A written audit opinion on the financial and operational condition of an enterprise is the end result of a backward looking independent analog and digital examination of the financial and operational condition of an enterprise as well as its internal reporting controls. Audits and preparation for such are costly and time consuming. As part of the audit process, a randomized selection of data is examined and estimated by the independent auditor pursuant to audit procedures to assess the fairness of reporting data, which is based in part on the representations of the management of the enterprise and subject to management’s assessment of the adequacy and effectiveness of internal reporting controls. Current global regulatory disclosure frameworks make the presentation of financial statements untimely, highly conditional and subjective.
In order for an audit conclusion to be reached by the auditor and for a final comprehensive audit report to be issued, management of the enterprise must first perform its own evaluation of internal controls over financial reporting based on standards set by the Committee of Sponsoring Organizations of the Treadway Commission. Management must represent, not prove, that reporting controls are sufficent and effective and that such an evaluation was performed. Management also needs to share their assessment with the auditor which must include a list of all material weaknesses and deficiencies identified in the assessment.
Solution
Auditchain proposes to embody an ecosystem that includes a blockchain protocol and an open source library of accounting smart contracts sufficient to capture, process, audit and report enterprise data and performance data on a real time continuous basis under a continuous independent audit exceeding current accounting, audit and control standards. A public facing and/or permission based presentation layer proposes to render in real time, at the close of every block; balance sheet, income statement, cash flow and statement of changes in stockholders’ equity reports that has the capacity to far exceed the reliability of existing reporting standards.
Decentralized Continuous Audit and Reporting Protocol Ecosystem “DCARPE™”
Self-auditing state of a distributed ledger and the validation of transactions first occurred on January 4, 2009 with the launch of the genesis block of the Bitcoin blockchain(5). Continuous audit is evolving in theory and practice. Its practice is limited mainly to internal reporting controls. The application of jurisdictionally compliant accounting treatment to transactions and reporting system risk controls occurring in most business processes is now theoretically possible concurrently within and subject to a decentralized continuous audit environment pursuant to SSAE 18(12) and IASE 3402 standards through the use of configurable “Ricardian” type smart contracts(6)(7). Such contracts, as proposed in this paper, do not hold custody of value but instead execute commands for how legal conditions and value are treated based on a fixed or evolving arrangement.
Testing
The operational objective of the proposed implementation is tested to verify its functionality. AUDT fees are deducted from the collateral stake in connection with testing and paid to validating nodes. During testing, an evaluation of controls by Federated Nodes will determine the operational objective of the implementation and whether the controls are suitably designed to achieve the specified objectives. Upon confirmation and validation, the implementation, as proposed, is certified by Federated Nodes. A deduction of AUDT fees is made from the AUDT collateral stake in connection with the SOC certification and paid to Federated Nodes.
Decentralized Autonomous Organizations
There exists a belief that over time, the security design of decentralized autonomous organizations (17) will reduce the attack surface and will lead to feasible deployment. Theoretically, in order to support business processes and the interoperability of micro services within constellations of DAOs, the infrastructure of decentralized continuous audit and reporting protocol, as proposed herein must be implemented as a part of their foundational design in order for its ecosystem to effectively function and evolve.
More details and updates here:
Website: https://auditchain.com/
Whitepaper: https://auditchain.com/Auditchain-Whitepaper.pdf
ANN thread: https://bitcointalk.org/index.php?topic=5152521.0
Bitcointalk User Link: https://bitcointalk.org/index.php?action=profile;u=1718735