Abstract The study investigates the implications of companies' adoption of blockchain technology on accounting information quality. Based on a sample of 33,242 firm‐year observations from A‐share companies listed on China's stock exchanges in 2007–2019, we find evidence that blockchain technology adoption significantly improves accounting information quality. Further, additional tests demonstrate that the mechanism of blockchain exerting its positive effect include strengthening corporate governance and realising synergies with large audit firms, while cross‐sectional tests show that its positive effect on accounting information quality is attenuated if the company is in an industry with high IT development or has experienced an audit firm change. Economic consequence tests show that the adoption of blockchain is conducive to companies' financing behaviour, as well as to overall firm value. Consequently, our results suggest the positive effect of blockchain technology on accounting information quality.
The accountancy profession of the twenty first century, and the roles therein, are rapidly evolving, transforming, and potentially contracting. As digitalisation deepens, the acceleration of Artificial Intelligence, robotics and distributed ledger accounting threaten to finally sound the death knell for the traditional ‘bean-counter’ stereotype. The purpose of this study was to examine the career boundaries of contemporary chartered accountants, to consider how boundary expanding is expressed in practice. Employing an ethnographical approach, the study investigated the lived experience of accountants’ career boundaries through the auto-ethnographical lens of the researcher, a chartered accountant herself. The research unearthed a rich and diverse collection of boundary-stretching and boundary-contracting case studies, spanning a full career generation, and contributes a new model of ‘career boundary elasticity’ which has implications for the accountancy profession.
This study examines the value of System and Organization Controls 2 (SOC 2) audits to customers. A SOC 2 audit is a voluntary assurance service provided by an independent CPA over a firm's internal controls relevant to information system security. I use cryptocurrency exchanges, a setting where the lack of customer trust can be particularly acute, to examine whether SOC 2 audits increase customer demand. I find a substantial increase in liquidity following the disclosure of initial SOC 2 audit completion: the trading volume of cryptocurrencies listed on audited exchanges increases by more than 60 percent, and the price impact decreases by approximately 40 percent in the three months after SOC 2 audit disclosure. Exploring the channels through which SOC 2 audits provide value to customers, I find that exchanges with high-quality security measures are more likely to initiate SOC 2 audits, and that continued audits ensure that the quality of security measures remains high. Overall, this study provides novel evidence that SOC 2 audits provide value to customers by sending a credible and positive signal of exchange security, and thus significantly increase customer demand.
The collapse of FTX has underscored the critical importance of auditing, especially in the fast-growing decentralized finance (DeFi) markets. Due to the decentralized nature of DeFi platforms, which facilitate peer-to-peer transactions without intermediaries, and the rapid pace of innovation in the unregulated and highly asymmetric information environment of the DeFi market, traditional financial auditing methods face significant hurdles. This study explores the relevance of auditing in DeFi protocols and highlights its critical role in ensuring transparency, security, and trust within these decentralized systems. Through a comprehensive analysis of the unique characteristics of DeFi, including smart contracts and blockchain technology, we delve into the specific challenges and risks associated with auditing DeFi applications. Furthermore, the article discusses the demand for robust auditing practices, regulatory oversight, and industry standards to enhance resilience and stability in this fast-growing emerging market.
Purpose This study aims to present an overview of topics addressed in the papers appearing in this AAAJ special issue: Blockchain in accounting, accountability and assurance. Design/methodology/approach The authors present a review focussing on the papers published in this special issue. The authors imported the eight accepted papers into NVivo, coding them according to the research topics posed in the call for papers. Then, the authors conducted an in vivo coding for the emerging themes found in the papers. Findings Blockchain is a multifaced topic with multiple implications for accounting, auditing and accountability, the accounting professions, and governance. However, blockchain is still a developing topic. Blockchain research traditionally has four stages. More recently, a new research stage deserving more investigation is emerging based on the interaction of blockchain with other technological developments such as virtual reality and the metaverse. Originality/value The review not only uncovers and systematises the multiple implications of blockchain for accounting research. It also unveils the dark side of blockchain, focusing on the technology's negative environmental and social implications. Last, the authors highlight why accounting research should more extensively examine contemporary issues.
Lin William Cong, Wayne R. Landsman, Edward L. Maydew, Daniel Rabetti
We describe the landscape of taxation in the crypto markets, especially that concerning U.S. taxpayers, and examine how recent increases in tax scrutiny have led to changes in trading behavior by crypto traders. We predict under a simple theoretical framework and then empirically document that increased tax scrutiny leads crypto investors to utilize legal tax planning with taxloss harvesting as an alternative to non-compliance. In particular, domestic traders increase taxloss harvesting following the increase in tax scrutiny, and U.S. exchanges exhibit a significantly greater amount of wash trading. Additional findings suggest that broad-based and targeted changes in tax scrutiny can differentially affect crypto traders' preference for U.S.-based exchanges. We also discuss other gray areas for tax regulation related to new crypto assets such as Non-Fungible Tokens and Decentralized Finance protocols that further highlight the importance of coordinating tax policy and other regulations.
Purpose This paper explores how the International Accounting Standards Board (IASB) has dealt with the emerging issue of accounting for cryptocurrencies by investigating its constituents' expectations and the motivations underlying its regulatory response. Design/methodology/approach The theoretical lens of regulatory space is used to analyse the four-year debate around cryptocurrency holdings and informs the extensive thematic analysis of public documents, meetings recordings and comment letters on the topic. Findings Facing national standard setters' initiatives to regulate accounting for cryptocurrency, the IASB defended its position in the regulatory space through an agenda decision based on ewct 2xisting standards, which was finalised by the International Financial Reporting Standards Interpretation Committee (IFRS IC) despite criticism from constituents and Board members. Research limitations/implications The paper provides insights into the IASB approach to a regulatory vacuum regarding a new class of items, which derive from a new and rapidly-evolving technology. Disruptive technology impacts the contested arena of accounting regulation, in which the constituents ask for new solutions and the IASB tries to resist such pressures, while defending its position. Practical implications The paper sheds light on the growing importance of agenda decisions in the IFRS environment and on the limits of the IASB long regulatory process in the circumstance of emerging accounting issues deriving from rapidly-evolving technology. Originality/value This investigation is timely and relevant as it considers the regulatory issues arising from disruptive technological innovations (i.e. cryptocurrency), shedding light on the limits of regulatory processes in times of technological change.
Purpose The paper reports on a study that investigated the (potential) impact of client use of blockchain technology on financial statement audits of Australian accounting firms. Design/methodology/approach Data were primarily collected from semi-structured interviews with a range of stakeholders including audit partners from first- and second-tier accounting firms in Australia. The interviews focused on the perceived (potential) impact of blockchain on the stages of obtain (retain) engagement, engagement planning, risk assessment, audit evidence and reporting of financial statement audits of clients that use blockchain technology. Perceptions of changes to financial statement audits were interpreted using the logics of professionalism and commercialism. Findings Australian accounting firms have either obtained or considered engagements with clients with a cryptocurrency business or that use a blockchain platform although they are a small group. There is a view that blockchain technology is distinctive and therefore poses risks not encountered before in audit engagements. These risks would most likely shift how firms plan, design audit methodologies and execute financial statement audits. The study showed that the logics of professionalism and commercialism are not conflicting but instead complementary. They present both opportunities and challenges for firms to apply and develop audit expertise in an emerging area in audit. Research limitations/implications Being an exploratory study, the findings are tentative. A case study of an audit engagement with a cryptocurrency business will add to a nuanced understanding of the challenges posed to financial statement audits by blockchain technology. Originality/value This study is novel because of its focus on the impact of an evolving technology on the stages of financial statement audits.
Blockchain is claimed to disrupt the external audit function by enhancing the reliability of both external and internal audit evidence. This study examined the impact of client use of blockchain technology on audit risk and audit approach. It referred to the Australian Auditing Standard ASA 315 Identifying and Assessing the Risks of Material Misstatement and van Buuren et al.'s continuum of audit approaches to frame semi‐structured interviews with 28 blockchain stakeholders including audit partners. The study found that blockchain clients are perceived to be riskier than other clients and that inherent and control risks are amplified. The audit approach is not definitive with two likely approaches: a combination of direct, indirect, account‐level and entity‐level evidence and an increase in indirect and entity‐level evidence. This study's findings are useful for audit practitioners, standard setters and regulators.
This paper examines the role of the information disclosed on blockchains in the cryptocurrency market. We find that blockchain disclosure on user adoption, measured as the number of new addresses, is highly value-relevant in the cryptocurrency market. Surprises in the disclosed number of new addresses explain 8% of the variation in cryptocurrency returns. The disclosed information is more value-relevant if the quality of the disclosure is higher and the cryptocurrency is larger in size. Unlike traditional markets, we do not find pre- or post-drift around the disclosure of new address information. The presence of strong market reactions at the disclosure and the absence of drifts around it highlight the distinct features of the information environment in this market, and provide a benchmark case where information is disclosed publicly and (almost) continuously. Lastly, we construct the price-to-new address ratios and find that they negatively predict future returns–a cryptocurrency value effect.
Abstract Research Summary How emotions impact firm valuation is empirically understudied because affective traits are difficult to quantify. However, using artificial emotional intelligence, positive and negative affects can be identified from facial muscle contraction‐relaxation patterns obtained from public CEO photos during initial coin offerings, that is, blockchain‐based issuances of cryptocurrency tokens to raise growth capital. The results suggest that CEO affects impact firm valuation in two ways. First, CEOs' own firm valuations conform more to those of industry peers if negative affects are pronounced ( conformity mechanism ). Second, investors use CEO affects as signals about firm value and discount when negative affects are salient ( signaling mechanism ). Both mechanisms are stronger in the presence of asymmetric information. Managerial Summary The purpose of this paper is to advance our understanding of how CEOs' affective traits influence firm valuation by both, CEOs themselves and investors. The effect of CEO emotions is plausibly particularly pronounced for start‐up firms, whose success prospects critically depend on their leaders. My results suggest that CEO emotions impact underpricing in initial coin offerings twofold. First, negative emotions are associated with CEOs choosing an underpricing level that closely conforms to their peer firms' average. Second, investors react to negative CEO emotions by demanding higher discounts on firm value. These effects are more pronounced when there is relatively little public information about the ICO firm. My paper is accompanied by artificial emotional intelligence software for implementation in practice and future research.
We examine the price discovery contributions of cryptocurrency exchanges in the presence of market microstructure noise. Cryptocurrency markets exhibit a decisively higher level of microstructure noise compared to the New York Stock Exchange or NASDAQ. Therefore, traditional measures of price discovery are potentially biased. To overcome this concern, we draw on the information leadership share (ILS) proposed by Putninš [2013, J.Emp.Fin]. Based on the ILS, we find that Bitfinex is the leader in the price discovery process. Our results highlight the importance of accounting for different levels of noise when evaluating price discovery contributions
The article deals with constructing an asset accounting process and an algorithm for recognizing an object as an asset. The main approaches to the reflection of cryptocurrency in financial accounting are analyzed. The study showed that International Financial Reporting Standards (IFRS) still lack specific clarifications on the correctness of accounting and recognition of cryptocurrencies. Cryptocurrencies are suggested to be recognized as, intangible assets on the one hand, and as inventories, on the other. The research shows that before starting the process of accounting for any asset, it is necessary to determine, whether such a resource meets the definition of an asset. The article proves that cryptocurrency is an asset. However, attaching cryptocurrency to a certain group of assets turns out to be rather problematic. The main approaches to doing it are analyzed. Speaking formally, cryptocurrency is considered to be cash or cash equivalents. Cash and cryptocurrencies have been compared, and the main distinguishing features of these two assets have been considered. The conclusion is made that cryptocurrency should be evaluated at fair value, indicating the date of evaluation to fix actual market conditions. The measure of cryptocurrency when reflected in the financial reporting is the US dollar or its equivalent in the national currency as at the balance sheet date. The research has shown that depending on the type of the enterprise activity, cryptocurrency should be determined in the financial reporting, or the «balance sheet», as «intangible assets» (line code 1000), and the primary value of such an asset corresponds to line 1001, or inventories (line code 1100). Also, if the company’s accounting policy states that cryptocurrency is a financial investment, it should be reflected in line 1160.
Focusing on accounting information quality optimization of the listed company, this paper proposes a blockchain-based accounting process to optimize accounting information quality. It will effectively reduce the accounting fraud behavior and seriously affected the process of value discovery, which will enhance securities market effectiveness. The blockchain-based accounting process involves four parts: (a) confirmation of accounting information; (b) measurement of accounting information; (c) recording of accounting information; (d) reporting of accounting information. The blockchain-based accounting process makes it possible to automate all the transaction by smart contracts. The cryptographic algorithms guarantee the security of the transaction data. The new accounting method attempts to record the accounting information of the listed company by distributed ledger technology. Consensus mechanism verifies the validity of accounting process. Finally, this paper uses EVA to evaluate the performance of the listed company after adopting blockchain-based accounting process. Hence, the blockchain-based accounting process can avoid accounting fraud, which will protect investors from financial fraud and ensure the effectiveness of the security markets.
ABSTRACT Blockchain technology has been a disruptive force in currency, supply chain, and information sharing practices across a variety of industries. Its usage has only recently expanded into assurance and financial reporting. This paper explores blockchain's impact in these areas and provides guidance for organizations and auditors utilizing blockchain by addressing financial data integrity issues, financial reporting risks, and implications for external auditors and firms' corporate governance practices. Organizations utilizing blockchain must adapt their policies and procedures over internal controls and counterparty risk assessment to address increasing regulation over the distribution of financial data, while their audit committees must be prepared to address these challenges leading up to financial statement preparation. External auditors need to assess blockchain implementation as a financial reporting risk and balance the potentially more reliable and timelier audit evidence obtained from blockchain-based reporting systems against the related increase in internal control testing.
ABSTRACT Recently, accounting academics have reported increased attention in the accounting profession toward the employment of various technologies. These studies only highlight the exploitation of these technologies in the profession and areas for future research, while missing the need for modernizing the accounting curriculum to meet the industry's technological needs. This paper follows an integrated model for curriculum redesign to reflect blockchain technology, business data analytics, and artificial intelligence employment in the accounting profession. By building on the main four educational curricula designs components, we propose ways to incorporate these technologies into the accounting curriculum. Current industry implementation of new technologies should be considered by academia when designing accounting curriculum to prepare graduates for the market and to ensure their employability. This paper calls for radical changes in the accounting curriculum to reach a balance between existing accounting knowledge and information technology skills relevant to the profession. JEL Classifications: M4; I23; O33.