Blockchain Drives Audit Innovation, and Digitalization and Intelligence Empower High-Quality Development

Xiaodong Zhou
(School of Accounting, Guangdong Technology College, Zhaoqing 526100, China)

Abstract

Establishing a comprehensive risk management system and a sound, effective internal control mechanism are essential conditions for enterprise survival and healthy development. This paper elaborates on how the digital transformation of auditing facilitates the achievement of internal audit objectives and enhances internal control effectiveness. Blockchain technology, distinguished by its excellent characteristics of distributed decentralization, authenticity, transparency, and immutability, will drive fundamental changes in financial and accounting operations as well as audit supervision methods. Blockchain technology is poised to become a catalyst for an audit revolution, comprehensively empowering audit and risk management functions. The paper introduces JD.com's blockchain-based ABS standardization solution, along with the industrial blockchain initiatives of Tencent and TCL Group, which demonstrate how low-cost, reliable transmission of trust and value can be achieved. These cases confirm that the close integration of blockchain technology with corporate finance and auditing can strengthen internal controls and play a vital role in risk prevention and control during business operations. "Blockchain + auditing" enables online real-time auditing, risk assessment, and early warning systems, making data analysis the core of audit content. Consequently, "blockchain + auditing" will become a powerful instrument for enterprise internal control and risk management.

Keywords: blockchain technology; blockchain + auditing; supply chain finance; internal control; risk management

1. Introduction

Strengthening and standardizing enterprise internal control is a critical prerequisite for improving management standards, enhancing risk prevention capabilities, and promoting sustainable development. Internal control refers to the methods, procedures, and measures established among various functional departments to organize, constrain, evaluate, and regulate business activities in order to achieve management objectives. In the era of digital intelligence, intensified market competition exposes enterprises to ubiquitous risks. To prevent risks before they occur and mitigate them at the appropriate time, enterprises must advance their internal control systems. Through training and education, management at all levels and all employees should recognize and embrace the significance of internal control in corporate governance, fully understanding its necessity and vital role. Organizations should establish structures, systems, and processes that are timely, efficient, cost-saving, profit-generating, and risk-controlling, ensuring effective implementation across all business segments, departments, and positions.

In October 2019, President Xi Jinping emphasized during a collective study session of the Political Bureau that blockchain technology plays a crucial role in technological innovation and industrial transformation. He called for breakthroughs in key core technologies, enhanced independent innovation capabilities, accelerated development of blockchain technology and industries, and greater contributions to building a cyber powerhouse, developing the digital economy, and supporting economic and social development. The 20th CPC National Congress Report states: "We will continue to focus the economic development on the real economy, promote new industrialization, and accelerate the building of a manufacturing, quality, aerospace, transportation, and cyber powerhouse, as well as a digital China." The digital economy era represents a process where new-generation information technologies—including 5G, cloud computing, big data, IoT, artificial intelligence, mobile internet, and blockchain—are comprehensively applied to all aspects of economic, social, and daily life. As a key tool for corporate governance, internal audit inevitably faces opportunities and challenges brought by digital transformation. By pursuing digital transformation in auditing, enterprises continuously strengthen audit functions, enrich audit perspectives, and enhance audit effectiveness. This transformation has become an inevitable choice for internal audit to adapt to the digital trend and support high-quality development. "Blockchain + auditing" enables online real-time auditing, risk assessment, and early warning, representing a crucial measure for audit digital transformation.

China's Ministry of Finance issued the "Accounting Informatization Development Plan (2021-2025)" in December 2021 (Cai Kuai [2021] No. 36), which states: "Improve the informatization supporting construction of internal control systems to promote effective implementation of internal control systems" [1]. Therefore, enterprises should timely identify and assess internal and external risks related to control objectives and determine appropriate risk response strategies. Based on risk assessment results, they should conduct corresponding control activities to keep risks within acceptable limits. Countless facts and lessons repeatedly prove that establishing a comprehensive risk management system and a sound, effective internal control mechanism are vital for enterprise survival and healthy development. To fulfill its responsibility of evaluating and improving organizational risk management, control, and governance processes—and to transform from compliance-based, single-focus auditing to consultative, continuous auditing—internal audit must fully apply cutting-edge information technology. This expansion should extend the temporal scope from post-event to during-event and pre-event, the spatial scope from accounting to business operations and governance, and the information scope from offline, scattered data to online, integrated data. "Audit digitalization focuses on comprehensive, multi-angle, and in-depth big data analysis. Enterprises strive to use audit digitalization to accurately respond to external supervision, deeply explore internal risks, and timely identify development opportunities, providing greater value for enterprise development in the digital intelligence era (Ernst & Young, 2022) [2]."

In recent years, the deep integration of industrial digitalization and digital industrialization has made production and operation activities across industries increasingly dependent on digital technologies such as big data, artificial intelligence, blockchain, and cloud computing. Data has become an important production factor alongside land, capital, labor, and technology. As corporate strategic decision-making, production operations, and management methods gradually become digitalized, the objects, methods, and tools of internal audit must evolve accordingly. Faced with real-time, massive, and diverse data, internal audit must respond quickly, process information efficiently, and conduct multi-dimensional analysis to fully perform its functions. Audit digitalization achieves full-lifecycle digital management of internal audit by integrating enterprise data, building scientific analysis platforms, embedding closed-loop rectification processes, and outputting process optimization recommendations, thereby supporting organizations in fully leveraging internal audit functions.

As an important governance tool, internal audit provides significant support for ensuring compliant and stable operations as well as efficient and stable functioning. Faced with rapidly changing market environments, fast-evolving science and technology, and continuously improving regulatory policies, internal audit must innovate audit methods, optimize audit strategies, and enhance audit effectiveness. Audit digitalization supports the orderly integration of multiple steps including data processing, data analysis, and data application; enables flexible use of various methods such as remote auditing, continuous auditing, and agile auditing; and facilitates comprehensive implementation of functions including customized model development, industry best practice benchmarking, and real-time monitoring and alerting. This reduces audit implementation costs, improves audit efficiency, and promotes the transformation of audit results, providing support for enhancing internal audit effectiveness. In the digital economy era, blockchain technology is widely applied in finance, IoT, e-commerce, and intelligent manufacturing. As blockchain technology matures, it will undoubtedly make significant contributions to the audit field. With its unique advantages of distributed decentralization, transparent ledgers, and openness, blockchain will enable comprehensive enterprise auditing, automated tax reporting, and real-time operational monitoring, improving audit data quality and authenticity and facilitating the transformation and upgrading of audit models. Blockchain technology offers unparalleled advantages in improving audit quality and efficiency, expanding the breadth and depth of audit supervision, and enabling real-time auditing.

2. Characteristics and Technical Architecture of Blockchain Technology

2.1 Concepts of Blockchain and Blockchain Technology

Blockchain refers to a technical solution that collectively maintains a distributed, trusted database through decentralized (or multi-central) and trustless mechanisms. In this system, any number of participating nodes process and record data exchanged within a certain period into a data block using cryptographic algorithms. The block's fingerprint is generated to link to the next block and for verification, with all participating nodes jointly determining the authenticity of records. "Blockchain is a collective term for technical solutions similar to non-relational databases, which developers can implement using various programming languages and architectures (Li Liwei, 2021) [3]."

A blockchain consists of a chain of blocks. Each block stores certain information and is connected in chronological order. This chain is stored on all servers, and as long as one server in the entire system remains operational, the entire blockchain remains secure. These servers are called nodes in the blockchain system, providing storage space and computing power support for the entire blockchain. To modify information in the blockchain, consent from more than half of the nodes is required, along with modification of information in all nodes. Since these nodes are typically controlled by different entities, tampering with blockchain information is extremely difficult. Compared to traditional networks, "blockchain has two core characteristics: first, data is difficult to tamper with; second, it is decentralized. Based on these two characteristics, information recorded on the blockchain is more authentic and reliable, helping to solve problems of mutual distrust among people (Lin Yalong, 2021) [4]." Blocks contain transaction information for specific transactions, block root hashes (Hash, generally translated as hash or digest; transforming arbitrary-length input into fixed-length output through a hash algorithm), timestamps (Unix timestamp, a sequence of characters or encoded information identifying when a specific event occurred, usually providing date and time, sometimes precise to a fraction of a second), and other data. The timestamp includes the time information when the block was generated and linked to the main chain, while other data mainly includes block signature information and random values. Overall, blockchain technology is a new technology formed by cross-integrating different disciplines including cryptography, mathematics, computer science, network science, economics, and logic.

2.2 Characteristics of Blockchain Technology

Blockchain is the cornerstone of building trust, enabling trustworthy networks for credit transmission and value transfer. "Blockchain focuses on building secure and reliable blockchain infrastructure, enabling enterprises and governments to quickly and efficiently build blockchain networks and industry applications, achieving trustworthy and rapid flow of capital, logistics, and information, and efficient and trustworthy collaboration, helping to reduce collaboration costs and improve efficiency (Huawei Cloud, 2023) [5]." A system with the following three properties constitutes a blockchain: first, blockchain is a distributed database (system) placed in an insecure environment; second, blockchain uses cryptographic methods to ensure that existing data cannot be tampered with; third, blockchain uses consensus algorithms to reach consensus on new data (Technical彼岸, 2023) [6].

2.2.1 Distributed Decentralization

Distributed decentralization is the most prominent characteristic of blockchain. Each node on the blockchain can achieve self-management without relying on a central node. Blockchain data transmission adopts a "peer-to-peer" model. Regardless of which node inputs data, the data is transmitted to the blockchain cloud, and other nodes automatically record transaction information, thereby achieving distributed recording, storage, and updating of data. Since the blockchain system stores data information in the cloud, any node on the blockchain system can become a host and a temporary center. Any block is a data unit and a record, with multiple parties participating in bookkeeping, information writing, and maintenance. The advantages of distributed decentralization systems mainly include improved efficiency, avoidance of system paralysis caused by central node failures, public transparency and immutability of information, reduced transaction costs, savings in human resources and risk control, and ensuring universal bookkeeping and the realization of public ledgers.

2.2.2 Authenticity, Public Transparency

Through technological innovation, blockchain relies on common algorithms and trust networks established between machines to eliminate third-party certification, credit endorsement, and guarantees, forming a new credit mechanism that fundamentally changes centralized credit mechanisms. Before data is entered into the blockchain, it is reviewed according to publicly standardized algorithmic criteria to promptly identify abnormal data and achieve real-time transaction verification. After data entry, all relevant nodes on the blockchain jointly determine the accuracy of records, greatly reducing room for fraud and effectively preventing falsification, enabling real-time audit tracking of data. Since all data on the blockchain is time-stamped, it cannot be arbitrarily tampered with and is irreversible, ensuring data authenticity and validity. Because data information on the blockchain system can be reviewed, traced, and restored to original transaction records by all relevant nodes, data transparency is ensured.

2.2.3 Immutability

Blockchain systems use cryptographic technology to encrypt identity proof information to ensure online transactions between parties and prevent data tampering during transmission. Since blockchain systems adopt a distributed, decentralized database approach, each node on the blockchain can obtain a complete copy of data information. Once verified information is added to the blockchain, it is permanently stored. Unless more than half of the nodes can be simultaneously controlled, modifications to a single node's database are invalid. Data cannot be arbitrarily tampered with, ensuring extremely high data reliability and security.

2.2.4 Anonymity, Openness, and Autonomy

Based on a trustless mechanism, each participating node on the blockchain is anonymous, and nodes do not need to disclose identity information or trust each other. Transaction parties transmit information through specific network addresses, and only those with private keys can open corresponding "wallets." The blockchain system is open to the outside world, and anyone can query and use relevant data except private information through public blockchain nodes, making the entire system highly transparent and open. All nodes on the blockchain system use the same protocols and standard requirements. Based on a mutually trusted environment, any node can freely and efficiently record, update, and store data, with each node successfully achieving self-querying, browsing, and maintenance of its own database.

2.3 Technical Architecture of Blockchain

The blockchain technical architecture mainly includes the physical layer, data layer, network layer, consensus layer, and application layer.

2.3.1 Physical Layer: Focus on Network, Storage, and Computing Resources

Blockchain nodes are typically composed of servers, edge nodes, and IoT devices. The scheduling of servers and allocation of network and storage resources are essential elements of the blockchain infrastructure. Cloud computing technology can be perfectly combined with blockchain infrastructure, bringing advantages in availability, trust, security, scalability, and data management. The underlying construction of cloud computing can provide network, storage, and computing resources for the blockchain physical layer. The combination of the two can be used to ensure enterprise security architecture. Blockchain as a Service (BaaS) implemented through cloud computing platforms is an indispensable part of blockchain infrastructure. "Major cloud service companies such as IBM and Microsoft Azure have developed and deployed BaaS platforms, providing the use of cloud computing services to develop, use, and host their blockchain applications, functions, and smart contracts (Li Zhengmao et al., 2022) [7] (P.280)."

2.3.2 Data Layer: Key Technologies Include Account Models and Blockchain Data Structures

Currently, blockchain widely adopts the UTXO (Unspent Transaction Output) model and the Account model. UTXO records based on spent inputs and outputs in transaction records, with advantages of being stateless, having good concurrency performance, and reducing computing resource consumption, but with the disadvantage of poor state space utilization. The Account model is similar to real life, where each address is an account and each transaction updates account balance status and other information. Its advantages include high programmability and suitability for providing complex services such as smart contracts. Therefore, the Account model is more suitable for infrastructure account model technology. There are two main mature schemes for blockchain storage data structures: chain structure and Directed Acyclic Graph (DAG). The chain data structure is a widely adopted scheme, where blocks are interconnected to form a "blockchain," with each block containing transaction data, random numbers, timestamps, etc. The advantage of DAG data structure is that transactions can be executed concurrently without transaction throughput bottlenecks, can be horizontally scaled by increasing the number of nodes, and has fast transaction confirmation speed. However, it has not been widely adopted, and currently, blockchains using this technology are mainly Hedera Hashgraph and Fantom.

2.3.3 Network Layer: Focus on Distributed Network Mechanisms

This includes P2P (peer-to-peer) networking, data propagation, and message verification. The network layer is also called the P2P layer or propagation layer, responsible for node communication and world state propagation. The network layer ensures that nodes can discover each other, communicate, propagate, and synchronize to maintain the effective current state of the blockchain network. A P2P network is a computer network where computers (nodes) are distributed and share the network workload to achieve the ultimate goal. "Nodes executing transactions on the blockchain are divided into two types—full nodes and light nodes. Full nodes ensure transaction verification and confirmation, mining, and execution of consensus rules. They are responsible for maintaining trust in the network. Light nodes only retain blockchain headers and can send transactions (Li Zhengmao et al., 2022) [7] (P.281)." Blockchain utilizes distributed networks where everyone can download all information on the blockchain and interact with it. Blockchain platforms mainly use decentralized networks and distributed networks. In distributed networks, nodes are geographically distributed, completely avoiding the drawbacks of centralized networks and ensuring network robustness and stability. The main idea of distributed networks is that each node can access and obtain equal access rights, making it more suitable as the underlying network technology for infrastructure construction.

2.3.4 Consensus Layer: Core is Consensus Mechanisms

Consensus mechanisms are the core of blockchain, and the consensus layer is the most critical and important layer of any blockchain. Consensus is responsible for verifying blocks, sequencing them, and ensuring agreement among all nodes. "Currently, mature technologies include PoW (Proof of Work), PoS (Proof of Stake), DPoS (Delegated Proof of Stake), PBFT (Practical Byzantine Fault Tolerance), and RAFT (Replicated and Fault Tolerant) (Li Zhengmao et al., 2022) [7] (PP.281-282)." As the most classic consensus algorithm, PoW achieves consensus among nodes by calculating block hashes. Its advantages are simplicity and efficiency, allowing anyone to participate, but its disadvantage is wasting computing resources, making it unsuitable for infrastructure technology selection. PoS consensus obtains block writing rights by staking tokens in the blockchain, with advantages of low energy consumption and fast consensus speed, but the disadvantage is that the blockchain needs a token system. DPoS is a consensus algorithm based on shareholder elections, which can significantly reduce the number of nodes participating in consensus compared to PoS, achieving fast consensus verification, but it also relies on token incentives in the blockchain network. The PBFT consensus protocol is a Byzantine fault-tolerant replication algorithm suitable for private and consortium chain scenarios requiring strong consistency, while RAFT is a voting-based consensus solution designed to make the Paxos algorithm easier to implement and understand in practical scenarios. RAFT achieves low latency and high throughput, but its overall performance depends on the working status of the leader node, resulting in low fault tolerance. Hybrid consensus combines the advantages of the above consensus mechanisms to form a layered consensus mechanism that balances decentralization and efficiency, meeting the efficiency requirements for building blockchain infrastructure.

2.3.5 Application Layer: Provides Smart Contract Capabilities

The contract layer focuses on using smart contracts, algorithms, and various scripts to implement complex programmable transactions in the blockchain. A set of state response rules known as smart contracts is used to express business logic, control digital assets, and determine participants' rights and obligations. If two or more participants agree to all terms in a smart contract, the contract will be cryptographically signed and broadcast to the entire network. Once conditions are met, the smart contract will automatically and independently execute according to predefined rules. Similar to transactions in the blockchain, a smart contract is a self-executing program whose inputs, outputs, and states are verified by every node in the network. To implement transaction logic, each blockchain system uses its own programming language. The application layer is where clients or end-users reside. Client applications initiate transactions to start business workflows. This layer constitutes the central user interface for distributed ledger technology that provides products and services, including various business applications such as digital identity, market security, intellectual property, and IoT. Applications can communicate with network nodes using software development kits (SDKs) in specific languages or command-line interface tools provided by blockchain implementations. These applications help optimize business management and provide new services. The application layer includes frameworks, user interfaces, APIs, and scripts that end-users can utilize to interact with the blockchain network. It has a sublayer called the execution layer, which contains the actual executed code and rules.

3. The Multi-Party Trust Characteristics of Blockchain Facilitate Credit Risk Management

Blockchain is a distributed ledger technology that is essentially a shared database. Data or information stored in it features non-forgeability, complete traceability, transparency, collective maintenance, and multi-party sharing. Based on these characteristics, blockchain technology establishes a solid foundation of trust and creates reliable cooperation mechanisms. It creates a new paradigm—a protocol about trust—based on which an internet of value for transferring value may be built. At its most fundamental level, ledgers depict economic and social relationships. Consensus on ledgers and precise trust are cornerstones of the market economy. Encrypted global distributed independent ledger networks provide an alternative operating model beyond the management of governments, central banks, or any monopolistic central institutions, shaking the traditional trust mechanisms at the core of finance and creating a technology-based social trust system. For existing financial ecosystems designed around centralized institutions, blockchain's emergence brings tremendous disruption. Blockchain evolves bilateral trust or central trust mechanisms in social systems into multi-party trust and social trust, enabling people to build credit across time and power constraints.

To standardize blockchain technology services, China's Cyberspace Administration issued the "Regulations on the Management of Blockchain Information Services" on January 10, 2019. On May 23, 2023, the national standard "Blockchain and Distributed Ledger Technology—Reference Architecture" (GB/T 42752-2023) [8] was officially released and implemented on December 1, 2023, marking China's first national standard in the blockchain technology field. Beyond digital currency applications, blockchain technology is also applied in numerous scenarios.

3.1 Blockchain Technology Shows Great Potential in Corporate Finance and Auditing Systems

Financial fraud incidents in listed companies occur from time to time. According to China Securities Regulatory Commission reports, in 2020, the commission investigated 59 cases of financial fraud and other illegal acts among listed companies, accounting for 23% of information disclosure cases. Listed company financial fraud incidents exhibit the following characteristics: First, financial fraud cases show a full-chain pattern with complexity and systematicity, primarily manifested as fabricating entire business chains and implementing systematic financial fraud. Second, fraud methods are constantly emerging and hybridizing, with certain concealment. In addition to "old methods" such as forging bank and logistics documents, fabricating contracts, and using fake invoices, fraudsters also employ concealed new methods using overseas businesses or new financial instruments. Third, financial fraud motives are diverse, including performance commitment pressure, market value management, and covering up misappropriated funds. This indicates that accounting treatment in listed company financial systems still has many difficult pain points (Hu Cuihua et al., 2022) [9] (P.75).

3.1.1 Real-Time On-Chain Auditing Helps Timely Identify Risks and Implement Control Measures

Developing financial systems based on blockchain technology requires substantial human, material, and financial resources. Considering technical capabilities, input-output ratios, and other factors, most listed companies find it difficult to invest heavily in updating blockchain-based financial systems. Moreover, if listed companies develop their own systems independently, the standardization of their financial systems would be difficult to unify. Blockchain underlying technology professional companies possess superior core technologies, technical talents, and R&D expenses compared to self-developed financial systems of listed companies. If blockchain technology companies can provide listed companies with financial platforms similar to those of China's Yonyou and Kingdee, the following advantages would emerge: First, listed companies' financial business processes would become more efficient, as distributed workflows developed through smart contract technology would achieve electronic financial processes and improve collaborative efficiency. Second, financial costs would be lower, as the distributed ledger characteristics of blockchain would significantly shorten financial approval process cycles. Third, blockchain's transparent, shared, and tamper-proof characteristics would ensure the authenticity of listed companies' finances, promoting a virtuous cycle of financial information disclosure and enhancing standardization. Fourth, business supervision and enterprise risk management would be more convenient, as regulatory and audit institutions could conduct real-time on-chain audits of listed companies, helping enterprises timely identify risks and implement corresponding control measures.

3.1.2 Blockchain Contract Functions Ensure Traceable and Tamper-Proof Contract Information

Ant Technology Group's blockchain smart contract platform includes identity management, compliance management, and regulatory modules. The identity management module primarily confirms transaction authenticity from enterprise business registration information and IP addresses. Compliance management manages supplier and seller information, cooperating with electronic contract signatures and contract summaries in the financial system to confirm contract signing compliance. The regulatory module can set signing personnel permissions and monitor and audit contract transactions. Ant Technology Group's blockchain platform ensures third-party contract deposit and security in storage. Digital signatures based on asymmetric encryption technology can ensure contract integrity and compliance while determining contract sources, making them tamper-proof and non-repudiable. The drafting, signing, sending, electronic signature, custody, querying, and modification of blockchain contracts are all conducted on Ant Technology Group's blockchain platform. Once a contract is successfully signed, a request is sent to proxy nodes. Once most proxy nodes confirm consensus, the node chain updates blocks with contract information to ensure contract information is easily traceable and tamper-proof.

Ant Technology Group's blockchain platform features blockchain electronic bill/electronic invoice functions. During audits of various listed companies such as financial firms and construction companies, internal and external auditors often can only obtain copies of invoices or bank receipts, making authenticity difficult to guarantee. Large companies processing travel expense reimbursements frequently complain about slow processing, cumbersome procedures, and inaccurate amounts. It is difficult for internal and external auditors to review problems among thousands of invoices and bills in a short time. Effectively handling bill circulation issues during internal and external audits helps enterprises prevent financial fraud. Additionally, in annual audits, confirmation inquiries and mailing costs are high and responses are untimely, causing difficulties for external auditors and corporate financial personnel. The bill circulation process involves numerous participants, leading to inefficient circulation and opaque information. The cost of supervising underlying invoices and bills increases, audit efficiency is low, and material fraud is prone to occur (Hu Cuihua et al., 2022) [9] (PP.76-77).

3.2 Blockchain Applied to Asset Securitization: Using Modern Digital Technology to Prevent Credit Risk

3.2.1 JD.com Launches First Blockchain ABS Standardization Solution

In recent years, based on continuous integration and innovation of blockchain technology with financial scenarios, JD Digits has focused on trustworthy enterprise-level blockchain services. Concentrating on supply chain management and digital finance for industrial innovation integration, it has built an independently innovative blockchain open-source underlying technology engine. In the past, due to information security and transparency concerns, multiple parties including plan managers, law firms, rating agencies, accounting firms, and custodian banks had numerous business communication processes, time-consuming data verification, high communication and trust costs, and relatively slow asset securitization processes. Through a blockchain distributed architecture building a multi-party collaborative network system, on the one hand, multi-party information authorization visibility improves information acquisition efficiency in business execution and enables穿透式监管 (penetrating supervision) of underlying assets; on the other hand, relying on smart contracts and other technologies, business originally requiring offline execution is moved on-chain, improving multi-party business collaboration efficiency and reducing execution costs.

JD Digits has jointly authorized information visibility with multiple institutions, improving efficiency, penetrating underlying assets, monitoring smart asset quality, and automatically assisting with reconciliation. In June 2019, JD Digits launched the market's first blockchain ABS standardization solution, becoming one of the most representative technology output directions in the financial field. Through JD Digits' independently developed JD.BaaS (Blockchain as a Service) platform, it helps ABS business participants including asset parties, plan managers, law firms, rating agencies, accounting firms, and custodian banks optimize business processes and improve ABS issuance efficiency. After the blockchain network solution is completed, a new ABS business node can be connected within two days. Compared with the original technical solution, deployment time can be reduced by 85%, saving over one million yuan in operation and maintenance costs per business node annually, while effectively improving system transparency and accountability among business participants and better ensuring the secure use of financial-related data (Huanqiu.com, 2020) [10].

From a builder of "trusted supply chains" to a practitioner of "digital finance innovation," JD Digits has always regarded blockchain as a core technology for enterprise development, deeply participating in the technological transformation wave of China's financial industry. Since formally establishing a blockchain technology team in 2016, launching the "Zhizhen Chain Anti-Counterfeiting Traceability Platform" the following year, and subsequently releasing JD.Chain (a blockchain framework system designed specifically for enterprise applications) and JD.BaaS, as well as introducing the ABS standardization technology solution, JD Digits has developed a complete blockchain technology and service architecture through practice in rich scenarios.

3.2.2 Baidu Finance and Other Institutions Jointly Issue Blockchain-Supported ABS

In June 2016, Baidu invested in a blockchain technology payment company called Circle (founded in 2013, a US fintech startup providing payment and transfer services based on blockchain technology; established Circle China in 2016). In May 2017, Baidu Finance jointly issued a blockchain-supported ABS project with other financial institutions.

Don Tapscott, known as the father of the digital economy, once said: "Blockchain technology will have extensive and profound impacts on future society and will become the most influential black technology in the coming decades (Fang Lifei & Liu Guiying, 2020) [11] (PP.6-7)." Tapscott's words reveal the tremendous driving role of blockchain in all aspects of social production and life. The blockchain wave has spread across various fields globally, forming an unstoppable momentum.

4. Industrial Blockchain Reduces Financial and Legal Compliance Risks While Facilitating Financing

4.1 Blockchain Applied to Supply Chain Finance: Efficient Risk Control and Convenient Financing

After all nodes in the industrial supply chain are on-chain, blockchain's private key signature technology ensures the reliability of data from core enterprises and others. Putting contracts, bills, and other documents on-chain digitizes assets, facilitates circulation, and achieves value transfer. Blockchain accurately identifies pain points for small and micro enterprises and financial institutions within the supply chain system. In most supply chains, core enterprises (or chain masters) have strong bargaining power and typically do not use cash transactions with suppliers but instead adopt credit-term transactions, issuing payment vouchers to upstream SMEs with payment due upon maturity. In this process, trust cannot be transmitted. Actual participants are only "close relatives" of the core enterprise—first-tier suppliers and distributors. Second-tier, third-tier, and multi-tier "distant relative" suppliers and distributors receive increasingly shorter credit terms. Additionally, core enterprise credit instruments cannot be split or circulated, making the supply chain's credit transmission mechanism inefficient. Most "distant relatives" frequently face capital shortages and must turn to financial institutions for financing. However, small and micro enterprises often cannot obtain financing due to their own limitations.

After receiving orders, suppliers typically need to increase working capital to organize production. However, banks' avoidance of "multiple pledges on one asset" prevents multi-tier suppliers from using orders as loan collateral. Can existing assets be used as alternative collateral? Small and micro enterprises have low utilization rates of collateral assets, and due to their small size, immature governance structures, and low financial transparency, they struggle to obtain effective collateral resources from other channels, hindering credit enhancement. Furthermore, "distant relatives" lack direct trade relationships with core enterprises, resulting in insufficient trust data, while also lacking practical platform-based and systematic management tools to activate cooperation across the industrial chain.

Before lending, traditional financial institutions' risk control review requires three processes: pre-loan due diligence, in-depth information integration by loan approval departments, and information incorporation. With limited reference basis, information collection and risk perception decisions rely on multiple business personnel, creating high dependence on human resources, high moral hazard, and difficulty in scaling. These three processes combined take about three weeks for traditional financial institutions' risk control, and since settlement cannot be completed automatically, customer acquisition and credit enhancement costs remain high. On the basis of traditional credit models, all nodes in supply chain finance constitute a blockchain platform, crossing interest boundaries to cover upstream and downstream enterprises in the supply chain, including logistics, warehousing, quality inspection, as well as finance companies and financial institutions, enriching contract choice spaces for all participants. Upper-layer business systems, through the underlying blockchain platform, register and store comprehensive trade information of small and micro enterprises on-chain, including asset ownership, quantity, quality, warehouse receipts, guarantees, as well as accounts receivable, inventory, and prepayments, thereby standardizing, digitizing, and tokenizing small and micro enterprises' assets to generate bond vouchers for enterprise payment, financing, and circulation. Based on suppliers' accounts receivable and other assets from core enterprises, the issuance, circulation, splitting, and redemption can be completely and authentically recorded and traced, greatly expanding the information reference scope for financial institutions. Consequently, the difficult problem of reliable trust and value transmission can be solved at extremely low cost (Tang Daosheng et al., 2020) [12] (PP.89-94).

Tencent established a financial blockchain cooperation alliance in May 2016. In April 2017, Tencent released the "Blockchain Solution White Paper," aiming to build a blockchain ecosystem. In December of the same year, it jointly launched the blockchain-based supply chain financial service platform "Xingbei Cloud Chain" with Guangdong Youbei Company and Huaxia Bank. Based on the alliance chain's inherent immutability and distributed cross-verification mechanism, the credibility of business data at each node is ensured, solving the identity trust problem that has long existed in warehouse receipt pledge financing, greatly enhancing the operability of financial institutions' credit assessment and significantly reducing their risk control difficulty. Notably, electronic vouchers on the chain are splittable, which improves asset liquidity, substantially increases financing availability, and effectively alleviates the financing difficulties and capital shortages of multi-tier suppliers. Banks take corresponding actions based on on-chain assets and trade information, which helps reduce lending service costs while obtaining low-risk, high-yield assets. With insurance company participation, financial institutions have insurance compensation guarantees even when encountering abnormal risks. Core enterprises also benefit significantly, as reduced overall supply chain costs optimize their credit term arrangements and solidify long-term strategic cooperative relationships with suppliers, ensuring their industry leadership position.

4.2 Industrial Blockchain Reduces Financial Costs and Performance Risks

In TCL Group's industrial blockchain project, TCL Group included customers shared with its similarly-sized suppliers in a fund settlement chain. Through blockchain + industry upstream and downstream purchase and sales, on-chain contract relationship confirmation and settlement greatly reduced duplicate payments, capital occupation, and related financial costs. The legal guarantees for contract legal relationship generation, performance, and creditor's rights and obligations transfer behind on-chain settlement are based on the openness, transparency, and traceability on-chain, rebuilding mutual contract trust. The initial application scenarios of blockchain involve relatively simple legal relationships. According to supply chain finance definitions, China is currently in the Supply Chain Finance 3.0 era, where e-commerce groups and financial institutions jointly cooperate in "logistics financialization," with core enterprises and banks sharing data to the maximum extent, shifting financial services from retail to wholesale finance. The application of blockchain technology is expected to bring supply chain finance into the 4.0 era, characterized by fully peer-to-peer precise arrangement of financial services in highly networked and organized communities—a vision of complete integration of logistics, capital flow, and data flow, achieving a supply chain finance ecosystem with blockchain technology as the underlying technical support. In March 2017, Dianrong.com (an internet lending information service intermediary) and Fujinong (a supply chain financial service platform under Foxconn Technology Group, providing one-stop funding solutions through commercial factoring, financial leasing, small loans, and other financing methods) announced the joint launch of a supply chain finance platform called "Chained Finance" (Qianfu Commercial Factoring, a blockchain finance platform). This platform connects industries such as electronic equipment suppliers, automobile manufacturers, and service manufacturers in the manufacturing sector, particularly providing services for SMEs in these industries. Using blockchain technology characteristics, it makes supply chain finance more efficient and enables online batch loan issuance. On-chain contracts, financing, and creditor's rights and obligations transfer legal relationships are intensive and structured, greatly reducing financial compliance and legal compliance risks and financing costs (Wang Youqiang & Tu Jing, 2020) [13] (Preface 27).

4.3 Blockchain Applications in Logistics, Finance, Insurance, and Copyright Protection

4.3.1 Blockchain Applied to Logistics, Smart Securities Platforms, and Mutual Insurance

In July 2016, Ant Financial, a subsidiary of Alibaba Group, had already applied blockchain to Alipay's charity donation platform and later extended it to mutual insurance applications. In October 2016, Alibaba jointly developed "Fachain" with Microsoft, Fadada (a leading electronic signature and electronic contract cloud platform in China), and others, proposing an email deposit product based on Alibaba Cloud platform. Through emails and cloud services backed up on Fachain, Chinese judicial institutions can adopt digital evidence on a large scale. In March 2017, Alibaba invested in a securities company called Symbiont (a blockchain smart securities issuance and trading platform focusing on private equity and corporate bond markets) to jointly build a blockchain-based smart securities issuance and trading platform. In November 2017, Tmall International announced the upgrade of its global origin traceability plan, which would cover 63 countries and regions worldwide, involving 3,700 categories and 14,500 overseas brands, comprehensively empowering the entire industry. In February 2018, Cainiao and Tmall International launched blockchain technology to track, upload, and verify logistics full-link information for cross-border imported goods, covering production, transportation, customs clearance, and inspection processes, giving each imported product a unique "ID card" for consumer query and verification. In June 2018, Alibaba launched the first blockchain-based electronic wallet cross-border remittance service (Fang Lifei & Liu Guiying, 2020) [11] (PP.5-6).

4.3.2 Blockchain Applied to Cross-Border Payments

Blockchain has potentially huge application value in international exchange, letters of credit, equity registration, and stock exchanges in the financial sector. Applying blockchain technology in the financial industry can eliminate third-party intermediaries and achieve direct peer-to-peer connections, thereby greatly reducing costs while completing transaction payments quickly. Blockchain introduction solves the information asymmetry problem in cross-border payments and establishes a certain degree of trust mechanism. Ripple (the world's first open payment network that can transfer any currency, including USD, EUR, CNY, JPY, or Bitcoin, with transaction confirmation completed within seconds and no cross-bank, remote, or cross-border payment fees), Circle (a crypto payment company), Bank of China, China Merchants Bank, and others have already entered this field.

For example, Visa launched Visa B2B Connect based on blockchain technology, providing institutions with a lower-cost, faster, and more secure cross-border payment method for processing global B2B transactions. Traditional cross-border payments take 3-5 days and incur 1-3% transaction fees. Visa also partnered with Coinbase (the largest US cryptocurrency exchange) to launch the first Bitcoin debit card, while Citibank tested running cryptocurrency "Citicoin" on blockchain. In August 2022, China's first digital yuan穿透支付 (penetrating payment) business was successfully launched in Xiong'an New Area, Hebei Province, achieving a new breakthrough in digital yuan application scenarios in the field of blockchain payment in the new area.

4.3.3 Blockchain Applied to Copyright Protection

After blockchain is applied to certification, both registration and query become very convenient, eliminating the need to run between various departments. In August 2016, Onchain (a leading Chinese blockchain technology company), Microsoft (China), Fadada, and other institutions established the electronic deposit blockchain alliance "Fachain" in Beijing. In December 2017, WeBank, Guangzhou Arbitration Commission, and Hangzhou Yibi Technology jointly launched the arbitration alliance chain for deposit in judicial scenarios. In March 2018, Guangzhou's first "arbitration chain" judgment was issued (Li Liwei, 2021) [3].

4.3.4 Guangzhou Launches On-Chain Enterprise Service Platform to Enhance Business Environment Reform with Blockchain

Guangzhou's on-chain enterprise service platform, based on enterprise chain code technology and centered on enterprises, provides on-chain services and on-chain spaces for "one enterprise, one code, one account." Using "blockchain + QR code" to grant enterprises trusted identity identifiers, it integrates basic enterprise information and credit information with blockchain accounts to form enterprise chain codes. This enables digital trusted identity mutual recognition and seal mutual recognition, with precise service functions of "enterprise credit and enterprise portrait," achieving full lifecycle services integrating enterprise on-chain spaces and on-chain services. Currently, Guangzhou has opened blockchain spaces with enterprise chain codes for over 3,700 enterprises, enabling the "enterprise credit, enterprise portrait" feature and providing "one-network handling, one-chain通行 (passage)" blockchain services. This reduces the time and space costs for enterprises to handle government services and achieves circulation and sharing of enterprise-level government service data. Additionally, Guangzhou innovatively promotes "blockchain + public resource transactions," building a public resource transaction blockchain platform that enables cross-regional "palm handling, anytime handling" of public resource transactions, reducing corporate cash burdens by over 800 million yuan (Li Huiying & Sui Wangxin, 2024) [14].

Guangzhou actively uses blockchain to enhance business environment reform. The Guangzhou blockchain international trade platform has realized 7.8 billion yuan in trade business on-chain. Guangzhou Development Zone has taken the lead in building a domestic leading "tax chain" blockchain invoice platform and "policy credibility chain" government application. Hangxin Chain promotes the implementation of blockchain technology in civil aviation business, achieving record deposit and data traceability functions in the civil aviation field. Guangzhou Internet Court launched the "Wangtong Falian" blockchain platform, using alliance chain form to connect nine units including Guangzhou Intermediate People's Court and data from over 30 internet platforms such as "BAT," building a digital governance ecosystem (Xu Wenwen, 2024) [15].

5. Blockchain Enhances Financial Data Stability and Reliability, Improving Audit Efficiency and Quality

Under traditional audit models, audit work faces numerous challenges: distorted corporate accounting information, time lags, limited audit coverage, easily tampered and low-security data, low audit efficiency, and service levels that cannot meet socio-economic development requirements. Blockchain technology will solve these problems. Building a comprehensive audit professional service system based on blockchain technology will bring the following transformations to audit work.

Blockchain-based auditing is significant: First, business behavior supervision and internal control will enhance corporate value to a certain extent. Second, risk management-oriented data enables business trade to be supervised by audited blockchain technology. Data encompassed in the network can be captured and audited at any time. Since block establishment, all data is open source and cannot be changed or deleted, making all data traceable and溯源 (traceable to origins). Therefore, auditors or risk management personnel must track and verify both parties' data in real time. Blockchain technology can provide an undeletable record for goods and data information. Due to consensus algorithms, blockchain networks do not require third-party institutions, continuously shortening data chains, and transactions are visible to everyone, reducing audit difficulty and continuously improving audit work efficiency.

Blockchain audit technology can implement round-the-clock tracking and monitoring of business transactions, conduct real-time statistical analysis of data, and form records, facilitating subsequent audit work, greatly improving audit efficiency and making audit results more convincing. The new audit model relying on blockchain technology replaces traditional manual work with modern computer technology, significantly reducing audit costs. Blockchain audit technology, with its transparency and immutability advantages, can promote internal audit to establish a new mechanism, strengthen internal control functions, and provide reliable basis and tools for corporate risk identification and prevention.

5.1 Distributed Decentralized Financial System: Improving Audit Data Quality and Authenticity

Enterprises build a distributed decentralized financial system based on blockchain technology. Any data requires verification by other employees and transaction parties before verified and identified relevant economic data is entered into the system, with false information rejected, thereby ensuring financial data is authentic, valid, accurate, and high-quality. The corporate financial system is just one node on the entire blockchain, with other nodes automatically recording and storing relevant data. This financial data is monitored in real time by the entire blockchain network to ensure it is not tampered with. For example, when a company engages in trade with another domestic company, generating logistics, communication, employee travel, and other related expense invoices, nodes on the company's blockchain system will connect with logistics companies, hotels, and communication companies. Due to blockchain's timestamp function, economic activity records are irreversible, ensuring the complete recording of the entire real economic activity and greatly reducing space for financial fraud.

5.2 Authentic, Public, and Transparent Financial Data: Promoting Audit Model Transformation

Due to technical level and audit concept limitations, traditional audit work is mainly post-event supervision. As big data, cloud computing, and blockchain technology mature, the post-event audit concept has become outdated and cannot meet socio-economic development requirements. Traditional audit models and concepts must transform to whole-process auditing covering pre-event, during-event, and post-event. Through comprehensive application of cryptographic algorithms, data hashing, and other cryptographic, mathematical, and computer technologies, data authenticity and transparency are ensured without third-party credit endorsement or guarantees. This will increase audit report information content, enhance audit work transparency, and improve audit quality. With blockchain technology support, audit models will undergo the following transformations: from sampling audit, periodic audit, computer-assisted audit, and single-object audit models to holistic audit, whole-process audit, blockchain automatic audit, and automatic audit of various nodes in the blockchain system.

5.3 Tamper-Proof Financial Data: Reducing Resistance to Audit Supervision

Under the existing accounting system, due to position and power limitations, enterprise audit personnel inevitably face intervention from enterprise leaders in audit records and supervision, causing adverse effects on audit work, reducing audit quality, hindering transparency improvement, and making audit independence difficult to guarantee. However, blockchain-based financial systems have timestamp functions and distributed bookkeeping characteristics, ensuring data cannot be arbitrarily changed. Even if enterprise audit personnel want to tamper with accounting data or conceal or fabricate false transaction records under pressure from enterprise leaders, such actions cannot be achieved. Blockchain's immutability will enhance financial data stability and reliability, improving auditor independence.

5.4 Blockchain Anonymity, Openness, and Autonomy: Improving Audit Efficiency and Report Quality

Blockchain technology's openness and autonomy characteristics ensure that information entered into ledgers undergoes strict review, layer-by-layer monitoring, and cannot be tampered with, ensuring data authenticity and integrity. Blockchain systems conduct real-time auditing and automatic pre-auditing according to preset audit standards, monitoring and identifying abnormal matters, and drawing preliminary audit conclusions. Using blockchain systems to comprehensively, systematically, holistically, and structurally collect various audit data for global, systematic, comprehensive, and structural review and analysis, screening out abnormal extreme data, reducing subjective assumptions in manual review, and analyzing problem severity and urgency saves substantial economic resources. This will greatly improve audit efficiency and audit report quality, enabling limited audit personnel to concentrate human and material resources on reviewing key matters (Chen Hua & Hu Xiaolong, 2020) [4] (PP.8-10).

6. "Blockchain + Auditing": Transformation and Reconstruction of Internal Control and Risk Management in the Digital Intelligence Era

6.1 Innovation in Audit Operation Models: "Real-Time Auditing" and "Intelligent Auditing" Will Become Future Development Directions

Blockchain technology has unparalleled superiority in improving audit efficiency, providing real-time payment and settlement services, ensuring audit data authenticity and reliability, and broadening audit scope. In blockchain network systems, auditors collect financial data from audited units in real time online and establish data mining and analysis models to conduct continuous, dynamic, and tracking real-time audits of audited units' economic business activities, promoting the development of the "real-time auditing" model. Meanwhile, the programmability attribute of blockchain systems enables auditors to design personalized audit models based on specific circumstances of audited units, enhancing audit work intelligence, promoting "intelligent auditing" model transformation, and improving audit work efficiency and report quality.

6.2 Innovation in Audit Risk Prevention and Control Systems: Online Real-Time Audit Risk Assessment and Early Warning

When conducting audit activities, auditors can obtain structured data from financial information and fragmented, trivial unstructured data through blockchain systems. Using data mining and processing technology, they can form relationship maps of audited units and their related parties, analyzing industry, regional, and individual risk factors from massive information to achieve online real-time risk assessment and early warning. Simultaneously, using artificial intelligence with gradually improving learning capabilities, indicators exceeding early warning values and possible suspicious points automatically discovered by the blockchain system are registered as potential risk factors. Based on this, the system automatically generates audit working papers and sends them to on-site auditors for verification according to risk warning levels. On-site auditors use the timestamp function in the blockchain system to reproduce economic business scenarios, combining online real-time risk assessment and early warning with offline risk prevention and control.

6.3 Integration of Blockchain and Big Data Technology: Data Analysis Becomes the Core of Auditing

Under blockchain systems, the audit process involves auditors using data information provided by blockchain to design corresponding intelligent audit procedures for data analysis. Auditors make audit evaluations and draw audit conclusions based on data analysis. In the future, data analysis will become the core tool of "blockchain + auditing." Since blockchain technology itself has weak statistical analysis capabilities, while big data technology covers large amounts of data analysis, storage, and processing technologies, the organic integration of blockchain technology and big data technology is an inevitable trend for the future development of "blockchain + auditing," which will greatly enhance blockchain data value and application space. Future "blockchain + big data" audit business development will present the following process: obtaining massive, authentic, and reliable data through blockchain network systems to provide original data support for auditing, using big data analysis technology to conduct quantitative and qualitative analysis of audited units' data, and accurately locking audit clues.

In conclusion, the essence of enterprise internal control management lies in risk control. Therefore, enterprises should uphold risk prevention awareness under the "Internet +," "Intelligence +," and "Blockchain +" backgrounds, achieve effective risk identification and evaluation, combine existing internal control problems, identify potential factors causing enterprise risks, analyze their specific impact levels, compile specific risk lists, and establish risk case databases based on practical experience in risk prevention to further improve enterprise internal control risk system construction. "Accelerating digital development and building a digital China" is an important content of the national "14th Five-Year Plan" and 2035 Vision Goals Outline. Enterprise internal control and risk management also face opportunities and challenges brought by digital transformation. Digitalization, networking, and intelligence will help enterprise internal control become more rigorous, timely, precise, and efficient. In digital transformation, enterprises should continuously improve and strengthen internal control and risk management functions, continuously enhance internal control effectiveness, and support high-quality enterprise development.

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