Incorporating Triple Entry Accounting as an Audit Tool—Enhancing Modern Accounting Systems

Abstract

Abstract: Despite the advancements in modern accounting systems, fraud remains a prevalent issue, necessitating extensive time and financial resources for audits. Integrating modern accounting ledgers with a public blockchain could facilitate easily verifiable accounting records, streamlining the audit evidence gathering and analytics process. Continuous audits could become feasible through readily available audit evidence from the public blockchain. The proposed audit solution aims to establish verifiable "Financial Fingerprints" (signed indexes) for each accounting entry, subsequently publishing them to specific addresses on the public blockchain. This initiative seeks to structure accounting ledgers in a Triple Entry Accounting format, where the third entry involves notarizing an index of each accounting entry on the public blockchain. The essence of Triple Entry Accounting lies in its atomicity, ensuring a single authoritative set of books. Any attempt to present an alternative set of books would be automatically detected. The approach to achieving this objective can be articulated through two value propositions. Firstly, Triple Entry Accounting offers a means to establish a provable official set of books, providing market access independent of network effects. Secondly, it aims to dismantle data silos by leveraging the blockchain as a shared ledger, thereby assisting auditors in efficiently gathering adequate audit evidence. With its standalone value proposition, Triple Entry Accounting offers benefits even before the network effect comes into play, leading to the development of an open standardized protocol for implementing it as an extension to modern accounting systems.