DETECTING AND PREVENTING FINANCIAL RESTATEMENTS USING BLOCKCHAIN BASED SMART CONTRACT: THE CASE OF THE EGYPTIAN COMPANIES

Financial restatements pose a significant problem for companies and stakeholders. Accurate financial information is therefore critical to decision making, and preventing restatements is vital to maintaining the confidence of shareholders, investors, and other stakeholders. In this paper, a quantitative study utilizing a survey to determine the causes and consequences of the financial restatements applied to the Egyptian context. Based on the survey's results, a proposed architecture was presented to detect and prevent financial restatements using blockchain-based smart contracts. The proposed architecture is implemented based on Remix - Ethereum IDE, with a consortium blockchain, and it consists of three layers, which are the presentation layer, detection and prevention layer, and blockchain layer. All layers are integrated using APIs to detect and prevent restatement caused by accounting errors, reclassification of accounting items, and intentional misstatement, and to inform all various stakeholders of any detected cases. The proposed implemented architecture is tested by a sample of data collected from some Egyptian list companies. According to testing results, it can work in real environments with an accuracy rate of up to 97.5%. The findings of this study are pertinent to listed companies, shareholders, investors, banks, credit institutions, and other stock market regulators, as financial restatements negatively affect a company's credibility in its financial reporting. The findings extend both the literature on the role of blockchain technology in preventing financial restatements and the literature on experimentally implementing blockchain technology in the Egyptian context.