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

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  • Alles, Michael
  • Gray, Glen L.

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.

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  • Alles, Michael & Gray, Glen L., 2020. "“The first mile problem”: Deriving an endogenous demand for auditing in blockchain-based business processes," International Journal of Accounting Information Systems, Elsevier, vol. 38(C).
    • Handle: RePEc:eee:ijoais:v:38:y:2020:i:c:s1467089520300324
    DOI: 10.1016/j.accinf.2020.100465
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    Cited by:

    1. Fábio Albuquerque & Paula Gomes Dos Santos, 2023. "Recent Trends in Accounting and Information System Research: A Literature Review Using Textual Analysis Tools," FinTech, MDPI, vol. 2(2), pages 1-27, April.
    2. Juma'h, Ahmad H. & Li, Yuan, 2023. "The effects of auditors’ knowledge, professional skepticism, and perceived adequacy of accounting standards on their intention to use blockchain," International Journal of Accounting Information Systems, Elsevier, vol. 51(C).
    3. Jesús Calderón & Theophanis C. Stratopoulos, 2020. "What Accountants Need to Know about Blockchain," Accounting Perspectives, John Wiley & Sons, vol. 19(4), pages 303-323, December.
    4. Alles, Michael, 2020. "Using the 2019 JBE conference and 2017 JIS themed issue as natural experiments to examine the role of editors as gatekeepers of the research literature in AIS and ethics," International Journal of Accounting Information Systems, Elsevier, vol. 39(C).
    5. Marco Bellucci & Damiano Cesa Bianchi & Giacomo Manetti, 2021. "A literature review on blockchain in accounting research," Working Papers - Business wp2021_04.rdf, Universita' degli Studi di Firenze, Dipartimento di Scienze per l'Economia e l'Impresa.
    6. Pizzi, Simone & Venturelli, Andrea & Variale, Michele & Macario, Giuseppe Pio, 2021. "Assessing the impacts of digital transformation on internal auditing: A bibliometric analysis," Technology in Society, Elsevier, vol. 67(C).
    7. Han, Hongdan & Shiwakoti, Radha K. & Jarvis, Robin & Mordi, Chima & Botchie, David, 2023. "Accounting and auditing with blockchain technology and artificial Intelligence: A literature review," International Journal of Accounting Information Systems, Elsevier, vol. 48(C).
    8. Zhenyuan Liu & Daniel Wilhelm Hansen & Ziyue Chen, 2023. "Leveraging Digital Twins to Support Industrial Symbiosis Networks: A Case Study in the Norwegian Wood Supply Chain Collaboration," Sustainability, MDPI, vol. 15(3), pages 1-18, February.
    9. Diego Valentinetti & Michele A. Rea, 2022. "Blockchain e bilancio di esercizio: verso una convergenza di interessi "distribuita"?," MANAGEMENT CONTROL, FrancoAngeli Editore, vol. 2022(2), pages 15-40.
    10. Klöckner, Maximilian & Schmidt, Christoph G. & Fink, Alexander & Flückiger, Leonie & Wagner, Stephan M., 2023. "Exploring the physical–digital interface in blockchain applications: Insights from the luxury watch industry," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 179(C).
    11. Ahmad A. A. Khanfar & Mohammad Iranmanesh & Morteza Ghobakhloo & Madugoda Gunaratnege Senali & Masood Fathi, 2021. "Applications of Blockchain Technology in Sustainable Manufacturing and Supply Chain Management: A Systematic Review," Sustainability, MDPI, vol. 13(14), pages 1-20, July.

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