Blockchain technology is presented as transparent, decentralised, auditable and immutable records and applied to everything that uses a ledger.
One group of researchers note that an unusual combination of features, scalable, irrevocable and anonymity of the blockchain, could make it very appealing for criminals involving fraud or money laundering. Law enforcement could find it difficult to detect fraudulent suspicious activity, identify users and obtain transaction records. Another argument is that the technology is a risk to the global economy because it bypasses intermediaries upon whose governments have relied on to implement regulatory safeguards for checking AML and other dark web activities.
The recent hack on DAO built on Ethereum Blockchain shows that this technology is subject to malicious attack. The hacker was reported to have stolen $50 million worth of Ethereum bitcoins. Other potential risks for blockchain include the 51% attack, account takeover, digital identity theft, money laundering and hacking. Making complex applications with absolutely zero bugs is hard and, indeed, this is the subject of the plot of the prescient 2003 novel, The Cryptographer, by Tobias Hill, where an e-currency is found to have a subtle flaw. However, the DAO hack took place outside the blockchain because it was Ethereum built on top of the technology that was exploited. However, these concerns felt by users about new technology will be overcome when the technology comes into full use.
The training focus for auditors and accountants has always been to provide concise information extracted from a large volume of business data to relevant stakeholders for decision making. But are the traditional accounting core skills around technical, communication, analytical and leadership skills adequate for forensic accountants in a digital age? Most commentators think that auditors and forensic accountants do not have requisite IT knowledge to explore innovations such as AI, Audit Expert, bitcoin and blockchain. The audit and assurance of algorithms is likely to be as much a feature as that of inputs and outputs.
Blockchains are set to revolutionise the way business is done by working across and outside traditional routes for contracts, banking and accounting. But they are not impregnable and forensic accountants need to think “outside the block” to see how everyday frauds might be perpetrated or prevented by the technology.
By Musbaudeen Titilope Oladejo and Lisa Jack, Portsmouth Business School