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Distributed Ledgers and Secure Multi-Party Computation for Financial Reporting and Auditing

Author

Listed:
  • Sean S. Cao
  • Lin William Cong
  • Baozhong Yang

Abstract

To understand the disruption and implications of distributed ledger technologies for financial reporting and auditing, we analyze firm misreporting, auditor monitoring and competition, and regulatory policy in a unified model. A federated blockchain for financial reporting and auditing can improve verification efficiency not only for transactions in private databases, but also for cross-chain verifications through privacy-preserving computation protocols. Despite the potential benefit of blockchains, private incentives for firms and first-mover advantages for auditors can create inefficient under-adoption or partial adoption that favors larger auditors. Although a regulator can help coordinate the adoption of technology, endogenous choice of transaction partners by firms can still lead to adoption failure. Our model also provides an initial framework for further studies of the costs and implications of the use of distributed ledgers and secure multi-party computation in financial reporting, including the positive spillover to discretionary auditing and who should bear the cost of adoption.

Suggested Citation

  • Sean S. Cao & Lin William Cong & Baozhong Yang, 2024. "Distributed Ledgers and Secure Multi-Party Computation for Financial Reporting and Auditing," NBER Working Papers 32763, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:32763
    Note: CF IO PR
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    More about this item

    JEL classification:

    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • D40 - Microeconomics - - Market Structure, Pricing, and Design - - - General
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • M42 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Auditing
    • M48 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Government Policy and Regulation

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