ACCT 531 Week 7 Individual Research Paper Example

Can a Shared Ledger Replace the Audit Trail? Blockchain, Triple-Entry Accounting and the Controls That Still Matter

Abstract

Blockchain technology is often presented as a way to make accounting records tamper-proof and to reduce the need for reconciliations, controls and audits. This paper reviews recent research in the Journal of Information Systems to assess that claim. It finds that blockchain-based triple-entry accounting remains largely theoretical, that the reliability of on-chain records depends on oracles that bring outside information onto the chain, and that evidence on adoption is mixed: investors reacted favorably to adoption announcements, some early adoption appears opportunistic, and adoption has been associated with lower litigation risk through stronger internal control. The paper argues that blockchain shifts the focus of control from recording to inputs rather than eliminating it, and it applies that conclusion to a composite distributor joining a supplier blockchain.

Introduction

For as long as accounting information systems have existed, the audit trail has linked a transaction's source document to its posting in the ledger and its appearance in the financial statements. Gelinas et al. (2015) describe how computerized systems replaced paper with logs, master files and database records, but the logic remained the same: a record is trustworthy if the controls that created it can be shown to have worked. Blockchain proposes a different logic. If every party to a transaction holds the same cryptographically linked record, and no one can alter it after the fact, perhaps the record itself becomes the evidence. This paper argues that blockchain can make records far harder to alter once they are recorded, but that it cannot assure that records describe real events, so the control problem moves to the point where information enters the chain rather than disappearing. The paper develops that argument in five steps: it explains blockchain and triple-entry accounting, reviews the state of research on triple-entry systems, examines the oracle problem and the responses researchers have proposed, considers what the technology means for auditors, and weighs the empirical evidence on firms that have adopted it. It then applies the findings to a composite distributor and closes with limitations.

Blockchain and Triple-Entry Accounting

On a blockchain, transactions are grouped into blocks, each linked to the previous one by a cryptographic hash, and validated by participants according to agreed rules. Changing an old record would require changing every later block and persuading the other participants to accept the change, which makes after-the-fact alteration very difficult. Blockchains differ in who may participate. Public chains allow anyone to validate transactions, while permissioned chains, the kind most businesses consider, restrict participation to approved members such as a company and its suppliers. That choice matters for accounting, because the reliability of a permissioned chain depends on the controls of the members who run it, not only on the cryptography. Triple-entry accounting builds on this property. In addition to each party's own double-entry records, the shared blockchain record of the transaction serves as a third entry that both parties can see and neither can alter alone. Thies et al. (2023), reviewing the literature, note that recent scandals such as Wirecard, Luckin Coffee and Steinhoff have prompted interest in triple-entry accounting as a defense against manipulation. Their central finding, however, is that research on the topic is almost entirely theoretical, with real-world implementations and their evaluation still missing. Sarwar et al. (2026), in a systematic review of 426 studies focused on business-to-business transactions, likewise describe the research as limited and primarily theoretical, and they identify performance determinants and challenges that must be resolved before the concept can be evaluated in practice. The gap between promise and evidence is important for accountants who are asked to advise on adoption. A technology that has been modeled but rarely implemented may still prove valuable, but its benefits cannot yet be assumed, and early adopters bear the cost of discovering its practical problems.

The Oracle Problem

The strongest limit on blockchain's promise is the gap between the chain and the world. Sheldon (2021) explains that blockchain improves data reliability only for transactions that happen entirely on the chain. When information about the outside world, such as the arrival of a shipment or the price of a commodity, is introduced through an oracle to trigger a smart contract, the reliability of the blockchain record depends on the reliability of the oracle. He proposes that auditors treat oracles as service organizations under the auditing standards and sets out control objectives for how oracles collect, store, transform and transmit information. Albizri and Appelbaum (2021) call the same dilemma the oracle paradox: the blockchain can prove that a record was not altered, but not that it was true when entered. Because people serving as oracles are susceptible to collusion, bribery, error and fraud, they propose a design in which Internet of Things devices act as the sole third-party oracle in a supply chain smart contract. A blockchain can guarantee that nobody changed a false record; it cannot make the record true. Both studies point to the same conclusion: controls over inputs, which Gelinas et al. (2015) treat as a core category of application controls, become more important on a blockchain, not less. The point can be made concrete with a familiar example. If a receiving clerk records a shipment that never arrived, a traditional system and a blockchain will both record a false receipt; the difference is that the blockchain will preserve the false record perfectly and may trigger an automatic payment through a smart contract before anyone reviews it. Automation that removes human review at the end of a process increases the importance of controls at its beginning.

Implications for Auditing

If the records on a blockchain are reliable once entered, the auditor's attention shifts toward the controls around entry and toward the design of the chain itself. Appelbaum and Nehmer (2020), using design science research, examine how auditors could approach transactions recorded on private or semi-private blockchains hosted in the cloud, and they identify data reliability, data security and transaction transparency as the central audit issues, along with the validation procedures each chain uses. Practice has not always kept pace. Practice has not always kept pace: drawing on practitioner interviews, expert workshops and auditor focus groups, Pimentel et al. (2021) documented audit firms' reluctance to take on cryptoasset clients and the resignations that left some companies without timely audited statements. Their conclusion is that auditing such clients is challenging but not insurmountable. Li and Juma'h (2022) help explain the hesitation: in a survey of 112 auditors, the fit between blockchain's features and auditors' task needs fully mediated acceptance, and perceptions depended on auditors' accounting knowledge, accounting software knowledge and technology awareness. Taken together, the studies suggest that the audit profession's readiness depends on building specific expertise rather than on the technology alone. For accounting firms, that means investing in training and specialist staff, and for companies, it means expecting auditors to ask detailed questions about how their chains are governed, who can add participants and how oracles are controlled before relying on any on-chain record.

Governance of Shared Ledgers

A further issue follows from the oracle and audit research: who governs a permissioned chain, and how. In a traditional system, a company controls its own access rules, change management and backups, and its auditor tests those controls. On a shared chain, some of those controls belong to the operator or to a consortium of members. If the operator can add participants, change validation rules or upgrade the smart contracts that release payments, those powers are general controls over the distributor's accounting data, even though the distributor does not exercise them. Gelinas et al. (2015) treat IT general controls as the foundation on which application controls rest, and the same logic applies here: a company joining a shared ledger should understand, and obtain evidence about, the general controls of the network as well as its own. In practice, that evidence may come from contractual rights to audit the operator or from an independent assurance report on the platform, much as companies rely on service organization reports for outsourced systems today.

Evidence on Adoption and Its Consequences

Empirical studies of adopting firms offer a mixed but informative picture. In an event study of 149 announcements made between 2015 and 2019, Jeong and Lim (2023) found that investors reacted favorably, especially when the technology was central to strategy and came from a leading vendor. Guo et al. (2021) studied the determinants of early adoption and found evidence that early adoption involved opportunistic managerial behavior, with their market-based analysis suggesting that taking up blockchain was likely to be slow and expensive. He et al. (2026), using 24,526 firm-year observations of Chinese listed firms from 2013 to 2021, found that blockchain adoption was associated with lower litigation risk and that the effect operated through improved internal control mechanisms. The last finding is especially relevant to accountants, because it suggests that whatever benefit blockchain provides arrives through the control system rather than replacing it. The three empirical studies also differ in what they measure. An event study captures investors' expectations on announcement, an adoption study examines who adopts and why, and a litigation study measures an outcome years later. Read together, they suggest that the benefits of blockchain are real for some firms but depend on how seriously the firm integrates the technology with its control environment, which is consistent with the conceptual research on oracles.

Application: A Distributor Joining a Supplier Blockchain

Consider a composite medical supply distributor invited to join a permissioned blockchain operated by its largest supplier, on which purchase orders, shipment confirmations and invoices will be recorded and a smart contract will release payment when a shipment is confirmed. The research suggests five controls. First, the distributor should identify every oracle that can trigger payment, such as the warehouse scanning that confirms receipt, and apply input controls and segregation of duties to it, as Sheldon (2021) recommends treating oracles as service organizations. Second, where possible, receipt should be confirmed by devices rather than by a single employee, following the logic of Albizri and Appelbaum (2021). Third, the distributor should obtain assurance over the chain's validation procedures and access rules from the operator, the audit issues Appelbaum and Nehmer (2020) identify. Fourth, its own accounting system should still reconcile on-chain records with its general ledger, because the blockchain records the supplier relationship, not the distributor's other transactions. Fifth, staff and auditors should be trained in the technology, since Li and Juma'h (2022) found that knowledge shapes acceptance and Pimentel et al. (2021) found that unfamiliarity left firms hesitant. Finally, the distributor should plan for failure: if the chain or an oracle is unavailable, or a smart contract releases a payment in error, there must be a manual procedure to stop payment, record the correction and reconcile the ledger, and someone outside the purchasing function should own that procedure.

Limitations

The research reviewed here is young. Much of it is conceptual or design-oriented, the empirical studies rely on announcements or adoption indicators that may not capture how deeply blockchain was used, and the litigation study comes from one country's markets. The conclusions should be read as a well-supported direction rather than a settled answer. As more firms move from pilots to production systems, archival studies with richer measures of blockchain use, and field studies of audits performed on blockchain-based records, should test the argument made here.

Conclusion

Blockchain can make accounting records far more resistant to alteration, and research suggests investors and, in one market, litigation outcomes respond favorably to adoption. But the research also shows that triple-entry accounting remains largely untested in practice and that the reliability of on-chain records depends on oracles that are as fallible as any input process. The audit trail does not disappear on a blockchain; it moves to the points where the world enters the ledger. For accountants, the implication is that blockchain is a reason to strengthen input controls, assurance over shared platforms and professional expertise, not a reason to abandon them.

References

Albizri, A., & Appelbaum, D. (2021). Trust but verify: The oracle paradox of blockchain smart contracts. Journal of Information Systems, 35(2), 1-16. https://doi.org/10.2308/isys-19-024

Appelbaum, D., & Nehmer, R. A. (2020). Auditing cloud-based blockchain accounting systems. Journal of Information Systems, 34(2), 5-21. https://doi.org/10.2308/isys-52660

Gelinas, U. J., Dull, R. B., Wheeler, P. R., & Hill, M. C. (2015). Accounting information systems (10th ed.). Cengage Learning.

Guo, F., Walton, S., Wheeler, P. R., & Zhang, Y. (2021). Early disruptors: Examining the determinants and consequences of blockchain early adoption. Journal of Information Systems, 35(2), 219-242. https://doi.org/10.2308/isys-2020-004

He, C., Fan, Y. H., Yue, X., Taylor, G., & Chen, Y. (2026). The effects of blockchain technology adoption on litigation risks. Journal of Information Systems, 40(2), 1-28. https://doi.org/10.2308/isys-2023-062

Jeong, A. Y., & Lim, J.-H. (2023). The impact of blockchain technology adoption announcements on firm's market value. Journal of Information Systems, 37(1), 39-65. https://doi.org/10.2308/isys-2021-038

Li, Y., & Juma'h, A. H. (2022). The effect of technological and task considerations on auditors' acceptance of blockchain technology. Journal of Information Systems, 36(3), 129-151. https://doi.org/10.2308/isys-2020-022

Pimentel, E., Boulianne, E., Eskandari, S., & Clark, J. (2021). Systemizing the challenges of auditing blockchain-based assets. Journal of Information Systems, 35(2), 61-75. https://doi.org/10.2308/isys-19-007

Sarwar, M. I., Khan, I., Maghrabi, L. A., & Nisar, K. (2026). A survey on blockchain-based triple-entry accounting in B2B context. Journal of Information Systems, 40(1), 25-45. https://doi.org/10.2308/isys-2024-004

Sheldon, M. D. (2021). Auditing the blockchain oracle problem. Journal of Information Systems, 35(1), 121-133. https://doi.org/10.2308/isys-19-049

Thies, S., Kureljusic, M., Karger, E., & Krämer, T. (2023). Blockchain-based triple-entry accounting: A systematic literature review and future research agenda. Journal of Information Systems, 37(3), 101-118. https://doi.org/10.2308/isys-2022-029