Auditing the Blockchain Oracle Problem

Author:

Sheldon Mark D.1ORCID

Affiliation:

1. John Carroll University

Abstract

ABSTRACT Blockchain brought about the potential for improved data reliability, but only when those data are the result of transactions that happen completely within a blockchain. The reliability of blockchain data is threatened when information is introduced from the outside world, such as when oracles are used to observe occurrences and provide this information to smart contracts. This specific threat to the reliability of blockchain data is known as the oracle problem. This study offers a working definition of blockchain oracles and argues that they should be viewed as service organizations under the auditing standards from the AICPA and PCAOB. The study then discusses risks associated with the oracle's function of collecting, storing, transforming, and transmitting information, and proposes control objectives for auditors to consider when evaluating the information provided by oracles. Finally, the study closes by discussing open questions the audit profession still needs to address with the oracle problem.

Publisher

American Accounting Association

Subject

Management of Technology and Innovation,Information Systems and Management,Human-Computer Interaction,Accounting,Information Systems,Software,Management Information Systems

Reference42 articles.

1. American Institute of Certified Public Accountants (AICPA). 2012. Audit Evidence. Statement on Auditing Standards No. 122, AU-C Section 500. New York, NY: AICPA.

2. American Institute of Certified Public Accountants (AICPA). 2016. An Audit of Internal Control Over Financial Reporting That Is Integrated with an Audit of Financial Statements. Statement on Auditing Standards No. 130, AU-C Section 940. New York, NY: AICPA.

3. American Institute of Certified Public Accountants (AICPA). 2018. Audit Considerations Relating to an Entity Using a Service Organization. Statement on Auditing Standards No. 122, 128, and 130, AU-C Section 402. New York, NY: AICPA.

4. American Institute of Certified Public Accountants (AICPA). 2019. Exposure Draft: Proposed Statement on Auditing Standards—Audit Evidence. Available at: https://www.icpas.org/docs/default-source/default-document-library/exposure-draft---audit-evidence.pdf?sfvrsn=fbf0b1d_0

5. American Institute of Certified Public Accountants and Chartered Professional Accountants of Canada (AICPA and CPA Canada). 2017. Blockchain technology and its potential impact on the audit and assurance profession. Available at: https://www.aicpa.org/content/dam/aicpa/interestareas/frc/assuranceadvisoryservices/downloadabledocuments/blockchain-technology-and-its-potential-impact-on-the-audit-and-assurance-profession.pdf

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