Audit Implications of AI and Blockchain

Some of the most high-profile work that has taken place, especially pertaining to the accounting subset of the financial services landscape, is the work linked to audit and attestation work. High profile, but an area of the blockchain-as-a-service landscape that has also had a significant share of failures, collapses, and lawsuits as a direct result of lackluster standard development by accounting standard setters. The audit process, as currently constituted, is an almost perfect fit for the increased efficiency and automation provided for by a variety of blockchain tools. Despite the near-perfect fit, the failure of standard setters and, by default, of audits themselves, continues to cast a shadow of the entire concept of auditing or providing attestation services to blockchain and/or crypto-native organizations (Huang et al., 2024). Audits, and these similarities tend to exist across geographic and firm lines, tend to contain several of the same core components. An engagement letter is composed, outlining the services to be provided by the external audit organization, including but not limited to the testing of certain assets, verification of financial statement amounts, and then the issuance of an opinion based on these amounts. Even with these tests and analyses, some of which may be quite sophisticated in nature, there is a fundamental time lag issue that usually remains unaddressed despite how efficient the audit process is. Put simply, the amount of time that passes between when the data is actually generated or produced and the time that the audit actually occurs can stretch into months. Even with interim work, or work performed at different times during the year, there is still often a substantial lag between when data (and potential errors) happen and when that data and potential errors are reported to management. The illustration below represents areas in a financial transaction (trading) in which potential audit and attestation implications will arise and can be aided by the implementation of emerging technologies (Fig. 13.1).