“The first mile problem”: Deriving an endogenous demand for auditing in blockchain-based business processes

Michael Alles and Glen L. Gray

International Journal of Accounting Information Systems, 2020, vol. 38, issue C

Abstract: In this paper, we model the business process within which blockchain applications operate in order to extract an endogenous demand for auditing in that environment. We begin by undertaking a case study of the pharmaceutical drug industry supply chain, exploring both the proposed blockchain initiatives in it initiated by the FDA and startup companies, and the problems in the supply chain that blockchain cannot address. Drawing on this analysis, we derive an endogenous demand for auditing to overcome what we label the “first mile problem” (FMP) with blockchains: ensuring that the data stored on the blockchain distributed ledger is isomorphic with the real life data that it purports to represent. The first mile problem arises only when the blockchain is used to store data about physical items, especially ones involving a service component, rather than being native digital, as is the case with the genesis blockchain application, bitcoin. We show that unless it is feasible to store a “digital twin” of the item (Roberts, 2017), there is a role for auditors, with the training in professional skepticism, to help alleviate the first mile problem. There is no guarantee, however, that this new demand for auditing will be met by the traditional financial statement auditors.

Keywords: Blockchain; Bitcoin; First mile problem; Auditing (search for similar items in EconPapers)
Date: 2020
References: View complete reference list from CitEc
Citations: View citations in EconPapers (12)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ijoais:v:38:y:2020:i:c:s1467089520300324

DOI: 10.1016/j.accinf.2020.100465

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