When auditing Meets Blockchain: A study on applying blockchain smart contracts in auditing

Abstract

Blockchain's decentralized characteristics have posed unique challenges and unlocked novel opportunities for the accounting and auditing sector. While the potential impact of blockchain and smart contracts on auditing has been raised, comprehensive studies remain scarce. Using the Solidity language, this study explores the viability of encoding into smart contracts specific auditing rules that can automatically identify suspicious transactions in common fraud schemes. To illustrate the feasibility, it presents a proof-of-concept framework encompassing system architecture, smart contract development, and workflow procedures. Simulation results demonstrate that blockchain-based smart contract approach in this study can effectively identify problematic transactions in near real-time. Consequently, this could help auditors to allocate audit resources to focus efforts on higher risk transactions. The findings provide implications for future studies on the application of smart contracts in auditing.