Blockchain auditing dilemma: Exploring hesitation among audit firms

Abstract

Blockchain technology, initially developed for the cryptocurrency Bitcoin, has expanded its reach into various sectors, such as supply chain management, healthcare, and real estate. The technology's transparency, and security have led many to view it as self-auditing. On the other hand, as blockchain integrates into traditional business models, the necessity for formal auditing processes akin to those in the nonblockchain corporate (business) world becomes evident and highly important. The present research explores the hesitancy among audit firms (statutory auditors) to engage in blockchain auditing, delving into the technological, regulatory, and inherent risks that make blockchain a challenging terrain for auditors and their work. The present research outlines the evolution of the blockchain environment, detailing its historical progression and diverse platforms. This finding underscores the crucial role of auditing in ensuring transparency, trust, and corporate (business) sustainability. The challenges faced by audit firms in the blockchain space, including technical complexities, regulatory ambiguities, and inherent risks such as cryptocurrency market volatility/risk, are extensively discussed. Practical case studies such as those of DAO attack, QuadrigaCX's missing funds, and the scrutiny of Bitfinex and Tether illustrate the consequences of inadequate auditing in blockchain platforms. Potential solutions for these challenges have been put forth, with an emphasis on the following: collaborative learning and training, advocacy for regulatory clarity, technological advancements, and the development of auditing standards specific to blockchain. The study culminates by emphasising the consequences of audit firms' ongoing reluctance towards blockchain technology and the advantages that can be gained by surmounting these obstacles. The aforementioned discovery implies that a mutually beneficial association between auditors and the blockchain industry may usher in an unprecedented epoch characterised by enhanced market economy transparency, confidence, and ingenuity. A comparison of conventional and blockchain auditing methods is presented in the appendices, with an emphasis on the distinctions between the two approaches.