TPCRA World- Blockchain Technology Division

𝗕𝗟𝗢𝗖𝗞𝗖𝗛𝗔𝗜𝗡 & 𝗖𝗛𝗔𝗥𝗧𝗘𝗥𝗘𝗗 𝗔𝗖𝗖𝗢𝗨𝗡𝗧𝗔𝗡𝗧

This article showcases Blockchain as the emerging technology which will soon have significant influence on the CA profession and the office of the CFO in the near future. It gives a perspective of how the professionals will need to up skill and prepare themselves to embrace the new technologies that will define the future of finance.

𝗕𝗹𝗼𝗰𝗸𝗰𝗵𝗮𝗶𝗻 𝗶𝘀 𝗯𝗲𝗹𝗶𝗲𝘃𝗲𝗱 𝘁𝗼 𝗵𝗮𝘃𝗲 𝘁𝗵𝗲 𝘀𝗶𝗺𝗶𝗹𝗮𝗿 "𝗱𝗶𝘀𝗿𝘂𝗽𝘁𝗶𝘃𝗲 𝗽𝗼𝘁𝗲𝗻𝘁𝗶𝗮𝗹" 𝘁𝗵𝗮𝘁 𝘁𝗵𝗲 𝗶𝗻𝘁𝗲𝗿𝗻𝗲𝘁 𝗵𝗮𝗱 𝗶𝗻 𝘁𝗵𝗲 1990𝘀. 𝗝𝘂𝘀𝘁 𝗹𝗶𝗸𝗲 𝘁𝗵𝗲 𝗶𝗻𝘁𝗲𝗿𝗻𝗲𝘁 "𝗿𝗲𝘃𝗼𝗹𝘂𝘁𝗶𝗼𝗻𝗶𝘇𝗲𝗱" 𝘁𝗵𝗲 𝗲𝘅𝗰𝗵𝗮𝗻𝗴𝗲 𝗼𝗳 "𝗜𝗡𝗙𝗢𝗥𝗠𝗔𝗧𝗜𝗢𝗡", 𝗕𝗹𝗼𝗰𝗸𝗰𝗵𝗮𝗶𝗻 𝗶𝘀 𝗯𝗲𝗶𝗻𝗴 𝘀𝗮𝗶𝗱 𝗳𝗼 𝗿𝗲𝘃𝗼𝗹𝘂𝘁𝗶𝗼𝗻𝗶𝘇𝗲𝗱 𝘁𝗵𝗲 𝗲𝘅𝗰𝗵𝗮𝗻𝗴𝗲 𝗼𝗳 "𝗩𝗔𝗟𝗨𝗘".

Clearly, Chartered Accountants, CFOs and business leaders are intrigued by the promise of the Blockchain technology.
Blockchain is a protocol for exchanging value over the internet without an intermediary, such as a central bank. It is the technology allows for the secure management of a public ledger or database (also referred to as a ‘distributed ledger’), where transactions are verified and securely stored on a network without a physical governing central authority. Blockchain technology is the backbone that supports crypto currencies such as Bitcoins.
In a marked difference from the prevailing systems of exchange of value, where two or more parties need to agree on the value and other commercial considerations for a transaction to happen, Blockchain allows for transactions within a closed group underpinned by a crypto currency. Blockchain offers the storage of records of transaction data through distributed networks. It retains the full history of transactions, which makes them verifiable and independently auditable. It also enables peer-to-peer transfer of value, potentially eliminating the need for intermediaries. In addition, event triggered programmable contracts, also known as smart contracts, can be stored and executed on Blockchain.

𝗪𝗵𝗮𝘁 𝗶𝘀 𝘀𝗼 𝗽𝗼𝘄𝗲𝗿𝗳𝘂𝗹 𝗮𝗯𝗼𝘂𝘁 𝘁𝗵𝗶𝘀 𝗻𝗲𝘄 𝘁𝗲𝗰𝗵𝗻𝗼𝗹𝗼𝗴𝘆?
There are several intrinsic features of a Blockchain that lend it its power and allows it to record and transfer value over the internet in a peer-to-peer manner:
1. 𝗡𝗲𝗮𝗿 𝗥𝗲𝗮𝗹 𝗧𝗶𝗺𝗲: It enables near real time settlement of recorded transactions, removing friction, and reducing risk
2. 𝗡𝗼 𝗜𝗻𝘁𝗲𝗿𝗺𝗲𝗱𝗶𝗮𝗿𝘆: It is based on cryptographic proof, allowing any two parties to transact directly with each other, without the need for a trusted third party.
3. 𝗗𝗶𝘀𝘁𝗿𝗶𝗯𝘂𝘁𝗲𝗱 𝗟𝗲𝗱𝗴𝗲𝗿: The peer-to-peer distributed network records a public history of transactions, making Blockchain distributed and highly available.
4. 𝗜𝗿𝗿𝗲𝘃𝗲𝗿𝘀𝗶𝗯𝗶𝗹𝗶𝘁𝘆: It contains certain and verifiable record of every single transaction ever made that cannot be altered without altering the entire chain. This prevents double spending, fraud, abuse, and manipulation of transactions.
5. 𝗖𝗲𝗻𝘀𝗼𝗿𝘀𝗵𝗶𝗽 𝗥𝗲𝘀𝗶𝘀𝘁𝗮𝗻𝘁: Crypto economics ensures that Blockchain continues pumping out new blocks and that blocks are not being reverted or altered.
The Gartner hype cycle puts Blockchain technology just below the peak of expectations, which means that experts still see another 18-24 months before this technology becomes main stream. Most industry experts and pundits concur, but would rather see it moving quickly beyond proof of concepts (POCs) into production sooner rather than later. While significant investments have already been made into the Blockchain ecosystem, a lot still needs to be seen. Several companies have done POCs globally, with financial services industry leading the way. The leading global banks have been actively working together in the Global Blockchain consortium R3, which is a consortium partnership of over 80 of leading financial institutions and regulators led by R3, a distributed ledger technology firm. There are several uses cases around global money movements (payments and remittances), trade finance, digital identity, smart contracts, and several others that have been established and leading firms are investigating into.

𝗕𝗟𝗢𝗖𝗞𝗖𝗛𝗔𝗜𝗡 𝗜𝗡 𝗖𝗙𝗢'𝘀 𝗢𝗙𝗙𝗜𝗖𝗘:
The key question facing CFOs is how to evaluate the potential and the business case for Blockchain for their respective businesses and help the C-suite make the right level of investments in the technology before it is too late. The global economy is quickly moving towards platform-based shared business model driven by technologies, such as Blockchain.

Therefore, it is not just the CIO who alone should be leading the discussion at the C-suite for Blockchain, the CEO and the CFO, should also jointly participate in the conversation of investing in new platform based technologies, such as Blockchain, that have the power to disrupt entire business models.

There are s͟e͟v͟e͟r͟a͟l͟ s͟p͟e͟c͟i͟f͟i͟c͟ u͟s͟e͟d͟ c͟a͟s͟e͟s͟ where the Blockchain technology can prove to be useful for the Finance Function. Some of these are listed below:
1. 𝗕𝘂𝗱𝗴𝗲𝘁𝗶𝗻𝗴 & 𝗙𝗼𝗿𝗲𝗰𝗮𝘀𝘁𝗶𝗻𝗴
2. 𝗜𝗻𝘁𝗲𝗿 - 𝗖𝗼𝗺𝗽𝗮𝗻𝘆 𝗥𝗲𝗰𝗼𝗻𝗰𝗶𝗹𝗶𝗮𝘁𝗶𝗼𝗻
3. 𝗙𝗶𝗻𝗮𝗻𝗰𝗶𝗮𝗹 𝗔𝘂𝗱𝗶𝘁
4. 𝗩𝗲𝗻𝗱𝗼𝗿 𝗠𝗮𝗻𝗮𝗴𝗲𝗺𝗲𝗻𝘁
5. 𝗦𝗵𝗮𝗿𝗲𝗵𝗼𝗹𝗱𝗲𝗿𝘀 𝗩𝗼𝘁𝗶𝗻𝗴


𝗕𝘂𝗱𝗴𝗲𝘁𝗶𝗻𝗴 𝗮𝗻𝗱 𝗘𝘅𝗽𝗲𝗻𝘀𝗲 𝗠𝗮𝗻𝗮𝘃𝗲𝗺𝗲𝗻𝘁 :
Conducting the budgeting and expenses on a Blockchain involves placing the entire budget data on the Blockchain and allowing the transfer of value (i.e. money) on the Blockchain to the various parties connected with the Blockchain. It will create an audit trail for each and every dollar/rupee spend, providing greater transparency and internal accountability.

𝗖𝗼𝗻𝘀𝗼𝗹𝗶𝗱𝗮𝘁𝗶𝗼𝗻𝘀 𝗮𝗻𝗱 𝗜𝗻𝘁𝗲𝗿-𝗖𝗼𝗺𝗽𝗮𝗻𝘆 𝗘𝗶𝗺𝗶𝗻𝗮𝘁𝗶𝗼𝗻:
With the record keeping and transaction management features of Blockchain, it can easily hold the financial transactions for the group companies and aid consolidation of the financials for the group and eliminating inter-company entries. The Blockchain does not work on the double entry book keeping system, instead, it maintains a single records ledger for all transactions. The immutable nature and the historical record maintenance will facilitate the accurate consolidation of financials, enforce documentation of intercompany transactions, and promote intercompany synergies.

𝗙𝗶𝗻𝗮𝗻𝗰𝗶𝗮𝗹 𝗔𝘂𝗱𝗶𝘁:
With a company using the Blockchain to post every transaction on the Blockchain in real-time, the nature of financial audit will change completely. Instead of having quarterly or annual audits, the company could look to audit its financials on a daily basis. Financial audits on a Blockchain may eliminate the need for third party validators, reduce audit expense and costs for books maintenance, and provide better governance and transparency.
Requisition and vendor management: Blockchain’s ability to hold assets, transfer titles and value, and execute smart contracts will make it possible to create requisitions and manage vendors. Vendor data and identity can be easily held and verified using the digital identify feature and smart contracts can execute automated remittances and payments, reduce vendor cash conversion cycle, eliminate need for reconciliation, and promote efficient Vendor management.

𝗔𝗰𝗰𝗼𝘂𝗻𝘁𝘀 𝗣𝘆𝗮𝗯𝗹𝗲 𝗣𝗿𝗼𝗰𝗲𝘀𝘀:
Upon addition of a vendor’s digital identity to the Blockchain and the negotiated terms on a Blockchain smart contract, using shared sub-ledgers, vendors can see the requisition requests in real-time. Smart contracts can track individual assets to document their provenance, track their ownership, combat frauds, and initiate automated payments. As a result processing time will be reduced and security can be enhanced. The system will also eliminate the need for reconciliation of PO and invoices, and drive better vendor relations.

𝗦𝗵𝗮𝗿𝗲𝗵𝗼𝗹𝗱𝗲𝗿 𝗩𝗼𝘁𝗶𝗻𝗴:
Shareholder voting system can deploy the Blockchain to record the ownership of securities; and issue voting right assets and voting token assets for each shareholder. In order to exercise the vote, a user may spend voting tokens to cast votes on each meeting agenda item if they also own the voting right asset. This system has been tested by NASDAQ in a trial conducted in Estonia. Clear benefits of such a system include increased transparency due to reduced manual intervention, greater trust in the corporate decision making, and better investor relations and shareholder participation.

🅱︎🅻︎🅾︎🅲︎🅺︎🅲︎🅷︎🅰︎🅸︎🅽︎ 🅸︎🅽︎ 🅰︎🅲︎🆃︎🅸︎🅾︎🅽︎:
𝗨𝘀𝗲𝗱 𝗖𝗮𝘀𝗲 1: A global e-commerce company is offering a different approach to online retail, by connecting buyers and sellers directly. The open-source project is creating a decentralized network for peer-to-peer commerce. Instead of visiting a website, users download and install a program that directly connects them to other people looking to buy and sell goods and services, removing the middlemen altogether.

𝗨𝘀𝗲𝗱 𝗖𝗮𝘀𝗲 2: A bank in Japan has completed a three-month trial on the application of mijin (a platform for creating Blockchains) to its accounting systems in a real-world environment. In the demonstration, 2.5 million virtual bank accounts and an environment with capacity to process 90,000 transactions every hour were created, with significantly reduced risk of failure and fraud.

𝗨𝘀𝗲𝗱 𝗖𝗮𝘀𝗲 3: A leading consumer equipment manufacturing company in India has started using Blockchain to make payments to their suppliers. Earlier, the payment process was cumbersome and involved several steps that included confirmation of delivery by the company, raising of a physical bill of exchange by the supplier and submission of invoice and transport documents to one of India’s leading bank, for payment. After the implementation of Blockchain, the details of invoices processed in the company’s ERP system get transferred to the bank on Blockchain, and then are discounted and funds are disbursed to the vendors of the company. On the due date, the solution facilitates an automated debit from the company’s account maintained with the bank. The entire process cycle for bill discounting has come down from four-five days to almost real time; entire audit trail is maintained and transactions have become completely paperless.

🆆︎🅰︎🆈︎ 🅵︎🅾︎🆁︎🆆︎🅰︎🆁︎🅳︎ - 🅸︎🅽︎🅳︎🅸︎🅰︎🅽︎ 🅲︎🅾︎🅽︎🆃︎🅴︎🆇︎🆃︎
𝗟𝗲𝘁'𝘀 𝘀𝘁𝗮𝗿𝘁 𝘄𝗶𝘁𝗵 𝗮 𝗡𝗘𝗪𝗦 𝗳𝗿𝗼𝗺 𝗙𝗲𝗯2022:
https://analyticsindiamag.com/the-institute-of-chartered-accountants-of-india-plans-to-use-blockchain-technology-for-auditing/

Recently Reserve Bank of India (RBI) has published a white paper on the potential use of Blockchain in India, based on a proof of concept testing the end to end technology play in the interbank remittance process. The white paper concluded that the overall proof of concept provided a good demonstration of the use-cases and helped broaden the understanding of the technology and its potential to other real-life applications. The Whitepaper concluded that the proof of concept provided an overall good demonstration of the use cases and helped broaden the understanding of the technology and potential end uses. It is expected that RBI will stay in step with the global adoption of Blockchain for accepted mainstream usage by monetary authorities around the world and this technology will gain credence and usage soon. For the finance leaders, this is a profound transformation in the horizon upending the traditional double entry accounting protocols and driving significant efficiencies and economies. There are many unanswered questions still – such as revenue recognition principles for a Blockchain transaction. It is only expected that the ecosystem supporting Blockchain will gradually fall in place as the regulatory framework evolves.

BLOCKCHAIN is a revolutionary technology in how financial records are created, kept, and updated. Rather than having one single owner, blockchain records are distributed among all their users. The blockchain uses a complex system of 𝗰𝗼𝗻𝘀𝗲𝗻𝘀𝘂𝘀 and 𝘃𝗲𝗿𝗶𝗳𝗶𝗰𝗮𝘁𝗶𝗼𝗻 to ensure that, even with no central owner and with time lags between all the users, a single agreed-upon version of the truth is visible to all users as part of a permanent record. This creates a kind of ‘𝘂𝗻𝗶𝘃𝗲𝗿𝘀𝗮𝗹 𝗲𝗻𝘁𝗿𝘆 𝗯𝗼𝗼𝗸-𝗸𝗲𝗲𝗽𝗶𝗻𝗴'; where a single entry is shared identically and permanently with every participant.
The move to a financial system with a significant blockchain element offers many opportunities to chartered accountants.

CA’s are seen as experts in record keeping, auditing and business consulting. They have the opportunity to guide and influence how blockchain is embedded and used in the future. They could use their expertise to develop blockchain led solutions and services.

The CA profession will have to draft regulations and standards to cover blockchain technology by bringing in their expertise to that work. Accountants can also work as advisers to companies considering joining blockchains themselves, providing advice on weighing the costs and advantages of the new system. CA’s expertise in business and financial areas will position them as key advisers to companies approaching these new technologies looking for opportunity.

To properly audit a company with significant blockchain - based transactions, the focus of the auditor will shift from confirming the accuracy or existence of blockchain transactions with external sources. Auditors will have to pay attention to how those transactions are recorded and recognised in the financial statements, and how judgemental elements such as valuations are decided. In the long run, as more and more records move onto blockchains, auditors would be able to check transactions in real time and with certainty.

CA’s will need to know how to advise on blockchain adoption and consider the impact of blockchain on their businesses and clients. They also need to be able to act as the bridge between IT professionals and clients. CA’s will need to expand their skills to include an understanding of the principle features and functions of blockchain.

Blockchain technology is already disrupting a number of industries, and it will only continue to grow. It will only change the way in which CA’s do their work. So, its time CA’s embrace this new technology. Learn the basics of it, start talking to clients and potential employers. You don’t need to be an expert in the technology, leave that for developers. You need to understand how to use it to your employer’s or your clients’ advantage – this keeps you relevant and in demand.

𝗙𝗼𝗿 𝗺𝗼𝗿𝗲 𝗶𝗻𝗳𝗼𝗿𝗺𝗮𝘁𝗶𝗼𝗻𝘀 𝗼𝗻 𝗕𝗹𝗼𝗰𝗸𝗰𝗵𝗮𝗶𝗻 𝗣𝗿𝗼𝗴𝗿𝗮𝗺𝘀 𝗳𝗼𝗿 𝗖𝗔 𝗰𝗮𝗻 𝘄𝗿𝗶𝘁𝗲 𝗮𝗻 𝗲𝗺𝗮𝗶𝗹 𝘁𝗼 𝗱𝗶𝗿𝗲𝗰𝘁𝗼𝗿@𝘁𝗽𝗰𝗿𝗮𝘄𝗼𝗿𝗹𝗱.𝗰𝗼𝗺 𝗼𝗿 𝗱𝗿𝗼𝗽 𝗮 𝘄𝗵𝗮𝘁𝘀𝗮𝗽𝗽 𝗮𝘁 9818083653

The Institute of Chartered Accountants of India plans to use blockchain technology for auditing Starting from April 1, ICAI is planning to implement the system in a phased manner.