CA DHEERAJ N

CA DHEERAJ NAn Auditor has evolved from traditional practices of checking the accuracy of the numbers, finding faults or detecting frauds to a wider concept called ‘Value addition to their Clients’. With such growing expectation in a fast running economy, new technologies and techniques have arrived. One among those is “BLOCKCHAIN TECHNOLOGY” (hereafter referred to as “BlockChain”). This concept has been widely known to world since BITCOIN has arrived. However BlockChain has a wider scope.

BlockChain refers to a distributed database that maintains a continuous growing list of ordered records called “Blocks”. Each Block contains the time stamp and is linked to the previous Block. It offers secure way to exchange any kind of goods, services, transaction or information with potential to build new global networks & drive new business models for regulated industries. This technology has been recently used in the Supply Chain Management. Let us try understanding this concept via an Example

Supply Chain Management

M Co, a giant manufacturing company, receives supplies from several vendors for the purpose of its production. M Co shall direct its Bank (say Y Bank Ltd ) to pay its Vendor (say V Co) only once the goods is received by the manufacturer who shall perform various quality checks such as specified goods received, PO copies, Invoice copies, taxation and other aspects are properly provided, only then M Co shall make payment to the Vendor.

In the above process following difficulties were faced:

By Manufacturer:

  • Co-ordination of various teams
  • Payment of interest due to payments made after the credit period

By Vendor

  • Delay in realization of funds
  • Dispute with Manufacturer on late realization of amount over and above the agreed credit period

Now, this area where the concept of BlockChain is used. Let us see how the same is practically applied.

Y Bank Ltd a trusted Third Party for V Co & M Co shall make payment to the V Co immediately when the Invoice has been delivered to M Co.

Y Bank Ltd receive the details from Shipment of Goods to the issue of Invoice amount to be paid using the concept of BlockChain in real time where limited data sharing has been performed by both M Co & V Co. which are secured with the Y Bank Ltd.

 Concept of BlockChain in real time

Say if an Invoice has been raised for Rs.100 by V Co for the shipment of goods to M Co, then Bank shall immediately pay Rs.99.

  • Advantageous for Bank is the commission earned (Rs.100- Rs.99= Re. 1)
  • Advantageous for Vendor is
    • Immediate realization of cash
    • Lesser or No follow up’s for Payment
  • Advantageous for Manufacturer is
    • Non-Payment of Interest for payment made after the credit period since real time movement of goods has been tracked
    • Reduced Head Count, since the process of moment of goods can be tracked in real time. Therefore lesser number of people in Payment/Accounts payable department.
    • Helps to take corrective action for bottlenecks in the supply chain management Process for excess time consumed or goods which are trapped in between the supply chain process.

It is said that manufacturers like big listed entities make payment of Interest in Lakhs & Crores due to non-availability of shared information between different people in the supply chain.

There are various uses of BlockChain across various Industries say, Mining Industry (Like Diamond). The journey of Diamond from Mine to Consumer covers complex landscape of Legal, Regulatory & Financial Authority. Hence the manufacturer has to depend on various Intermediaries like Lawyers, Accountants, Dealers & bank. Hence it shall result in time & cost. It shall be a challenge to Government authorities of tracking of goods with regards to taxation aspect etc. For the Consumers it shall be challenge to buy the diamond where the diamonds are brought in unethical Mined stone or brought via legitimate form. Blockchain provide transparency of transactions. It offers all parties in the business network a secure & synchronize record of transactions, Blockchain ledger records every single transactions from beginning to end whether 100’s of steps in supply chain or simple online payment.  As each transaction are placed in Block & for each blocks a finger print or identification system has been added. Thus create irreversible chain. Hence provide transparency from mined diamond till the consumer brought.

Conclusions:

Block chain provide trusted record keeping, shared & transparent process in an auditable fashion.

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