An exploratory study of the perceptions of auditors on the impact on Blockchain technology in the United Arab Emirates

• Published date: 01 January 2023
• Author: Abdollah Mohammad Parmoodeh,Esinath Ndiweni,Yasser Barghathi
• Date: 01 January 2023
• DOI: http://doi.org/10.1111/ijau.12299

ORIGINAL ARTICLE

An exploratory study of the perceptions of auditors on the

impact on Blockchain technology in the United Arab Emirates

Abdollah Mohammad Parmoodeh

1

| Esinath Ndiweni

2

| Yasser Barghathi

3

1

Deloitte, Dubai, United Arab Emirates

2

Heriot-Watt University Dubai, Dubai,

United Arab Emirates

3

Zayed University, Dubai,

United Arab Emirates

Correspondence

Yasser Barghathi, Zayed University, Dubai,

United Arab Emirates.

Email: yasir.saleh@zu.ac.ae

Funding information

There was no funding provided to undertake

this study.

The purpose of this paper is to explore the prospects of blockchain technology (BCT)

on audit practice. Semi-structured interviews were conducted with practitioners from

the Big Four and non-Big Four firms; their responses were analysed thematically. The

findings are significant regarding the three main themes identified: namely, audit

practice, procedures and the challenges associated with the adoption of BCT. The

adoption of BCT has the potential to impact audit procedures to a certain extent.

The interviewees believed that BCT would transfer Audit 3.0 to Audit 4.0. For

instance, external confirmations could be enhanced by the move towards a more

automated verification process. In addition, the audit budget time could be decreased

with the help of this technology in the long run. The need for physical observation

could be diminished because of this technology, as it could track observations on a

real-time basis. This technology could also facilitate analytical procedures, as it has

the potential to incorporate other analytical tools simultaneously. Furthermore, it

could reduce the costs associated with fraud detection to a great extent, as it

provides a tamper-proof, immutable audit trail.

KEYWORDS

audit practice, audit procedures, blockchain, disruption theory, UAE

1|INTRODUCTION

It is widely believed that the audit profession has lagged in relation to

the development and application of recent technologies (Bierstaker

et al., 2014; Cangemi, 2016; Curtis & Payne, 2008; Kim et al., 2009;Li

et al., 2018). Advancements in automation are occurring at a rapid

pace (Meuldijk, 2017). Although the success of these emerging tech-

nologies is uncertain, auditors should investigate their potential

impacts on current audit practices. There have been growing concerns

from practitioners, academics, and regulators that the emergence of

blockchain technology (BCT) could radically alter the auditing profes-

sion (Centobelli et al., 2022; Lombardi et al., 2022).

BCT is one of the most innovative and important technologies

advanced in recent years (Peters & Panayi, 2016; Swan, 2015). Origi-

nally introduced for Bitcoin (cryptocurrency) trading (Alharby &

Moorsel, 2017), blockchain establishes a decentralised public digital

ledger that provides a secure infrastructure for untrusted parties to

conduct transactions without the need for a trusted intermediary. This

technology enhances transaction settlement speed, reduces transac-

tion costs, enhances the auditability of transactions, increases the

effectiveness of monitoring and improves the traceability of transac-

tions (Fanning & Centers, 2016; Rozario & Thomas, 2019;

Swan, 2015; Yermack, 2017). Although blockchain is primarily associ-

ated with peer-to-peer digital monetary transaction systems, this

technology has been adopted in numerous areas such as data man-

agement, crowdsourcing, robotics, energy, artificial intelligence (AI),

the internet of things (IoT), market forecasting, E-governance and

many others. For instance, Dubai intended to power all its govern-

ment processes through the adoption of distributed ledgers by 2020

(Ryder, 2017). To this end, the UAE has established a Blockchain

Council and plans to start implementing BCT in the roads and trans-

portation sector. Dubai has already implemented BCT in the real

estate and the water and electricity sector (Government of

Dubai, 2017; UAE Government, 2021).

In an industry that is still striving to recover from the Enron and

WorldCom scandals, any opportunity to provide stakeholders and

Received: 5 October 2021 Revised: 3 November 2022 Accepted: 9 November 2022

DOI: 10.1111/ijau.12299

24 © 2022 John Wiley & Sons Ltd. Int J Audit. 2023;27:24–44.wileyonlinelibrary.com/journal/ijau

investors with greater transparency and trust is of paramount impor-

tance. BCT has the potential to provide the industry as whole with

these factors (Ortman, 2018). BCT could create various new opportu-

nities and challenges within the audit and assurance profession. While

conventional auditing practices may remain essential, the methods

used while conducting an audit may change (Bible et al., 2017;

FRC, 2020a; Garanina et al., 2022). Given the speedat which the audit

profession is currently evolving,due to innovations in audit automation

and data analytics, BCT could also have a substantial impact on the

way auditors perform their tasks (FRC, 2020a; Lombardi et al., 2022;

Schmitz & Leoni, 2019). Additionally,because of the widespread adop-

tion of BCT, auditors may need to broaden the scope of their knowl-

edge and skill sets to remain proficient and relevant (Bible et al., 2017;

Garanina et al., 2022). According to Kend and Nguyen (2020), auditors

will have to adopt and exploit the opportunities offered by new tech-

nologies such as blockchain; otherwise, they will be replaced by tech

firms, such as Google, or fintech(Kend & Nguyen, 2020). Such technol-

ogies, according to the FRC (2020b), could enhanceprofessional scep-

ticism, thus helping to reduce bias and allowing more time for auditors

to focus on areas in which their judgement is crucial.

BCT was initially designed to be used as a component of Bitcoin;

however, it is now used to support various industries, such as financial

services, logistics, insurance, health care, leasing, intellectual property,

voting, government services and identity authentication (Atzori

et al., 2010; Fanning & Centers, 2016; Peters & Panayi, 2016;

Swan, 2015; Yermack, 2017; Zheng et al., 2018). Accounting and

auditing are among the numerous professions for which BCT could be

beneficial, and its use could result in essential changes being made to

existing paradigms (Centobelli et al., 2022). Blockchain could facilitate

the development of a detailed audit trail because of its functions of

propagation, permanence and programmability (ICAEW, 2018). This

technology could aid the current audit paradigm to become more pre-

cise and agile and serve as a foundation for audit automation (Dai &

Vasarhelyi, 2017).

BCT is currently receiving extensive attention from both the

accounting profession and academia (Bons

on & Bednárová, 2019;

Kend & Nguyen, 2020; Kruskopf et al., 2020; Rozario &

Thomas, 2019). For instance, Deloitte envisions that the incorporation

of BCT could significantly simplify the procedures involved in verify-

ing the probity of accounting information; this may result in reduc-

tions in monetary expenditures and enhanced audit processes

(Psaila, 2017). Similarly, Ernst and Young (2018) view blockchain as a

technology that possesses the potential to enable real-time auditing

and reporting, thus, auditors and accountants would move away from

their conventional roles to adopt more strategic roles in future.

Since BCT is a relatively a new technology, very little is known

about its potential implications for audit practice. As noted by Schmitz

and Leoni (2019), only a few academics have explored the impact of

this new technology on both accounting and auditing practices. In a

recent work by Lombardi et al. (2022), it was concluded that the dis-

ruption of BCT in auditing is in a nascent phase and there is a need

more research on the involvement of the practitioners. Therefore,

knowledge of the potential opportunities and challenges associated

with BCT's use in the auditing paradigm is still in its infancy, and

further research must be conducted (Bons

on & Bednárová, 2019).

There are also calls to explore the topic by conducting interviews with

professionals about BCT and whether it is considered a sustaining or

disruptive technology (Kend & Nguyen, 2020; Schmitz & Leoni, 2019).

This is vital as, according to Rozario and Thomas (2019), BCT has the

potential to improve audit quality; however, it is not clear whether

auditors are of the same view.

This paper aims to fill this literature gap and to provide insights

for practitioners regarding the use and acceptance of this emerging

technology. It investigates the expected contributions of BCT in audit-

ing. Furthermore, it also provides a discussion on how BCT could

change the conventional audit paradigm into a more accurate and

automated assurance system. According to the literature, Dubai can

be viewed as an early adopter of BCT, judging by its commitment to

the technology (Dubai Blockchain Strategy, 2017) and its willingness

to embrace new technologies in general. Hence, this paper seeks to

address the following questions:

a. What potential implications does the emergence of BCT have for

audit practice?

b. What challenges will the audit profession face because of the

emergence of BCT?

The remainder of this paper is structured as follows. Section 2pre-

sents the literature review, while Section 3discusses the study's

methodology. Section 4reports the research findings and analysis,

and Section 5concludes the study.

2|LITERATURE REVIEW

2.1 |Introduction

Blockchain is a technological mechanism that ensures data integrity

and trust, and it allows auditors to perform various analyses. This

mechanism could enable an agile and automated assurance due to the

incorporation of ‘smart controls’; that is, computerised programmes

operating on the BCT that automate business processes against pre-

specified rules (Dai & Vasarhelyi, 2017; Rozario & Thomas, 2019).

Combined with the incorporation of other emerging technologies,

such as IoT, blockchain could facilitate the automation of measuring

and recording business performance and the real-time monitoring and

tracking of physical objects. This technology could also facilitate and

provide near real-time accounting information disclosures to the con-

cerned parties based on their roles and demands.

BCT is a public digital ledger which records every transaction in

an append-only mode and is verified through consensus algorithms

(Erbguth & Morin, 2016). The concept of BCT can be defined as

follows:

A shared, distributed ledger that facilitates the pro-

cess of recording transactions and tracking assets in

a business network. An asset can be tangible —a

house, a car, cash, land —or intangible like

PARMOODEH ET AL.25