Torrens University ACCT6007: Blockchain and Accounting Analysis Report

This report provides a critical analysis of the article "Toward Blockchain-Based Accounting and Assurance" by Jun Dai and Miklos A. Vasarhelyi. It examines the three phases of blockchain technology and its potential applications in accounting, including its use in triple-entry accounting systems. The report discusses the arguments presented in the article, particularly the benefits of blockchain in enhancing auditability and enabling continuous assurance. It also addresses the potential issues and challenges associated with implementing blockchain technology in accounting, considering technological, organizational, and environmental contexts. The analysis highlights the transformative impact of blockchain on financial reporting, emphasizing its ability to improve data security, transparency, and efficiency while acknowledging the need to overcome various obstacles for widespread adoption. The report concludes by summarizing the key findings and implications of blockchain technology for the future of accounting and finance.

Running head: FINANCIAL ACCOUNTING THEORY AND PRACTICE
Financial Accounting Theory and Practice
Name of the Student
Name of the University
Author’s Note

1FINANCIAL ACCOUNTING THEORY AND PRACTICE
Table of Contents
Introduction................................................................................................................................2
Three Phases of Blockchain Technology and Its Potential Use in Accounting.........................2
Understanding of Triple Entry Accounting................................................................................3
Agreement or Disagreement with Any Arguments....................................................................4
Potential Issues or Problems with Blockchain Technology in Accounting...............................5
Conclusion..................................................................................................................................6
References..................................................................................................................................7

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Introduction
The main aim of this essay is to undertake the analysis of various aspects of the article
named “Toward Blockchain-Based Accounting and Assurance” by Jun Dai and Miklos A.
Vasarhelyi. In the recent years, blockchain has been serving as a potentially transferred
information technology which is used for Bitcoin trading. The main benefits of blockchain
technology are reduction in trading cost, increase in the speed to settle transactions, reduction
in fraud risk, improve in auditability and others. The following discussion shows different
aspects of blockchain while referring the provided article.
Three Phases of Blockchain Technology and Its Potential Use in Accounting
The development of blockchain can be seen through three phases which are
blockchain 1.0, 2.0 and 3.0. These are discussed below:
Phase 1.0 – The sole focus of blockchain 1.0 is the cryptocurrency interchange. This phase
helps in the functions like digital money transfer, remittance and payments (Peters & Panayi,
2016).
Phase 2.0 – The involvement of same kind of trading can be seen in phase 2.0 of blockchain,
but it provides the users with a wider possibility in financial application such as digital asset
ownership, derivatives, smart property and others. In this phase, there was the introduction of
a new application named ‘smart contract’ which refers to computer programs in blockchain
that assists in automatic verification, enforcement and execution of contract terms. In
addition, these smart contracts help to encode the agreed upon situations and rules related to
different trading parties. Apart from these, smart contracts in blockchain assist in encoding
other terms as well as execution of tasks based on the pre-specified rules (Liang et al., 2017).
Phase 3.0 – The further expansion of blockchain technology can be seen in phase 3.0 further
than business application and financial application. Under this phase, some of the

3FINANCIAL ACCOUNTING THEORY AND PRACTICE
transformations of blockchain technology are cloud storage products, attestation services,
voting system and even governmental administration; and these aspects have transformed
blockchain technology towards self-managing as well as monitoring system (Gupta &
Sadoghi, 2019). Connecting the internet of things with blockchain technology is considered
as one of the major advancements of blockchain technology in phase 3.0. For this reason,
some of the added features of blockchain technology in this phase are radio frequency
identification tags, actuators, mobile phones and others (Dai & Vasarhelyi, 2017).
It needs to be mentioned that the blockchain technology provides the accounting
profession with certain major benefits. Blockchain technology with the combination of smart
contracts can be used by the companies for securely storing accounting data while these can
be used to share relevant accounting data and information with relevant parties (Byström,
2019). The use of blockchain technology helps in increasing the verifiability of business data
and information. Companies become able in the development of new accounting system with
the help of blockchain technology that is helpful in recording the validated transactions on
secure legers. Some of the examples of these transactions are monetary exchange between
two parties, flow of accounting data with the organization and others (Byström, 2019). In the
presence of blockchain technology, real-time reporting can be enabled through instant
widening of financial information to the interested parties like auditors, managers,
shareholder, creditors and others. In addition, data analytics can also be used in blockchain
technology for making the information more useful.
Understanding of Triple Entry Accounting
The main aim behind the proposition of the triple entry system is to develop an
independent as well as secure model for improvising the reliability of the financial statements
of the companies. The requirement of triple entry accounting system is to process transaction
authorization from an unbiased intermediary where it is needed for each party to record the

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transaction that results in total three entries. However, there is a need for intermediary as well
as dependable intermediary in order to verify each individual transaction. In the triple entry
accounting, data that the intermediaries store are exposed to the loss risk or cyber-attacks. For
this reason, blockchain technology can be used in this for improving the system of triple entry
accounting while minimizing these risks (Juarez, 2016).
Triple entry accounting system involves in recording the accounting information
between the flow of data within the organization and business parties. In this process, record
would be created for every transaction stored in the blockchain ledger. For reflecting the flow
of data within the organization, it would be needed to record the entries in the blockchain
ledger in the form of token transfer between the accounts and this leads to the development of
an interlocking system in order to endure accounting records (Juárez et al., 2016). It would be
required to organize the accounts in the blockchain ledger in a hierarchical structure for
aggregating data at different level and this enables in the quick harmonising the accounting
equation along with various views of information for various users. Moreover, in triple entry
accounting, there would be use of blockchain ledger for using as a certificate for attesting the
ownership obligation of assets. Moreover, triple entry accounting system use smart contracts
in order to enable efficient control on the financial information recoding process (Juárez,
2016).
Agreement or Disagreement with Any Arguments
In the provided article, the auditors have argued that the blockchain technology can be
applied in continuous assurance because of the fact that this technology along with the
associated smart contracts are becoming progressively adopted for the creation of a system
that is verifiable as well as tamper-proof (Dai & Vasarhelyi, 2017). It needs to be mentioned
that many advantages of blockchain technology support this argument. In the assurance
program, the auditors can use the blockchain ledger as a dependable medium for storing

5FINANCIAL ACCOUNTING THEORY AND PRACTICE
crucial audit associated documents; and the tamper-proof characteristic provides the
necessary security to these system. At the same time, it becomes possible for the auditors to
quickly as well as continuously share these documents with the relevant parties (Swan, 2017).
After that, the authors have also argued that the use of blockchain technology increase
the auditability of information and there are many reasons for supporting this argument (Dai
& Vasarhelyi, 2017). One major feature of blockchain technology is that the blockchain
ledger safeguards the data related to many audit associated documents. For example, in case a
company register all the information related to inventory in blockchain, then the details and
history of the inventory can easily be generated; and this would assist in real-time
examination of inventory (Woodside, Augustine Jr & Giberson, 2017). Like inventory,
information about other financial aspects can also be recorded in the blockchain (Dorri,
Kanhere & Jurdak, 2016). These aspects increase the auditability of information.
Potential Issues or Problems with Blockchain Technology in Accounting
Although there are many advantages of the use of blockchain technology in different
aspects of accounting, the drawbacks or challenges in blockchain technology cannot be
ignored. These challenges can be seen in three contexts which are technological context,
organizational contexts and environmental context. These are mentioned below:
Technological Context – The mainstream blockchain systems like Bitcoin and others require
high storage as well as computational power for ensuring data security. Therefore, companies
who want to adopt blockchain technology need to ensure the presence of large storage
system, wider bandwidth for transmitting data and major expansion of computational power.
These expansions are expensive for the companies irrespective of large and small in size and
therefore, is considered as a potential challenge in blockchain implementation (Zheng et al.,
2018).

6FINANCIAL ACCOUNTING THEORY AND PRACTICE
Organizational Context – There is a need for large computational resources for the
development as well as operation of blockchain technology; and another need is the
distribution of blockchain ledger for avoiding complicity and exploitation. All these aspects
increase the overhead of the companies which is a major challenge for the business
organizations. For this reason, large companies face difficulties in the adoption of
troublesome technologies like blockchain and their business model gets seriously affected
with this (Yli-Huumo et al., 2016).
Environmental Context – Regulatory pressure on the adoption of blockchain technology is
considered as a major potential challenge. The regulators have a crucial role to play in
various adoption stages of blockchain in accounting (Yeoh, 2017). It is needed for the
regulators to gain appropriate knowledge as well as understanding of the blockchain
technology along with its impact on the businesses. At the same time, the auditors also face
certain challenges in the use of blockchain technology in accounting (Dai & Vasarhelyi,
2017).
Conclusion
The above discussion shows that there has been major improvements in blockchain
technology through three phases that are phase 0.1, 0.2 and 0.3. Moreover, companies can
record their financial data effectively with the help of blockchain technology while they can
quickly share this information with the relevant parties. There is a relation between
blockchain technology and triple entry accounting system since extensive use of blockchain
technology can be seen in this accounting system for providing more efficiency in financial
reporting. Many advantages of blockchain technology helps in increasing the information
auditability while making its application effective in assurance services. However, it is
needed for the companies to consider the information technological, envirmental and
organizational challenges of the use of blockchain technology.

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References
Byström, H., 2019. Blockchains, Real-time Accounting, and the Future of Credit Risk
Modeling. Ledger, 4.
Dai, J., & Vasarhelyi, M. A. (2017). Toward blockchain-based accounting and
assurance. Journal of Information Systems, 31(3), 5-21.
Dorri, A., Kanhere, S. S., & Jurdak, R. (2016). Blockchain in internet of things: challenges
and solutions. arXiv preprint arXiv:1608.05187.
Gupta, S., & Sadoghi, M. (2019). Blockchain Transaction Processing.
Juarez, F. (2016). The Dual Aspects of Accounting Transactions and Asset Value Change in
the Accounting Equation. International Journal of Economics and Management
Systems, 1.
Juárez, F. E. R. N. A. N. D. O. (2016). The Dual Aspect of Accounting Transaction and the
Assets Claims on Assets Equivalence. International Journal of Economics and
Management Systems, 1, 39-43.
Juárez, F. E. R. N. A. N. D. O. (2016). The Dual Aspects of Accounting Transaction and the
Assets Claims on Assets Equality in Axiomatic Theory. International Journal of
Mathematical and Computational Methods, 1, 128-134.
Liang, X., Shetty, S., Tosh, D., Kamhoua, C., Kwiat, K., & Njilla, L. (2017, May). Provchain:
A blockchain-based data provenance architecture in cloud environment with enhanced
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Peters, G. W., & Panayi, E. (2016). Understanding modern banking ledgers through
blockchain technologies: Future of transaction processing and smart contracts on the

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internet of money. In Banking beyond banks and money (pp. 239-278). Springer,
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Swan, M., 2017. Anticipating the economic benefits of blockchain. Technology innovation
management review, 7(10), pp.6-13.
Woodside, J. M., Augustine Jr, F. K., & Giberson, W. (2017). Blockchain technology
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Management, 26(2), 65-93.
Yeoh, P. (2017). Regulatory issues in blockchain technology. Journal of Financial
Regulation and Compliance, 25(2), 196-208.
Yli-Huumo, J., Ko, D., Choi, S., Park, S., & Smolander, K. (2016). Where is current research
on blockchain technology?—a systematic review. PloS one, 11(10), e0163477.
Zheng, Z., Xie, S., Dai, H. N., Chen, X., & Wang, H. (2018). Blockchain challenges and
opportunities: A survey. International Journal of Web and Grid Services, 14(4), 352-
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