BLOCKCHAIN AND INTERNAL CONTROL: THE COSO PERSPECTIVE: AN INTRODUCTION AND BRIEF REVIEW

Abstract

As the title says this is an introduction and brief review of a long and rather complex study of issues related to internal controls over financial reporting (ICFR) and auditing the new distributed ledger technology known as Blockchain Ledgers. The report points out many of the control issues related to Blockchain Ledgers (BC), including potentially advantageous characteristics such as immutability and shared ledgers. It also addresses the new risks and needs for additional controls for which the search for solutions continues. Audit procedures have always followed technology advances, but they will never impede the innovation and related creative destruction that come with advancing business models. Much more work lies ahead, nevertheless, this COSO report is an excellent summary that will inform discussions about new control methods and methodologies. The COSO report has value for all readers including GRC professionals as well as C-suite and board members. However, the primary beneficiaries will be in tech support to the CFO and Chief Audit Executives, BC developers in company operations, and BC specialists in public accounting firms. This summary should inform all readers.

Notes

1. Link to COSO BC Report: https://www.coso.org/Documents/Blockchain-and-Internal-Control-The-COSO-Perspective-Guidance.pdf

2. Michael P. Cangemi & Gerard (Rod) Brennan (2019) BLOCKCHAIN AUDITING – ACCELERATING THE NEED FOR AUTOMATED AUDITS!, EDPACS, 59:4, 1-11Link to this article: https://doi.org/10.1080/07366981.2019.1615176

3. Satoshi Nakamoto “Bitcoin: A Peer-to-Peer Electronic Cash System” 2008. https://bitcoin.org/bitcoin.pdf

4. Software for the complexities of blockchain data with AICPA SOC certification. https://www.lukka.tech/

5. Joseph Schumpeter’s creative destruction: Link https://en.wikipedia.org/wiki/Creative_destruction

6. Wall Street Journal August 4, 2020 Companies Should Bolster Blockchain Controls, Risk Advisory Group Says - WSJ https://www.wsj.com/articles/companies-should-bolster-blockchain-controls-risk-advisory-group-says-11596588158

Additional information

Notes on contributors

Michael P Cangemi

Michael P. Cangemi is an author and board member. A former public accounting partner and director of audit technology, he went on to a wide-ranging business career having served as a CAE, CIO, CFO, and then in two CEO positions, as well as, on Boards and as AC Chair. Mr. Cangemi now has a significant focus on Fintech and specifically Continuous Monitoring, Analytics and Blockchain DLs for GRC, Finance, and Business Process Improvement.

He has served on the boards of COSO, ISACA, and the IIA, as well as, the advisory boards of the FASB and IASB. He is a long serving member of FEI’s CFIT Fintech Committee; a Senior Fellow at and serves on the Rutgers Continuous Auditing and Reporting Lab - Advisory Board; a Senior Advisor to CaseWare Analytics (CA & CM Analytics); he an investor in and serves on the Lukka Tech Advisory Board (Distributed Ledgers/Blockchain); and he is an investor in and periodic advisor to Solink Corp (Video & Contextual Analytics).

His experiences as a CAE were published in his second successful book, Managing the Audit Function. The book, now in a third edition, was featured in the business section of the Sunday New York Times in August 2002 and translated into Chinese in 2005 and Serbian in 2013. He has also published research papers, numerous articles, and blogs.