This case explores the audit considerations in relation to revenue arising from the operations of a cryptocurrency trading platform. The protagonist is Global Token Limited (Global Token or the Group, stock code: 8192.HK), which commenced its “blockchain technology–related business” segment in FY2018. In the year of commencement, the independent auditors issued a “qualified opinion” on the “commission and service income” recognized from the cryptocurrency trading platform (crypto exchange or cryptocurrency exchanges). In the following year, the auditors issued the same opinion on the same subject matter for the same reasons. Eventually, Global Token resolved to cease all blockchain-related operations during FY2020 owing to the alleged cost pressure.
The case seeks to highlight the audit considerations at the stage of client acceptance and continuance. Through the case, students will grapple with the practical questions of how to identify the “assertions” in question, suggest the possible “what can go wrong(s)” (WCGWs) within Global Token’s operating procedures, as well as what substantive procedures auditors could perform to obtain assurance in light of the assertions.
On completion of the case, students will be able to:
1. Assess the internal control effectiveness (e.g., management integrity) of a potential audit client.
2. Assess the sufficiency of knowledge about blockchain technology of a potential audit client.
3. Evaluate whether or not an audit engagement team is qualified to audit a client that conducts blockchain technology–related businesses.
4. Identify the key audit risks of blockchain operations.
5. Formulate or design a test of control and substantive audit procedures that provides reasonable assurance for the aforesaid assertions, as well as the legal-regulatory and income tax considerations.