Chain Bazaar Make it easier for the blockchain to land
Author丨Najoua Elommal,Riadh Manita
Picture丨From the Internet
Picture丨From the Internet
Editor's Note: The original report comes from Najoua Elommal, Riadh Manita, "Journal of Innovation Economy and Management". Due to the length of this article, we will divide it into three parts: upper, middle and lower. This article is the middle part. It mainly introduces the research method and how blockchain technology has brought changes to the auditing industry. Please contact the editor for Chinese reprint.
Research methods
Research methods
To understand how blockchain technology is impacting the auditing industry, we conducted qualitative research with professionals working exclusively in the blockchain space. We selected large audit firms for this study because they were the only ones capable of investing in this technology and able to answer our questions.
We decided to cooperate with the world's four major accounting firms and the French TOP5 firm Mazes to conduct this research. Based on the information in the transparency report of the audit company and information in the media and social networks, we have established a list of 43 professionals.
We selected people who are responsible for the new technology of the company, or who according to the establishment show that the blockchain project is being developed. Contacted them via social networks, email and phone. After much effort, we conducted semi-structured personal interviews with 17 of these professionals and recorded or transcribed the entire process. These interviews lasted an average of 1 hour and 10 minutes.
Ten of our interviews were conducted at the interviewee's workplace, however seven were conducted remotely using Skype or Zoom tools. They are all partners or senior managers of audit firms responsible for new technologies and have participated in the development of blockchain. The average age is 56 years old, and the average working experience is 18.7 years. They are mostly men and all work for audit firms in Paris.
The interview is divided into four topics. The first part deals with the opportunities and challenges of blockchain technology, especially for audit firms. The second part discusses the impact of blockchain technology on the auditing industry. The third part deals with the impact of this technology on the control process, and the last part discusses blockchain technology and business development, especially in terms of consulting services.
We analyzed data collected from semi-structured interviews through content analysis. Following Evrard et al. (2003), we employed techniques such as thematic analysis to analyze the content of non-directed or semi-directed interviews.
Based on transcribed interviews, our data analysis was performed in two stages. The first step is longitudinal analysis, which analyzes interviews one by one; the second step is horizontal analysis, which conducts thematic analysis of all interviews. From different interview sources, seek the meaning, relevance and probability of the topic.
We divided the relevant content in the interviews into different subject categories, coded them, and conducted inductive analysis by questionnaire survey. The author coded according to the method proposed by Gillham (2000) and Strauss&Corbin (1998).
The main steps of the coding strategy are:
(1) The author inductively codes all interviews, lists categories by topic, and provides descriptions;
(2) Write a coding manual and invite its co-authors to code sample data;
(3) Verify and discuss the reliability of the coding performed. They make necessary adjustments to the classification lists and coding manuals until the reliability of the codes used is consistent. This step helps to clarify the possible impact of blockchain technology on the audit industry;
(4) Recode all interview records taking into account the revised category list and coding manual, and make other changes as necessary as agreed
In this study, to avoid chance events, we did not consider claims supported by a single respondent. The purpose of this study is to identify the possible greatest impact of blockchain technology on the auditing industry. Therefore, topics raised by more than one interviewee were considered valid.
survey results
survey results
These will help to improve the quality of auditing, adjust working methods and optimize processes for accounting firms, and can also expand service areas to open up new businesses.
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1. Save time and improve audit efficiency
Blockchain technology facilitates the dematerialization of auditing practices and documentation. It allows both the dematerialization of transactions and contracts, as well as the verification of identities and the dematerialization of control and verification procedures. Original documents are no longer paper documents, but electronic documents with unique and unalterable identification.
Respondents indicated that specific accounting information representing each company could be transformed through blockchain technology into a shared and collectively authenticated information system. Since most accounting operations involve companies with external entities, blockchain technology will enable the development and assurance of joint accounting verified by different parties.
In this case, since program control can be done remotely, there is considerable time and cost savings compared to paper documentation. The procedure also allows for simultaneous dissemination of information to stakeholders. In addition, the respondents believe that the advantage of blockchain technology is to protect the company from any hacking attacks, which makes the data exchanged between different parties more credible.
Through blockchain technology, auditors can visualize and extract various reliable information from the client's blockchain without laborious data collection. This will save auditors a lot of time in data yield, analysis of customer activity, transaction verification and testing.
As consortium chains are designed to share immutable and time-stamped information and documents from audited companies and third parties (suppliers, customers, etc.), auditors will be able to save a lot of time verifying balances and transactions. For example, blockchain allows auditors to bypass manual correspondence testing performed on many samples, and the complete transaction history and supporting evidence will be saved and accessible as a block in the blockchain.
"Blockchain technology can make some audit work that takes a long time to be completed quickly in our current work, and even no longer need these work. Especially the preparation of customer account opening documents, third-party circulation and transaction substantive For testing, data will be quickly extracted remotely and quickly verified by blockchain technology." (Partner 10)
"The auditor's job will be made easier as he will be required to examine fewer accounting entries and will have the possibility to access information remotely." (Partner 3)
“Blockchain technology can give us the opportunity to conduct analysis and audit testing and focus more on risk areas, as well as provide relevant advice to our clients, enabling them to improve their control systems, information forecasting systems or other… ..." (Partner 4)
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2. Audit the complete information
As described above, information verified and recorded by blockchain technology is provided by multiple users, and all users are allowed to authenticate and access the information. This process of constructing information ensures that the information cannot be tampered with and is transparent, and has a significant positive impact on the reliability and authenticity of information.
It is clear that these processes have an impact on the audit work. Currently, audits are conducted based on historical data related to the previous year's financial statements. It only provides a reasonable level of auditing. The auditor's opinion is mainly based on a risky approach using sampling techniques in the inspection work.
Since blockchain technology provides access to all instantly available information, in this case auditors can use all the information for their audit. This possibility is greatly enhanced when we combine blockchain technology with other technologies available today such as big data, robotics and analytics. Thus, blockchain technology will allow the audit process to evolve from an analysis based on a reasonable portion of the information available to an analysis of all information.
“Blockchain technology eliminates the concept of sample audits as it provides a comprehensive and immutable history of all transactions.” (Senior Executive 2)
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3. Audit centered on internal control testing rather than transaction substantive testing
Blockchain technology has advantages in enhancing transaction security and reliability, and the same advantages apply to accounting records stored on the blockchain. To ensure the reliability of the company's financial statements, these accounting records also need to be audited.
In fact, some transactions completed on the blockchain are related to "off-chain" agreements, and some fraudulent transactions may also appear in the blockchain record. Therefore, testing around the effectiveness of blockchain internal controls has become an important factor that auditors must pay attention to during the audit process.
“Transactions in the blockchain are generally secure and validated by blocks. Therefore, the real problem for auditors is no longer to verify the authenticity of the transactions made, but to verify the integrity of the control systems put in place to ensure the security of the transactions. Effectiveness. Therefore, the audit will be more focused on testing the internal control system implemented in the blockchain, rather than transaction testing...” (Partner 4)
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4. Establish an ongoing audit process
In addition, another advantage of blockchain technology is that it allows users to directly access transaction history, which facilitates the work of auditors. This goal may be achieved by integrating big data analysis techniques. The widespread application of blockchain technology in business practice will change the auditor's workflow.
By creating usable, encrypted databases and achieving an immutable consensus (given a timestamp function and a unique hash value assigned to a block), blockchain offers audit professionals the opportunity to change the audit process.
Current auditors need to verify old information related to previous year's financial statements. With blockchain, it will be possible for auditors to establish a continuous audit process, a technology that allows information to be recorded and immediately effective. Since all information stored on the blockchain is available, auditors will be able to access all information without having to request and wait for information and documents from customers. Therefore, blockchain technology can save the time and cost previously spent collecting and verifying evidence.
“…Thus, blockchain technology reduces the need for post-mortem audits and adjusts audit tasks, establishing a continuous audit process…” (Partner 2)
“…due to the instant confirmation of transactions, the blockchain must allow for a continuous audit process, also known as “real-time auditing”. Auditing in the blockchain era will be a permanent audit. It will start from a periodic or annual The exercise becomes an ongoing process. Real-time monitoring of what is happening is a major departure from modern audit practice, which focuses on retrospective control over what has happened... (Partner 11)
In addition, blockchain technology allows us to store and secure financial and non-financial information, which gives auditors more opportunities to broaden their audit scope and make it more relevant. This variety of information instantly available and stored via the blockchain also facilitates the implementation of a continuous audit process.
If this information is stored and verifiable on the blockchain, some verification of information (after the fact) in the traditional audit process will no longer be necessary. Inventory can be carried out quickly and continuously through blockchain technology. Since all information is instantly verified by the block being created, certificates will no longer be required.
Furthermore, analysis of the data by sampling will translate into a continuous analysis covering the full range of available information. Finally, blockchains will allow for automated reconciliation, especially of transactions that occur between parties within a single blockchain network. Blockchain technology helps auditors save time and improve audit efficiency and quality.
“…a continuous auditing process enabled by blockchain will increase the satisfaction of customers and all stakeholders who will no longer have to wait for auditors to verify accounts…the process will also limit errors and fraud…”( Partner 6)
Furthermore, blockchain will allow the proliferation and development of smart contracts, which will affect the auditing process. These contracts integrate the rights and obligations of the contract into the network, automatically enforced by the blockchain. These contracts reduce the cost of fraud, arbitration and transactions.
These transactions signed by smart contracts will be efficiently and securely recorded on the blockchain, which saves auditors a lot of time and effort. Auditors can directly access and perform their data analysis and controls, helping to establish a continuous audit process and limit errors.
One of the new audit procedures is to verify the code and blockchain structure. Auditors can also use their expertise in IT to develop new ways of verifying ownership. In this context, training in technical auditing is crucial for future auditors.
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5. Play a more strategic audit role
Once blockchain technology is more widely integrated and applied, the role of audit firms will evolve to a strategic role. Given the availability of blockchain data, auditors will be able to analyze this data, interpret and give meaning to it, and make it useful for management decision-making.
In this context, auditors can move from simply controlling the reliability of information to being strategic advisors to clients and vital partners in the evolution of management and control systems.
Furthermore, the time saved by using this technique at the level of certain classic audit tasks (confirmation and verification of amounts, verification of paper certificates, physical inventory of inventory, etc.) allows auditors to use this time at a higher level Analyze and design more preventive tests to improve audit quality.
“Blockchain, like other digital technologies, is making a significant contribution to the automation of accounting and auditing processes. The audit profession must follow this development and adapt its mission towards a role of strategic advisor to clients…” (Partner 1)
Blockchain technology appears to present an opportunity for audit firms to make a significant realignment of their work towards a strategic role. With the birth of a field dedicated to continuous auditing services, the industry may move toward information systems to assist clients in managing and controlling blockchain technology.
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6. Develop new consulting services
Blockchain offers auditors the opportunity to grow their consulting practice by offering new services. They can help clients choose the best technology for program implementation. For customers who have already used the blockchain, the audit firm can provide suggestions on improving the internal control and risk management system based on the assessment of the existing risk management system.
“Once this technology is mastered, audit firms can seize the opportunity to expand their expertise and offer new services to their clients. To do this, auditors should first take a step forward to influence and guide the blockchain Implementation in the audit industry. In this case, they can claim to be an important partner in this technology..." (Partner 10)
“Blockchain may bring constraints, but it also brings benefits to auditors. Auditors must continue to focus on opportunities to grow their business by providing new services, such as implementing new control systems or new blockchain governance, Or assist customers in implementing the technology, etc” (Senior Executive 1)
In addition, audit firms can use their industry experience to advise on blockchain usage agreements. They can also provide new services, planning and coordination for potential participants in blockchain technology. Therefore, auditing companies can use their network to propose a consortium chain. Finally, audit firms can use their expertise in IT auditing to develop new internal control systems for blockchain auditing, including data integrity and security, change management and governance for blockchain.
“Auditors must adapt to this new working environment and become a true strategic partner to their clients. This requires developing new consulting assignments to support clients at all stages of blockchain information construction and verification, while establishing good controls and management systems...to achieve this, auditors must invest heavily in recruiting new skills in this technology, as well as training existing staff.”
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