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Blockchain in audit and control professions: towards a new paradigm?

English title Blockchain in audit and control professions: towards a new paradigm?
Applicant Brender Nathalie
Number 172834
Funding scheme Project funding (Div. I-III)
Research institution Haute Ecole de Gestion Genève HES-SO
Institution of higher education University of Applied Sciences and Arts Western Switzerland - HES-SO
Main discipline Science of management
Start/End 01.03.2018 - 28.02.2021
Approved amount 483'327.00
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Keywords (11)

Compliance; Technology; Distributed ledgers; Distributed Trust; Distributed consensus; Blockchain; Transparency; Traceability; Security; Control; Audit

Lay Summary (French)

Lead
La technologie Blockchain est devenue omniprésente dans la société. Son étude et l’évaluation de ses impacts potentiels dans la société doivent être adressées. Les métiers de l’audit et du contrôle, dont le cœur de l’activité consiste essentiellement à produire de la traçabilité et de la confiance, sont devenus essentiels aux missions de gouvernance, de gestion des risques et du contrôle de conformité des organisations. Ce domaine représente une situation privilégiée pour le déploiement des cette technologie.
Lay summary

La technologie Blockchain représente une architecture technique d’enregistrement de transactions dans des registres distribués de façon inaliénable et transparente. Ceci permet d’établir des traces vérifiables et de confiance en s’appuyant sur des algorithmes de consensus distribués. De plus, la capacité de certaines plateformes d’inscrire, sous forme de code immutable, des règles et des procédures au niveau du registre, représente un véritable changement de paradigme.

La nature autonome, décentralisée et sécurisée offerte par la technologie Blockchain va profondément impacter les fondements mêmes des pratiques métiers ainsi que les parties prenantes, notamment les tiers de confiance, potentiellement appelées à repenser leurs rôles.

Contenu et objectifs du travail de recherche

Bénéficiant de l’avantage de la complémentarité disciplinaire entre les domaines de gestion et d’ingénierie de systèmes d’information, ce projet permet d’aborder la question de recherche dans une approche interdisciplinaire. L’objectif principal du projet et d’évaluer l’impact des technologies Blockchain sur les métiers de l’audit et du contrôle. Notamment, le projet vise à (i) identifier ces impacts ainsi que leur magnitude, (ii) définir comment mesurer ces impacts, et finalement (iii) concevoir un prototype d’expérimentation sous la forme d’une plateforme technique permettant de démontrer les résultats obtenus et l’impact potentiel.

Contexte scientifique et social du projet de recherche

De par sa nature interdisciplinaire en gestion et en ingénierie, ce projet offrira des résultats tant scientifiques que pratiques, dans les deux disciplines. L’approche empirique visant à étudier l’impact des technologies Blockchain sur les métiers de l’audit et du contrôle couplée avec des plateformes techniques d’expérimentation et de prototypages, vise à produire des résultats appropriables afin d’éclairer la transition numérique de notre société.
Direct link to Lay Summary Last update: 02.02.2018

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Abstract

About seven years after the introduction of the first bitcoin transaction based on Blockchain technology by “Satoshi Nakamoto” (Nakamoto, 2008), the technology remains mainly associated to cryptocurrencies. Blockchain is much more than bitcoins and offers a wide range of applications covering all sectors of activities.Blockchain technology is a distributed data structure, or ledger, in which transactions are recorded in append mode only and verified through consensus algorithms. Moreover, transactions are transparent and immutable. In contrast to conventional databases, this makes it possible to tie a set of rules or procedures to specific transactions to standardize process activities. The features of this technology, in particular its transparency and distributed consensus approach, are expected to fundamentally change current business models, practices, and professions to achieve a “sharing economy and distributed trust” according to the World Economic Forum (World Economic Forum, 2015). Deploying Blockchain implies transformation or elimination of intermediary activities.From a conceptual perspective, Blockchain technology provides a series of features, which can revolutionize some of the existing architectures in the digital business world. This transparent distributed database records each network’s user intervention and offers the possibility to encode rules and procedures within the platform at the transaction level. The autonomous, decentralized and secured capabilities characterizing Blockchain technology can help in redefining the foundational patterns of business applications (Muraskin & Schatsky, 2015; Swan, 2015). Trusted third parties can be replaced by the Blockchain. (Swan, 2015; The Economist, 2015)The Blockchain disruptive effect is widely recognized in the financial sector, while the level of awareness in other sectors and their professions is still in its infancy. Elimination of intermediary activities (disintermediation) or transformation of these activities are expected to occur in all sectors of the economy. (Muraskin & Schatsky, 2015; Swan, 2015; Mainelli & von Gunten, 2014) This is particularly well illustrated in the audit and control professions. Indeed, current technical developments, process and service innovation, applications such as smart contracts and publicly-held registers, combined have the potential to radically change audit and control activities. The transparency, traceability and integration of rules and procedures in the technology itself may enrich processes and production of information in such a way that control and audit procedures may be changed significantly, or even become obsolete in some instances. At the same time, it offers opportunities for auditors to design best practices, update rules and procedures and define new standards of the profession that could be encoded within transactions.The principles behind the way Blockchain technology works are well understood and use cases in business applications now exist. Practical implementations to validate its functionality at a business scale are starting to appear, and our project aims at contributing to this research body. This project contributes to the area as it may empirically highlight inadequate processes, lack of knowledge or misunderstandings related to consequences of using Blockchain technology and the impact it will have on audit and control professions. Moreover it might also help identify potential gaps between current audit and control practices and Blockchain oriented practices and procedures that organizations should have at their disposal. This leads to our main research question: What are the impacts of the use of Blockchain technologies on audit and control professions? This may be refined with the following sub-questions: a) What are these impacts and their magnitude? b) How can we measure these impacts? and c) Can we design a prototype as a proof of concept to further support our findings and showcase such transformations ?In a context where Blockchain developments flourish, our general hypothesis is that Blockchain technologies have the potential to significantly disrupt and transform the audit and control work. We will apply a mixed research design that combines a qualitative approach in social sciences with a design science approach. This will not only reflect the interdisciplinary perspective of this research but provide the most relevant framework in order to elaborate a comprehensive business process in the form of a proof of concept, run on Blockchain technology, in which encoded audit and control rules are integrated. This proof of concept will allow us to materialize the changes required in audit and control work based on this “self-audited or controlled” process.This research is original and its results could be helpful for scientific and professional communities. It is, to the best of our knowledge, the first study to empirically analyze and identify and assess the potential impacts of Blockchain technology on the audit and control professions and to materialize it into a business-related prototype.
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