An introduction to auditing DLT and blockchain enterprises
  • A member of the management team.

The audit domain is facing clients who are interested in Initial Coin Offerings (ICOs), crypto exchanges, digital wallets and other similar projects which will be requiring financial statement or other types of assurances services, raising various challenges both on the audit side and the regulatory side. The audit’s challenges are mainly due to a number of factors which will perhaps take longer to understand and adapt to, such that this article considers some of the salient particularities in auditing DLT-centric clients. 

Due to the particularities of DLT and blockchain technology, personnel forming part of the financial statements audit team will need to understand the technology itself, which often requires specialisation in IT auditing, cryptography and historical knowledge of the technology. In addition, legal considerations need also be taken into consideration, especially when auditing smart contracts and their derivatives.

Furthermore system audits need to be performed by personnel that are aptly educated an experienced in or at the very least have a strong base in ITC, assurance and accounting and legal aspects of DLT technology. 

Some of the practitioners involved in the audit of DLT technologies have proposed specialised and specific International Auditing Standards (IAS) specifically for tackling DLT audits. To date, literature is largely unknown, and the few pieces which are available on the subject matter of auditing DLTs are by unknown and unverified sources. 

Developing industry-adhered guidelines in order to ensure that an adequate level of assurance is given to the public is a prerequisite. More so, regulators will need to understand that the development of guidelines will require adaptation and must remain flexible. Furthermore a hybrid of an auditor-software-engineer-lawyer role or a team of such professionals tightly-knit and working seamlessly will be necessary to cater for DLT-intensive clients from an audit perspective. Such a role or team would entail significant support and investment for audit entities as they would have to furnish specific training for their personnel.

The rapid development of the technology and also to a certain extent the volatility of some of the various implementations of DLT technology (cryptocurrencies) again pose substantial challenges from an audit perspective. A team composed of specialist DLT auditors is a must for the technology itself is also complex, touching on compound mathematics, cryptography, networking, economics and finance.

Moreover, different countries and/or economic-cooperation zones have adopted different positions in relation to DLT technology, or are playing a wait-and-see game, which creates a scenario whereby the same transaction is treated differently in one domicile as against another for law and accounting purposes. 

While the above highlights some of the major challenges of auditing enterprises involved in DLT technology, the adoption of DLT by the client under review in itself could enhance the audit process. DLT technology is designed in such a manner where if structured correctly, with the right tools, it would provide an auditor a level of assurance which would otherwise not be available in reviewing non-DLT clients. The technology of itself could increase or enhance transparency , especially in tracing and tracking transactions through the audit chain, with the real possibility of the permanent ledger being available for recomputations and tracing beyond the period under testing, giving an auditor more options in testing data. In confirming the Ledger itself, an auditor should be in a position to place reliance on the completeness and accuracy of the transactions within, a unique advantage for an auditor.

Also, in the long run by embracing a number of tools the audit process could become more risk-focussed, while at the same time cheaper to conclude on.

On a general note, in order to cater for DLT clients and support our Blockchain Island, Maltese professionals, from auditors to lawyers, will need to continue investing significant time and resources in order to stretch and strengthen their skill set to prepare for what is surely to be an exciting time for the Maltese economy.


July 1, 2021