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Distributed Ledgers for the Prevention of Accounting Fraud

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Distributed Ledgers for the Prevention of Accounting Fraud ALBERT-LUDWIGS-UNIVERSITÄT FREIBURG Distributed Ledgers for the Prevention of Accounting Fraud Blockchains Between Expectations and Reality Inaugural-Dissertation zur Erlangung der Doktorwürde der Wirtschafts- und Verhaltenswissenschaftlichen Fakultät der Albert-Ludwigs-Universität Freiburg i. Br. vorgelegt von Nadine Rückeshäuser aus Bad Soden am Taunus Sommersemester 2017 II Albert-Ludwigs-Universität Freiburg im Breisgau Wirtschafts- und Verhaltenswissenschaftliche Fakultät Kollegiengebäude II Platz der Alten Synagoge Dekan: Prof. Dr. Alexander Renkl Erstgutachter: Prof. Dr. Dr. h.c. Günter Müller Zweitgutachter: Prof. Dr. Dieter K. Tscheulin Datum der Einreichung: 19.05.2017 Datum des Promotionsbeschlusses: 03.07.2017 Acknowledgments III Acknowledgments I am deeply grateful to several people, who guided and supported me throughout the journey of writing this dissertation and contributed in many different ways to it. I want to express my sincere gratitude to them. I want to express my deepest gratitude to my doctoral supervisor Professor Dr. Dr. h.c. Günter Müller for his excellent guidance and caring over the past 2 years, proving me with an excellent atmosphere for doing research. I also want to emphasize his role for my personal development, for which I am truly indebted and thankful. What I have learned goes far beyond specialized knowledge and technical competences. Overall, I found my time as doctoral student at the Institute of Computer Science and Social Studies as espe- cially pleasant, very productive and creative. Thank you for all the encouragement! I want to show my gratitude to Professor Dr. Dieter K. Tscheulin, who was the second reviewer of my dissertation as well as an examiner at my Rigorosum. Thank you for your contribution and support during the last weeks of my doctorate. I further want to thank Professor Dr. Günter Knieps, who was an examiner at my Rigorosum as well. It is a great pleasure for me to thank all my current and former colleagues, who made the process of writing my thesis a valuable and great experience. Especially, I want to thank Dr. Christian Brenig, who encouraged me to do my doctorate and with which I worked together several times in terms of teaching and researching. I want to thank Adrian Lange, Claus-Georg Nolte, Julius Holderer as well as Richard Zahoransky and Anja Jülch for the great time at the institute as well as for the help and guidance throughout the process of writing my thesis and everything associated with it. I want to thank Dr. Chris- tian Zimmermann, who left the institute shortly after my start of work; nevertheless, it was a truly enriching encounter on a technical as well as personal level. I am especially grateful to my family, my parents Ariane and Robert, my grandparents Inge and Wolfgang and my brother Florian, who have supported me unconditionally with emotional as well as any other kind of support not only during the time of writing this thesis but already my whole life. I am also grateful to all other family members and friends, which I cannot mention here individually. I am convinced that this thesis would not have been possible without your support. I am truly thankful to Markus, my future husband and love of my life, who was at my side during the whole processs of researching and writing this thesis and supported me at any time in any possible way. Your contribution to this thesis was especially important, since you were expecting nothing but excellence from me, you boosted me morally and provided me constantly with great emotional support. Acknowledgments IV Nadine Rückeshäuser Table of Contents V Table of Contents Acknowledgments ......................................................................................................... III Table of Contents ........................................................................................................... V List of Figures ............................................................................................................ VIII List of Tables ................................................................................................................. IX List of Abbreviations ..................................................................................................... X 1 Improving Accounting Fraud Prevention Through Distributed Ledger Technology ................................................................................................................ 1 1.1 Definitions: Bitcoin, Blockchains and Distributed Ledgers ...................................... 3 1.2 State of the Art and Identified Research Gap ............................................................ 6 1.3 Research Questions and Objectives ........................................................................... 9 1.4 Outline, Related Publications and Contributions ..................................................... 14 2 Economics of Distributed Ledgers: Value Generation and Business Strategies ................................................................................................................ 19 2.1 Why Bitcoin Failed: An Analysis of User Acceptance ........................................... 21 2.1.1 The Trust Model of Bitcoin ......................................................................... 22 2.1.2 Determinants of Trust .................................................................................. 23 2.1.3 Explanation and Prediction of Trust in Bitcoin ........................................... 25 2.1.4 Research Method ......................................................................................... 28 2.1.5 Data Analysis and Interpretation ................................................................. 29 2.1.6 Implications and Discussion of the Results ................................................. 33 2.2 Distributed Ledger Business Model Transformation .............................................. 34 2.2.1 The Concept of the Business Model ............................................................ 35 2.2.2 Case Studies and Selected Business Model Cases ...................................... 38 2.2.3 Methodology and Morphological Box ......................................................... 40 2.2.4 Typology of Distributed Ledger Based Business Models ........................... 43 2.2.5 Implications of the Typology and Discussion of the Results ...................... 48 2.3 Interim Conclusion .................................................................................................. 49 2.4 Contextualization: Distributed Ledgers, Digital Business Ecosystem and User Sides ......................................................................................................................... 50 2.5 Evaluation Framework for Distributed Ledgers ...................................................... 53 2.5.1 On the Notion of Value and Value Generation ........................................... 53 2.5.2 Framework: Evaluation of the Value of Distributed Ledgers ..................... 54 2.5.3 Exemplification of Business Strategies and Value Creation ....................... 56 2.6 Concluding Remarks ............................................................................................... 59 Table of Contents VI 3 Accounting Fraud Prevention: A Requirements Analysis .................................. 61 3.1 Definition of Accounting Fraud and General Prerequisites .................................... 62 3.2 Existing Deterrence and Detection Techniques ....................................................... 65 3.3 Case Studies: How to Conduct Accounting Fraud? ................................................ 68 3.3.1 The Enron Scandal (Case Study 1) .............................................................. 68 3.3.2 The Comroad Scandal (Case Study 2) ......................................................... 71 3.3.3 The Parmalat Scandal (Case Study 3) ......................................................... 73 3.3.4 Further Accounting Scandals ....................................................................... 76 3.4 Generalization of Accounting Fraud Patterns .......................................................... 81 3.4.1 Business Entities Dependencies and Mutual Control Functions ................. 82 3.4.2 Requirements for the Prevention of Accounting Fraud ............................... 84 3.5 Concluding Remarks ............................................................................................... 85 4 Distributed Ledger Design for Applications in Fraud Prevention ..................... 87 4.1 The Four-Layer Architecture of Distributed Ledgers and System Design Decisions .................................................................................................................. 88 4.1.1 Network Layer ............................................................................................. 89 4.1.1.1 Distributed Ledger Access Control ............................................... 90 4.1.1.2 Node Authentication and Message Encryption ............................. 92 4.1.2 Procession Layer: Authorization and Validation ......................................... 94 4.1.2.1 Distributed Consensus Mechanisms .............................................. 95 4.1.2.2 Smart Contracts ............................................................................. 99 4.1.2.3 Peer-to-Peer-Network Free Riding .............................................. 102 4.1.3 Representation Layer ................................................................................
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