Blockchain was first introduced as the core technology behind Bitcoin, the headline-grabbing decentralized digital currency ecosystem proposed in 2008. The appeal of blockchain technology lies in its use of peer-to-peer network technology combined with cryptography. This combination enables parties who do not know each other to conduct transactions without requiring a traditional trusted intermediary such as a bank or payment processing network. By eliminating the intermediary and harnessing the power of peer-to-peer networks, blockchain technology may provide new opportunities to reduce transaction costs dramatically and decrease transaction settlement time. Blockchain has the potential to transform and disrupt a multitude of industries, from financial services to the public sector to healthcare. As a result, a number of venture capital firms and large enterprises are investing in blockchain technology research and trials to re-imagine traditional practices and business models.
In recent years, blockchain technology has evolved far beyond bitcoin and is now being tested in a broad range of business and financial applications. However, blockchain technology is still emerging and has not yet been proven at enterprise scale, which is a fundamental challenge to blockchain’s transformative potential. In addition, many accounting firms have undertaken blockchain initiatives to further understand the implications of this technology. It is important for the audit and assurance profession to stay abreast of developments in this space, and we encourage Chartered Professional Accountants and Certified Public Accountants (collectively, CPA auditors) to learn more about this technology. The focus of this paper is to explain blockchain technology and how it could potentially impact the financial statement audit, introduce possible new assurance services and new roles for the CPA auditor in the blockchain ecosystem.
Blockchain technology has the potential to impact all recordkeeping processes, including the way transactions are initiated, processed, authorized, recorded and reported. Changes in business models and business processes may impact back-office activities such as financial reporting and tax preparation. Independent auditors likewise will need to understand this technology as it is implemented at their clients. Both the role and skill sets of CPA auditors may change as new blockchain-based techniques and procedures emerge. For example, methods for obtaining sufficient appropriate audit evidence will need to consider both traditional stand-alone general ledgers as well as blockchain ledgers. Additionally, there is potential for greater standardization and transparency in reporting and accounting, which could enable more efficient data extraction and analysis.
Blockchain technology could bring new challenges and opportunities to the audit and assurance profession. While traditional audit and assurance services will remain important, a CPA auditor’s approach may change. Just as the audit and assurance profession is evolving today, with audit innovations in automation and data analytics, blockchain technology may also have a significant impact on the way auditors execute their engagements. Moreover, CPAs may need to broaden their skill sets and knowledge to meet the anticipated demands of the business world as blockchain technology is more widely adopted. The Chartered Professional Accountants of Canada (CPA Canada), the American Institute of CPAs (AICPA), and the University of Waterloo Centre for Information Integrity and Information System Assurance (UW CISA) all encourage the audit and assurance profession to continue the discussions already begun in regard to the impact of blockchain technology on the profession and auditing standards.
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