Challenges when Auditing Cryptocurrencies

Vincent, Nishani Edirisinghe; Wilkins, Anne M.

doi:10.2308/ciia-52675

Cited by 30 publications

(24 citation statements)

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“…Auditor as a limiting factor to 51% attack X (Liu et al, 2019), Audited companies with cryptocurrency holdings/Investment in digital assets X , (Zhang et al, 2019), (Vincent & Wilkins, 2020), (IFRS Committee, 2019), (EY, 2022), (Deloitte, 2020), (Pimentel et al, 2021) Blockchain Enabled Privacy Audit Logs X , (Reniers et al, 2019), (Ahmad et al, 2019) Tokenization and its effects for Auditing X (Stark, 2016), (Li et al, 2019), (Xiao et al, 2022), (Roszkowska, 2020), , (Silva et al, 2020), , (Dai et al, 2019), (Zemánková, 2019), (EY, 2022)…”

Section: Blockchain Implications For Auditingmentioning

confidence: 99%

“…Therefore, auditors must work with specialized technicians and increase their competence on the subject. Neither the FASB, the ASB, nor the PCAOB has issued formal guidelines for cryptocurrency accounting or auditing, which implies that accounting treatment depends on unofficial concepts (Vincent & Wilkins, 2020).…”

Section: Audited Companies With Cryptocurrency Holdings -Investment I...mentioning

confidence: 99%

“…This directly impacts the audit. demonstrate that the audit process as it stands today is not robust enough to address the challenges of transferring and storing digital money, and the auditor should consider other challenges (Vincent & Wilkins, 2020). The major challenges to verifying existence are related to the reliability of a blockchain and the custodianship of assets, when talking about the existence of cryptoassets in the balance sheet (Pimentel et al, 2021).…”

Section: Audited Companies With Cryptocurrency Holdings -Investment I...mentioning

confidence: 99%

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Blockchain implications for auditing: a systematic literature review and bibliometric analysis

Silva¹,

Inácio²,

Marques³

2022

IJDAR

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Blockchain technology, smart contracts, and asset tokenization have relevant implications for the auditing environment. This paper evaluates the current stage of blockchain application in auditing, analyzing scientific publications and identifying the impact of what is already a reality and the potential effects of its improvements in audit professionals’ activities performance. The article considers the proposals and suggestions on the leading research indexed by the Scopus and Web of Science databases. We analyzed 374 papers on the topic of blockchain and provide a summary and analysis of the current state of auditing research. The bibliometric analysis was performed using the Bibliometrix R Package and the VOSviewer software. After a systematic study of abstracts and a general review of the papers to only include those directly related to our work’s objectives, we found 78 papers. The work results in a framework of potential and effective implications of blockchain technology for auditing, pointing out several new challenges in terms of skills and knowledge needed in this new reality of audit professionals.

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Section: Blockchain Implications For Auditingmentioning

confidence: 99%

Section: Audited Companies With Cryptocurrency Holdings -Investment I...mentioning

confidence: 99%

Section: Audited Companies With Cryptocurrency Holdings -Investment I...mentioning

confidence: 99%

See 1 more Smart Citation

Blockchain implications for auditing: a systematic literature review and bibliometric analysis

Silva¹,

Inácio²,

Marques³

2022

IJDAR

View full text Add to dashboard Cite

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“…AlCPA issued a nonauthoritative recommendation treating cryptocurrencies as intangible assets (AICPA, 2019). The confusion around auditing standards and resulting audit risks are well-documented (Vincent & Wilkins, 2019).…”

Section: The Literature On Cryptocurrenciesmentioning

confidence: 99%

Pro forma modeling of cryptocurrency returns, volatilities, linkages and portfolio characteristics

Malladi

2022

CAFR

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PurposeCritics say cryptocurrencies are hard to predict, lack both economic value and accounting standards, while supporters argue they are revolutionary financial technology and a new asset class. This study aims to help accounting and financial modelers compare cryptocurrencies with other asset classes (such as gold, stocks and bond markets) and develop cryptocurrency forecast models.Design/methodology/approachWe use daily data from 12/31/2013 to 08/01/2020 (including the COVID-19 pandemic period) for the top-six cryptocurrencies that constitute 80% of the market. Cryptocurrency price, return and volatility are forecasted using five traditional econometric techniques: pooled ordinary least squares (OLS) regression, fixed-effects model (FEM), random-effects model (REM), panel vector error correction model (VECM) and generalized autoregressive conditional heteroskedasticity (GARCH). Fama and French's five-factor analysis, a frequently used method to study stock returns, is conducted on cryptocurrency returns in a panel-data setting. Finally, an efficient frontier is produced with and without cryptocurrencies to see how adding cryptocurrencies to a portfolio makes a difference.FindingsThe seven findings in this analysis are summarized as follows: (1) VECM produces the best out-of-sample price forecast of cryptocurrency prices; (2) Cryptocurrencies are unlike cash for accounting purposes as they are very volatile: the standard deviations of daily returns are several times larger than those of the other financial assets; (3) cryptocurrencies are not a substitute for gold as a safe-haven asset; (4) the five most significant determinants of cryptocurrency daily returns are: emerging markets stock index, S&P 500 stock index, return on gold, volatility of daily returns and the volatility index (VIX); (5) their return volatility is persistent and can be forecasted using the GARCH model; (6) in a portfolio setting, cryptocurrencies exhibit negative alpha, high beta, similar to small and growth stocks and (7) a cryptocurrency portfolio offers more portfolio choices for investors and resembles a levered portfolio.Practical implicationsOne of the tasks of the financial econometrics profession is building pro forma models that meet accounting standards and satisfy auditors. This paper undertook such activity by deploying traditional financial econometric methods and applying them to an emerging cryptocurrency asset class.Originality/valueThis paper attempts to contribute to the existing academic literature in three ways: Pro forma models for price forecasting: five established traditional econometric techniques (as opposed to novel methods) are deployed to forecast prices. Cryptocurrency as a group: instead of analyzing one currency at a time and running the risk of missing out on cross-sectional effects (as done by most other researchers), the top-six cryptocurrencies constitute 80% of the market, are analyzed together as a group using panel-data methods. Cryptocurrencies as financial assets in a portfolio: To understand the linkages between cryptocurrencies and traditional portfolio characteristics, an efficient frontier is produced with and without cryptocurrencies to see how adding cryptocurrencies to an investment portfolio makes a difference.

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“…Client ownership of cryptocurrencies poses unique challenges to audit engagements. According to Vincent and Wilkins (2020), inherent risk would be high for cryptocurrency assets or transactions that exceed materiality levels allocated to account balances. If so, auditors need to collect indirect and entity-level evidence that reflect an understanding of why clients deal with cryptocurrency transactions, in particular, how it is linked to the entities' business strategy.…”

Section: Assurance Of Cryptocurrenciesmentioning

confidence: 99%

The impact of client use of blockchain technology on audit risk and audit approach—An exploratory study

Dyball

Seethamraju

2021

Int J Auditing

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Blockchain is claimed to disrupt the external audit function by enhancing the reliability of both external and internal audit evidence. This study examined the impact of client use of blockchain technology on audit risk and audit approach. It referred to the Australian Auditing Standard ASA 315 Identifying and Assessing the Risks of Material Misstatement and van Buuren et al.'s continuum of audit approaches to frame semi‐structured interviews with 28 blockchain stakeholders including audit partners. The study found that blockchain clients are perceived to be riskier than other clients and that inherent and control risks are amplified. The audit approach is not definitive with two likely approaches: a combination of direct, indirect, account‐level and entity‐level evidence and an increase in indirect and entity‐level evidence. This study's findings are useful for audit practitioners, standard setters and regulators.

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Challenges when Auditing Cryptocurrencies

Cited by 30 publications

References 0 publications

Blockchain implications for auditing: a systematic literature review and bibliometric analysis

Blockchain implications for auditing: a systematic literature review and bibliometric analysis

Pro forma modeling of cryptocurrency returns, volatilities, linkages and portfolio characteristics

The impact of client use of blockchain technology on audit risk and audit approach—An exploratory study

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