Auditing with Smart Contracts

Abstract

Abstract. Blockchain-based smart contracts are emerging as a disruptive force that may change the way financial statement audits are performed and delivered. With their potential ability to autonomously execute audit procedures on behalf of the auditor and disclose the results of these audit procedures, blockchain-based smart contracts have the potential to improve audit quality and meet the information demands of various vested parties for more timely and transparent audit reporting. This paper proposes the application of smart contracts to auditing as an enabler for improved audit data analytics and close to real-time audit reporting.

Accounting and Auditing at the Time of Blockchain Technology: A Research Agenda

“…Rozario and Vasarhelyi () propose that external auditors make use of smart contracts (see also Rozario and Thomas ). According to the authors, smart contracts can facilitate the execution of audit processes by automating the transaction reconciliation procedure while providing more transparency to stakeholders through close to real‐time audit reporting.…”

“…The automated reconciliation of transactions does not only save time but also substantially reduces the risk of human error (Kokina et al. ; Rozario and Vasarhelyi ). However, in this regard it must be noted that it is unlikely that every transaction will be audited by BT smart contract procedures and undergo automated data reconciliation.…”

“…As a result, both scholars (e.g., Coyne and McMickle ; Dai and Vasarhelyi ; Kokina et al. ; Kozlowski ; Rozario and Vasarhelyi ) and professional accounting bodies and Big 4 audit firms (e.g., EY ; ACCA ; CA ANZ ; CPA and AICPA ; KPMG ) agree that accountants and auditors will not become redundant.…”

“…BT does not only allow for the timely examination of transactions but also for automation of transaction recording and verification. In this regard, reference has been made to smart contracts that enable efficient control of transaction and recording processes (Dai and Vasarhelyi 2017;Kozlowski 2018;Rozario and Vasarhelyi 2018).…”

“…BT can carry not only transactional data in real time but can also carry a programmed version of human action. These take the form of socalled smart contracts, which encode relevant terms into a blockchain and execute automatically when predefined conditions are met (Coyne and McMickle 2017;Ølnes et al 2017;KPMG 2018a;Rozario and Vasarhelyi 2018). Smart contracts digitally facilitate, verify, control and enforce transactions.…”