Abstract
This study aims to assess the impacts that cryptocurrencies and blockchain have on financial accounting and auditing through eight interviews. The results allowed the authors to conclude that cryptocurrencies are considered cryptoassets, which can be classified in different ways, but above all, as inventories and intangible assets. Respondents believe that cryptocurrencies will have an impact on auditing, triggering a dematerialization of paper in its various stages. Therefore, the auditor will spend less time collecting and verifying information, focusing on activities with greater risk and complexity. It will also be possible to carry out an audit in real time and on the entire population. Regarding audit risk, accounting and auditing standards respond indirectly to the topic, yet the risk is considered high for most auditors, as they did not deepen their knowledge on the topic. Despite limitations, such as sample size, this study contributes to understanding the impact of cryptocurrencies on financial accounting and auditing in Portugal, being a pioneer in this field.
TopIntroduction
Every day, we come across various methods for carrying out economic transactions, such as credit cards, Paysafecard, mobile applications, Paypal and, recently, cryptocurrencies. Cryptocurrencies are also associated with the blockchain network. The development of this technology is transforming traditional business models as information is kept securely, as a result of decentralization and encryption, and also allows easy access to its users (Koo & Sewell, 2023).
The rapid growth of cryptocurrencies and the incipient legislation on them have posed challenges to some sectors of activity, such as accounting and auditing. In fact, according to Vincent and Wilkins (2019), the ambiguity and lack of guidance surrounding cryptocurrency transactions impose additional audit risks.
In this study, cryptocurrencies will not be recognized as “currency”, but as “cryptoassets”, since this term encompasses the nomenclatures that are normally associated with them, such as tokens, coins, cryptocurrencies or virtual currencies. According to Leopold and Vollmann (2019), a cryptoactive can be characterized as a token or coin, with the criterion for differentiating it being the functionality of the asset. However, to be classified as assets, cryptoassets must meet the requirements of the asset definition and its recognition criteria.
If the definition of asset is met, there are accounting standards that can guide the accounting of this asset to ‘Cash and cash equivalents’; ‘Financial instruments’; ‘Inventories’ or ‘Intangible assets’. Therefore, according to Abate (2018), the audit company must perform audit procedures to obtain knowledge of the client's intention when entering into cryptocurrency transactions.
Although cryptocurrencies can increase audit risk, the blockchain technology associated with it can bring many advantages to auditing, such as eliminating the manual collection of information (Applelbaum & Smith, 2018 and Bible et al., 2017) and allow the standardization of financial data and real-time access to them, reducing the preparatory work for the annual audit and facilitating the preparation of auditor reports (Desplebin et al., 2021).
However, a question that arises is whether registration on the blockchain constitutes sufficient proof. According to the Canadian Public Accountability Board (2019), auditors' assessment of the reliability of information obtained on the blockchain is one of the most common deficiencies in audits of the cryptoasset sector. According to Pippo (2020), the reliability of information obtained on the blockchain may depend on the source of information, as well as the adequacy of technological resources.
According to Han, Shiwakoti, Jarvis, Mordi, & Botchie (2022), blockchain can revolutionize accounting as it facilitates access to accounting information in real time. In this way, upon authorization, interested parties can see the information in more detail, thus contributing to their decision-making. It can also, for example, allow more effectively the possibility of forecasting sales, costs of sales, and taxes. Furthermore, accounting tricks motivated by a conflict of interest will be more easily detected, thus reducing the opportunistic behavior of those involved.
Within the scope of this issue, this work aims to assess the potential impacts of cryptocurrencies and blockchain on accounting and financial auditing. To this end, an empirical study was carried out through semi-structured interviews with eight individuals belonging to three groups: auditors belonging to “Big4” and “Non-Big4”, as well as members of associations and companies that work directly in the area of cryptocurrencies.
Key Terms in this Chapter
Pseudoanonymity: Refers to the condition in which transactions are publicly recorded on the blockchain, but the identities of those involved in the transactions are not directly revealed. Instead of names or personal information, cryptographic addresses are used to represent the parties involved.
Audit Risk: Audit risk refers to the possibility that the auditor will not detect material misstatements in an entity's financial statements during the audit process. These misstatements may be caused by error or fraud and affect the integrity and accuracy of the financial information presented.
Decentralized Public Record: Is a database that stores information in a distributed way, without depending on a single centralized entity. Instead, information is shared and maintained by a network, in which all participants contribute to its validation and security.
Cryptography: Security practice that involves the use of mathematical algorithms to protect sensitive information during data transmission or storage.
Reasonable Assurance: Refers to the degree of confidence that the auditor seeks to obtain when carrying out audit procedures on an entity's financial statements. When the auditor states that he or she provides “reasonable assurance,” it means that he or she conducted an audit in accordance with applicable auditing standards and principles in a careful and diligent manner. This assurance does not imply absolute certainty, as the audit is based on sampling and professional judgment. Rather, it means that the auditor has performed sufficient procedures to obtain acceptable assurance that the financial statements are free from material misstatement, whether due to error or fraud. The concept of “reasonable assurance” is fundamental to understanding that the audit cannot completely eliminate risk, but seeks to provide a solid basis for users' confidence in the financial information presented by the audited entity.
Block Explorer: Is an interface that allows blockchain data to be accessible and understandable to users, thus providing a transparent and detailed view of the activities occurring on the network.
Block Timestamps: It is the time stamp at which the block was added to the sequence. It is crucial to guarantee the integrity and trust in the network.
List of Responses: No changes were requested to the submitted chapter.