The Future of Assurance and Corporate Governance: Blockchain and AI

This essay examines the transformative impact of blockchain technology and artificial intelligence (AI) on assurance and corporate governance. It delves into how blockchain's immutable ledger and transparency can enhance audit processes, automate transaction verification, and improve the level of assurance. The essay discusses the challenges, such as IT control risks and the need for auditors to adapt to new technologies, and how AI, including machine learning and deep learning, can aid in data analysis and fraud detection. It highlights the opportunities for streamlining audit processes, optimizing auditor time, and improving the quality of audits. The essay also explores the importance of assessing the operating effectiveness of internal IT controls and the need for auditors to develop expertise in these areas. It emphasizes that while blockchain promises enhanced security, human factors and IT risks must be addressed to ensure the technology's successful adoption in the field of assurance and corporate governance.

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Audit Process
Blockchain technology is the series of time-stamped for data’s immutable records
which is managed by the computers that single entity does not own. Data’s every block is
bound with one another and secured by using the cryptographic principles. Technology of
blockchain does not have any central authority. This is definition for democratized system.
As it is immutable ledger and shared, information within this is open to anyone who want to
view it. Hence, anything which is created on the blockchain is transparent (Apte and
Petrovsky 2016). Everyone involved in it is accountable for own actions. No cost of
transaction is carried out by blockchain. Blockchain technology is simple though ingenious
way to pass information from a point to another in full automated manner.
Process is initiated by transaction through creating block. The block needs to be
verified by several computers distributed over the net, thus creating record that are unique
having history which are unique. Falsifying a single record means falsifying overall chain. It
is impossible virtually. This model is used by bitcoin for the monetary transactions, however
it could be deployed by using several other processes. At basic level, technology of
blockchain is just chain of the blocks literally. Blocks on blockchain technology are
generated on information’s digital pieces (Lemieux 2016). Information is stored by the blocks
about the transactions such as time and date. Information related to person taking part in
transactions is also stored within the blocks. Information which distinguishes the block from
the other blocks is stored within the blocks.
When a block stores a new block, this is added with blockchain. For block added
blockchain, few things should take place. A transaction should take place. Verification should
be done for the transaction. After purchasing something, the transaction should be verified.
With blockchain, the job of vetting the latest data entries is left for the network of the

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computers. Block must store transaction. After verification of transaction as accurate, it gets
permission. Hash should be given for each block. It should be given identifying, unique code
known as hash. Block is provided also latest block’s hash that is added with blockchain
(Zikratov et. al. 2017). After this is hashed, that block might be added with blockchain. When
there is addition of new block to blockchain, this becomes available publicly for viewing by
anyone. Anyone could view contents of blockchain, however the users could opt in
connecting the computers to network of blockchain.
Blockchains are also resistant to the stored data’s modification. A blockchain could
serve as distributed, open ledger which could record the transactions among two parties in
permanent and verifiable way. The blockchain is used as the source to verify the reported
transactions. For instance, where in spite of asking the clients directly for the statements of
bank or by sending the requests of confirmation to the third parties, the auditors could verify
easily transactions that are available publicly on blockchain ledgers. Verification process’s
automation would drive the cost efficiencies within audit environment (Fridgen et. al. 2018).
Days of the substantive testing based on sample would be challenged soon, as the authors
would resort into technology of blockchain for testing transactions’ whole population within
period of observation. Such extensive coverage would improve the assurance level drastically
gained in the affected engagements of audit.
Within blockchain technology, transaction of the low value takes 10 minutes
approximately for being validated as one block verification could be deemed. The more
elapsed the blocks are before the transaction could be considered as verified, that is, further in
chain, more related transactions could be immutable. Transaction of high value would take 1
hour approximately for verification. Contrasting with the financial traditional transactions
where the information could take up to months for clearance (Sutton and Samavi 2017). This
real-time pseudo verification characteristic of blockchain could impact process of audit also.

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In spite of the assessments at the end of the year, the audit firms would be in position for
performing on-line continuous assessments through period of audit. At end of road of
blockchain, totally automated audits might be reality.
Assessment of the financial statement assertions like accuracy, occurrence,
completeness and existence of the information, are from prime candidates of audit
automation along with benefits from the timing perspective. An opportunity for streamlining
audit processes is offered by blockchain technology. Today, trial balances, supporting files of
spreadsheet, account reconciliations and journal entries are provided with CPA auditor within
variety of manual and electronic formats (Hofmann, Strewe and Bosia 2017). Every audit
starts with separate schedules and information which needs CPA auditor for investing enough
time while planning audit. In world of blockchain, CPA auditor might have data access
through nodes of read-only of blockchains. This might allow the auditor for obtaining
information needed in audit in recurring, consistent format.
Though the technology of blockchain promises the highly secured instances of
transactions fraud could not be totally eradicated. Blockchain’s successful adoption is
dependent highly on security of underlying environment. To be in position for providing
necessary assurance level, processes of audit should shift towards assessment of the operating
effectiveness of internal controls of IT. For instance, if bitcoin is sent by the employee of an
entity deliberately or accidentally to unauthorised or wrong address, there is no way currently
for reversing the transaction. Hence, the auditors are required for assessing whether if
automated effective controls are there for validating the transactions before their execution
(Benton and Radziwill 2017). If phishing attack is experienced by the entity, no department
of fraud are there in which to report like incident since within blockchain, central
administration is not there. Such situation could translate into fraud risk. While facing the

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risk, the auditors would be expected in determining whether the internal controls for
preventing and detecting the attacks of phishing are operating effectively.
Though technology of blockchain offers secure properties, humans would be coding
required software for integrating and interfacing with the blockchain. Auditors are needed in
understanding certain risks to financial statements of an entity rising from IT. With
blockchain technology’s rising adoption, auditors would need in raising the bar through
providing increased complicated assurance service within more agile environment of business
and for future digital transformations (Kwilinski 2019). Additional expertise and different
mind-set of professional audit would be needed for satisfying expectations of the business
owners and stakeholders in this world. To verify assets to establish proper internal controls
for ensuring security, the technology of blockchain presents concerns which the auditors
should address. The auditors lack training and background in IT currently for effectively
assessing the risks of technology of blockchain. For overcoming this, the auditors might
depend on computer scientist’s technical expertise who are specialists of technology of
blockchain (Kokina, Mancha and Pachamanova 2017). However, audit process through
technology of blockchain should be made accessible and developed as well.
Apart from technology of blockchain, several other technical advancements are there
which could be used by the audit firms such as Artificial Intelligence (AI). AI enables
analysis of data and could identify exceptions or outliers. AI describes the computing system
which exhibit human intelligence’s few forms. It covers few interlinked technologies which
include image recognition, machine learning, speech recognition, sentiment analysis and data
mining. Machine learning is used for automatically coding the accounting entries (Peters and
Panayi 2016). Through creation of sophisticated models based on machine learning, the
auditors could improve also detection of fraud. Audit is about to be transformed further

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through deep learning, an AI’s form which could analyse the unstructured data like emails,
audio files and posts of social media.
Tools of machine learning allow the auditors for analysing larger quantity of contracts
like leases, in quite shorter frame of time than possible with manual traditional review. Tools
of AI are able for accurately extracting data from the lease contracts by using criteria in
maximum cases, higher precision level when compared to average reviewer of human. It
makes this possible for the auditors in working smarter and better. AI would help the auditors
for optimizing their time and enabling them in using human judgement to analyse broader set
for documents and data (Kokina and Davenport 2017). It enables them also in asking better
questions as well as for interacting more with audit committees, company boards and CFOs,
thus adding value within process of audit. In such way, AI might contribute for providing
audits of better quality as well as exciting and easier future for the auditors. AI would help
the auditors in optimizing their time.
With proliferation of internet last couple of years, it is experienced that exponential
progression is there towards digital world. Technology of blockchain is set as next step for
such evolution. While the design of blockchain seems sound with respect to security,
environment of blockchain is susceptible still to several risks of technology. The efficiencies
which would be gained by automation of audit are balanced likely by requirements of new
procedures for addressing the risks related to environment of blockchain (Issa, Sun and
Vasarhelyi 2016). Such developments would shape audit of blockchain in where the IT
controls would gain more essential role to provide assurance that is reasonable where
financial statements might be free as whole from the material misstatement.

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