Informatization construction and audit quality: empirical evidence from the blockchain-based bank confirmations

Digital transformation is regarded as a strategic imperative by the auditing profession worldwide. This study aims to investigate the efficacy of blockchain technology in enhancing audit quality from the perspective of bank confirmation. We employ a quasi-experimental design exploiting the staggered adoption of the Blockchain Platform for Bank Confirmations (BPBC) in China. The results show a significant improvement in process-level audit quality post-BPBC adoption, manifested as a reduction in operating cash flows manipulation within client firms. This effect is primarily driven by firms that engaged in more extensive manipulation before BPBC adoption. Cross-sectional analyses suggest that this improvement is more pronounced for client firms with a history of restatements due to human error, higher fraud risk, or audit firms with weaker project quality controls. Furthermore, BPBC adoption enhances audit efficiency and outcome-level audit quality, resulting in shorter audit report lags, lower audit fees, reduced discretionary accruals, and fewer financial restatements, improving individual CPA benefits ultimately. This paper provides robust evidence supporting the application of advanced technology in auditing, offering actionable insights for practitioners and regulators to guide their future efforts in promoting audit digitalization.