Current auditing standards rely on the concept of “reasonable assurance,” a frameworkthat permits implicit defaults when direct verification is obstructed. This reliance createssystemic vulnerabilities, particularly in multi-jurisdictional audits where verification bound-aries are poorly defined. This paper develops a formalised methodology termed BoundaryDiscipline, which utilises machine-checked proofs and explicit boundary definitions to elim-inate implicit defaults. The methodology is grounded in three interlocking components: theVerification Balance Sheet, which accounts for what verification actually accomplishes; theRisk Assignment Register, which ensures all residual risk is explicitly owned; and the DeltaPricing Function, which quantifies the value created by verification. We propose the adop-tion of a new PCAOB auditing standard, AS 3600 (Boundary Verification and ClassificationIntegrity), requiring the formalisation of verification boundaries to prevent the recurrenceof catastrophic audit failures such as Wirecard.
Duston Moore (Fri,) studied this question.