Governance Implications of Applying Internal Auditing Standards to Blockchain-based Decentralized Autonomous Organizations (DAOs)

Abstract

The research paper discusses governance implications, benefits, and challenges of applying internationally recognized internal auditing standards to the newly emerging Decentralized Autonomous Organizations (DAOs) that have quickly gained traction in the past years and are currently totaling market capitalizations of more than USD 20 billion globally. It is analyzed how standards established for traditional centralized organizations are compatible with a decentralized, often anonymous organization that makes decisions democratically based on majority votes while most operations are conducted autonomously subject to pre-defined self-executing smart contracts. After the technological attributes of blockchains, smart contracts, DAOs and other general considerations are determined, each IIA standard is applied separately and results are drawn from a qualitative analysis. The publication contains the major conclusions from a literature analysis followed by a summary of conceptual obstacles to complying with the standards in case of selecting a DAO as an organizational form which could make their overall legality impossible in a context where the implementation of an IA function is mandatory. Additionally, it is summarized how choosing a DAO can contribute and/or challenge compliance with the standards while giving a glimpse into what internal auditing could look like in the future.