchain on the audit practice, note that the auditing practices are focusing more on the use of Information Technology while embedding the integral aspects of different information systems. Besides, the study indicates that more focus will on sustaining continuous audit improvements across the financial sector. The auditing practice will shift from the conventional role of verification towards the strategizing of aspects involving data interpretation and integration. Through the study, it is apparent that the value of audits will increase through the ability to effectively convey accurate information on a timely basis. In years to come, smart contracts will shift the business strategy through the need to embed information systems in their operations reinforced through the implementation of the blockchain as part of their services.

The blockchain consensus mechanism and cryptographic perspectives offer an enhanced aspect of the security and integrity of financial transactions, thereby reducing the potential of tampering with the audit trail processes. The fusion of the cryptographic mechanisms for deals with smart contracts provides an enhanced approach towards the management of financial transactions while managing the audit trails for improved efficiency in the appraisal process. There is also evidence linking the potential positive benefit of blockchains in the improvement of financial supply chains through the automatic monitoring of the actual financial results through embedded smart contracts in the blockchains. The digital transformations arising from blockchain technology incorporations in the audit processes have a potential aspect for improving the financial auditing process through the evaluation of the audit trails. According to Potekhina, blockchain technology is used in the accounting department by many firms. The growing use of blockchain technology in accounting and auditing practices is associated with the need for simplifying reporting procedures as well as enhancing the integrity of the purchases. Although the establishment that insufficient skills among the employees could deter the effectiveness of the reporting and auditing practices, the development of blockchain systems, brilliant contracts, can increase efficiency due to the automation of transactions. However, the study provides generalized information regarding the role of blockchain technology in accounting and auditing rather than focusing on verification, which is the primary focus of the current research.                          

Challenges of smart contract

The issues of governance in the blockchains pose a problem during the auditing process. The governance processes determine the nature of individuals to access information while regulating persons to participate in the decision-making perspectives of the blockchain and smart contracts. Besides, smart contracts are open as a fundamental principle of transparency, which necessitates useful recording and availability of information to all parties as compared to other web-based information. Through the study, it is evident that the governance of information and the systems poses a challenge, which could result in secret data access to unauthorized persons during the audit process. The studies point to the difficulty in governing the access to specific information within the blockchains making the smart chains vulnerable to unintended information acquisition.

It is also apparent that smart contracts experience the challenge of code scrutiny process involving the manual and automatic methods. The establishment that is owing to the boundless nature of the smart contracts across the blockchain platforms, it is difficult for auditors to effectively navigate through the processes. Besides, the challenges of intelligent contracts point out the differences in blockchain perspectives, which impacts on the generalisability of smart contracts for the auditing professions. The study notes that the network effect tends to favor blockchain platforms such as Bitcoins. At the same time, the aspects of scalability support the elements of Ethereum, thereby highlighting differences in their provisions. Through the studies, it is apparent that the parallel clauses make it difficult to harmonize the evaluation process during auditing.

Conclusion

In conclusion, from the dissertation, I can assert that, While pointing to the role of auditors in executing end transactions, the need for auditors to acquire competencies relating to the operationalization of smart contracts for business purposes. With intelligent contracts revolutionizing the financial sector, it will be critical for auditors to augment their skills and expertise in computer usage and data analysis in light of the seamless technological advancements. However, the need for auditors to acquire the deep learning skills relating to image and visual recognition while operating smart contracts. As a consequence, auditors need to learn the formalization of audit steps and the standards for accomplishing the various financial transactions. The auditors will need to comprehend the skills and competencies involving risk management, substantive testing, and effective follow-up on the auditing processes. They reiterate the need for ensuring auditors are provided with relevant skills to effectively use smart contracts in auditing, there is a gap in knowledge concerning measures currently employed by businesses to enhance the integration of these technologies with auditing practices.

The dissertation notes that smart contracts will streamline the audit practices with firms focusing on collaboration. Besides, smart contracts provide an opportunity for achieving precise and timely assurance with the compliance requirements and regulations relating to the audit practices. In a bid to assess the influence of blockchain on business practices, accurately, the aspect of smart contracts on audit practices asserts that it is possible to track transactions through real-time, thereby reducing the potential conflicts that may arise from the need to reverse transactions. The study points out the integral role of smart contracts in promoting efficiency and confidence in accomplishing business transactions and negotiations. Nonetheless, intelligent contracts will pose security issues in the audit practice necessitating the need for organizations to continuously increase their security perspectives in handling financial transactions.

The dissertation also states that the adoption of smart contracts in financial institutions has considerable impacts on auditing practices. Smart contracts provide an opportunity for designing the test controls to match the existing methods of unit testing. The study notes that through the formal verification of techniques, the smart contracts promote an enhanced approach towards the authentication procedures undertaken by auditors during financial transactions. The use of smart contracts has shifted the audit practice towards embracing better aspects of the security of transactions. In this regard, intelligent contracts have eased the pressure on the potentials for financial frauds as the smart contracts provide an opportunity for giving real-time accounting practices. Smart contracts enhance the adoption of accounting practices due to the increased reliability in transactions among corporations. The study points to the increasing need for auditing practices to embrace the multiplicity of concurrent transactions through the increased speeds of transactions. Smart contracts have the potential to reduce the follow-ups required while undertaking audit procedures, thereby increasing the aspects of certainty relating to the identity and authenticity of transactions. Therefore, smart contracts automate the auditing practices and processes, reducing the costs and risks of involving different auditors in ascertaining the validity of transactions.

Smart contracts technologies present an opportunity for improving the financial transactions and auditing process while also posing a challenge in the determination of their application in light of the existing difficulties across financial institutions. The launch of blockchain initiatives by large commercial companies continues to stimulate the desire and adoption of blockchain technologies among other firms with the perceived benefits of managing the digital asset services and utilization in a variety of applications and services. Increasing the disintegration of activities within different sectors in the economy provides a more focused approach towards necessitating changes in the audit profession. However, it has been challenging to assess and determine the potential impact resulting from the adoption of blockchain technologies across the financial sector.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

References

 

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[1] Dai and Vasarhelyi (2017)

 

[2] Bible et al. (2017)

 

[3] (Rozario  and Vasarhelyi 2018)

 

[4] Ibid

[5] (Bible et al., 2017)

 

[6] Ovenden (2017)

 

[7] (Rozario & Vasarhelyi, 2018)

[8] (Mainelli & Smith, 2015)

[9] Erbguth and Morin (2016)

[10] Kehoe et al. (2015)

[11] (Lemieux, 2016)

[12] (Silverberg, et al., 2015).

[13] Schatsky and Muraskin (2015)

[14] (Bible et al., 2017)

[15] Dai and Vasarhelyi (2017)

[16] (No and Vasarhelyi, 2017

[17] Ovenden (2017)

[18] Norta (2016, p. 558)

[19] Ibid

 

[20] Ovenden (2017)

[21] Nugent et al. (2016)

 

[22] Mohanta et al. (2018)

[23] Appelbaum & Nehmer (2017)

[24] Erbguth & Morin (2016)

[25] (Erbguth & Morin 2016, 224)

[26] (Khandelwal 2019)

[27] Farell (2015)

[28] Khandelwal (2019)

[29] Geer (2018)

[30] Ibid

[31] Ibid

[32] High, Kloch and Uhryniak (2019)

[33] (Bible et al. 2017)

[34] (Miller and Bentov 2016)

[35] Bodo et al. ( 2018). Blockchain and smart contracts: the missing link in copyright licensing

[36] Ibid

[37] Giancaspro  (2017, p. 833)

[38] High, Kloch and Uhryniak (2019)

[39] Dai and Vasarhelyi ( 2017, p. 11)

[40]Ibid

 

[41] Dalton et al. ( 2015)

[42] Giancaspro  (2017, p. 835)

[43] Bodo et al. (2018)

[44] Ibid

[45] Bible, W., Raphael, J., Taylor, P., and Oris Valiente, I., 2017. Blockchain technology and its potential impact on the audit and assurance profession. Aicpa. Org.

 

[46] Bodo, Gervais, and Quintas (2018),

[47] Panda and Jena (2018)

 

[48] Nugent, Upton, and Cimpoesu (2016)

[49]  Nugent, Upton, and Cimpoesu (2016); Bodo, Gervais, and Quintas (2018); and Miller and Bentov (2016)

[50] Giancaspro (2017)

[51] (Bible et al., 2017)

[52] (Kokina, Mancha & Pachamanova 2017)

[53] Lemieux (2016)

[54] Mainelli & Smith (2015)

[55] Ibid

[56] (Nowiński and Kozma 2017)

[57] Ibid

[58] (Nowiński and Kozma 2017)

[59] Panda and Jena (2018)

[60] Ibid

[61] Panda and Jena (2018)

[62] (Nowiński and Kozma 2017)

[63] Dalton et al. (2015)

[64] Ibid

[65] Sutton and Samavi (2017)

[66] Dalton et al. (2015)

[67] Schatsky and Muraskin (2015)

[68] (Apte and Nikolai, Blockchain 2012)

[69] Apte and Nikolai, Blockchain (2012)

[70] Macrinici, Cartofeanu, and Gao (2018)

[71] Dai and Vasarhelyi (2017)

[72] Miller and Bentov (2016)

[73] Yu, Hui, and Miklos (2018)

[74] Brender et al. (2019)

[75] Smith (2018)

[76] Ridley (2017)

[77] Dai and Vasarhelyi (2017)

[78] Kizildag et al. (2019)

[79] (Dai and Vasarhelyi, 2017)

[80] Zou et al. (2019)

[81] Wang and Kogan (2018)

[82] Shyshkova (2018)

[83] (Andersen 2016)

[84] (Hayes et al. 2014)

[85] Zikratov et al. (2017)

[86] Asharaf and Adarsh (2017)

[87] (Spoke 2015)

[88] (Schatsky and Muraskin 2015)

[89] (Allison 2015)

[90] Ibid

[91] (Spoke 2015)

[92] (Yu, Hui and Miklos 2018)

[93] (Yu, Hui and Miklos 2018)

[94] Allison (2015)

[95] Hayes et al. (2014)

[96] Ibid

[97] PwC (2018)

[98] Appelbaum and Nehmer (2017)

[99] (Fanning and Centers 2016)

[100] (Rozario and Thomas 2017)

[101] Allison (2015)

[102] Ibid

 

[103] Allison (2015)

[104] Miller and Bentov (2016)

[105] Ibid

[106] Miller and Bentov (2016)

[107] Miller and Bentov (2016)

[108] Ibid

[109] (Yu, Hui and Miklos 2018)

[110] Ibid

[111] (Hayes et al. 2014)

[112] Ibid

[113] Ibid

[114] (Hayes et al. 2014)

[115] Peters and Panayi 2016)

[116] Ibid