Blockchain is the Audit Future

Its technology based on a created ledger that contains a large number of encrypted transactions processed by a single user so the validity and authenticity of it are limited to the transaction owner. As there is no central management that controls the process; of each transaction processed through certain hardware (nodes/miners).

Blockchain technology adopts a very unique methodology in verifying the identities of both senders and receivers authenticity by using cryptography’s of public and private keys; they can be explained in this way:

- Public key: it’s the key that can be shared with the public which reflects your user identity

- Private key: indicates as your personal security password that must not be shared with anyone

How audit process can be benefited from blockchain technology?

Blockchain design structured in a way that it’s close to impossible to rectify the saved data. Technically, it can be used as a distributed ledger to initiate transactions between two identities in an efficient and assured constant way. For instance, blockchain ledgers can be easier to verify the transactions on their public availability by using these sites http://www.blockchain.info or http://www.blockexplorer.com, their automatic verification procedure helps cost efficiencies in the audit world. Using this method would be better than having to ask a customer for their bank statements or confirmation requests of third parties.

It will be challenging in the future to test the significance of just a sample, as auditors will rely on blockchain technology for a test of an entire population on transactions statement within a limited time period. This high-scale analysis will extremely grow within the audit engagement by improving the assurance of its affection. A low-value transaction in blockchain recently has been taking around 10 minutes to validate, since the block of a single verification is considered suitable. As the higher the blocks pass the more immutable it gets and verified. The process of verifying a transaction considers rapidly fast as it has the capacity to reconcile a high-value transaction in two hours (12 blocks). On the other hand, a rival transaction could take more than a couple of months to be finalized using the traditional finance methods. For instance, it has the ability to replace the current audit procedure of performing year-end assessments with ultimately dynamic online assessments all over the audit period. So it could take the audit process into a different level powered with speed, efficiency, accuracy, security, and automation of the whole process.

What are the disadvantages of the blockchain for the audit process?

Despite the high level of immunity and security applied to every processed transaction; fraud incidents can’t be completely prevented. As one case happened when a hacker manager somehow to steal 32$ million of Ethereum cryptocurrency but later on it got traced fast and the gab got maintained rapidly. However, blockchain technology still in its early stages as it suffers from some incomplete details to be in a position to be adopted as the primary audit tool. The transition of the classic audit process into blockchain technology needs some IT internal controls such as:

Firstly, lack of a fraud department as there is no integrated central administration. Therefore, in cases of fraud incidents or hacking attack, there aren’t legal authority to refer to which elaborates a big challenge in terms of internal controls for the auditors as it’s considered as a standard of effective operations.

Secondly, the absence of an account recovery system means in case of losing the private key credentials results in losing the account and its content for good as it’s impossible to recover and it becomes out of rotation forever. So it’s considered high risk for high-valued accounts.

Thirdly, there is no option to reverse a transaction, so if a transaction gets transmitted to the wrong correspondent or to an unauthorized party it will be currently impossible to recall it.

Eventually, blockchain technology will have a positive impact on the audit automation process and validation but still, it has a long journey to take as there are many gaps that need to be enhanced in order to gain the auditor's trust and pass all the IT control. Nevertheless, it requires opened –minded auditors who are ready to deal with digital financial transition and dynamically adapt to the constant changes.