Establishing the representational faithfulness of financial accounting information using multiparty security, network analysis and a blockchain

Abstract

This paper aims to develop a design for an accounting information system that will enhance the representational faithfulness of financial reporting information. One of the functions of financial reporting is to aggregate and report the entity's private data. This paper shows that recognizing that some of the firm's private data is already shared with others allows the methods of multiparty security to be applied to the reporting and audit processes. We contend that using both public key cryptography and network analysis allows the identity of an entity to be modelled as a place on a network. We also develop accounting recordkeeping techniques to balance public access with privacy using a blockchain. Taken together, these three design ideas can enhance the representational faithfulness of financial reporting systems because they use shared data from independent entities, a transparent system, and open-access immutable storage. Faithful representation is enhanced because information from this system can be used by auditors to support their audit opinion or by stakeholders who need credible information about the entity.