The Importance of Data for Accounting
Last week we have introduced the first use case for our software. Today, we introduce the second use case: Intrachain Business.
Dear Intrachain Community,
In last week’s blog post, we have explained how Intrachain Private supports the user in developing a more mindful interaction with digital devices.
In today’s blog, we will highlight the second angle of our product: Intrachain Business.
As we have explained in previous blog posts, Intrachain offers a software solution that combines a process mining tool with a decentralized database. The service focuses on the collection of data in computer systems and the storage of these data in a tamper-proof and secure way on the blockchain.
Before we dive deep into our business model, we firstly like to elaborate on why data is so important for businesses. Following that, we will offer an overview of our technological solution.
Today’s need for accurate data
We live in a globalized and digitalized world. This means more complexity for business processes. With more options to choose from, more parties involved in production processes and a world that is highly connected and fast-moving in general, predictability decreases and information overload takes place. Furthermore, value chains become digitalized and multinational. All of this leads to a notable internationalization and higher complexity.
Problems of our global business world
In our globalized world, mergers and acquisitions, as well as joint-ventures are common practice for international companies. Multinational firms are therefore increasingly operating across dispersed geographies. Furthermore, subsidiaries are often separate legal entities with a high degree of autonomy. Additionally, every one of these new company group bodies results in multiple, often incompatible IT landscapes. They are also characterized by heterogeneous financial systems and accounting processes.
Consequentely, for a corporate group, this means that new aspects, such as time differences across countries, have to be taken into account. In such environments, different currencies have to be accounted for and former well-functioning flows of information are challenged.
Because of the increased number of subsidiaries and business divisions, more intercompany transactions are required, which makes it progressively difficult to align every transaction within a firm. The process of accurate intragroup cost allocations is complicated by accounting differences, such as mismatched order and invoice references or different applied currency exchange rates that need to be resolved.
Why businesses need accurate accounting data
Having said all that, it is important to point out the importance of accurate accounting data for businesses.
The accounting department of a firm is responsible for keeping track of every transaction made by a firm. For example, it has to be reported when a firm buys a product from an outside company, but also when different subsidiaries sell products or services to each other. To keep track of all these transactions, it is necessary to ensure that every account is aligned and that it can be exactly determined how much money was spent on what services or products. By law, a firm is required to draw up diverse financial statements from these accounts and transaction flows. When financial statements are created, accuracy and transparency are absolutely vital for every stakeholder involved.
The Solution — Intrachain Business
All of the problems described above make accurate accounting practices a burden. It is in the interest of any firm, its shareholders, and CEO in particular, to have a process in place that resolves transaction inconsistency. At the same time, the process should be transparent. This is not only important for financial reporting and internal decisions, but also for a company to fully comply with tax laws and transfer pricing requirements. Therefore, a solution is needed that helps firms to develop accurate and efficient intragroup accounting practices.
Intrachain Business keeps track of user behavior data and transfers them to the blockchain. In a next step, these condensed data serve as the basis for the correct recording and allocation of intercompany services. Smart contracts are used to transfer the involved cost transactions to the respective accounting systems within the group of companies.
The customer can keep an overview of transactions and cost allocations with the Intrachain interface (Can be seen in picture above).
Technological Solution and how it works
Intrachain wants to equip each party with equal data access. Therefore, Intrachain’s software consists of three components.
The first component is the process mining engine that has been developed and is already being distributed. It directly collects the relevant data from the clients and passes it on onto the blockchain.
As a second component, the Ethereum blockchain, an open source application, is added to this construct. In the case of Intrachain Business, the blockchain technology is used to create a private blockchain where smart contracts enable automated accounting and automatic bookings and payments. The blockchain furthermore ensures data transparency and security for both Intrachain products due to its decentralized architecture.
The third component, the API, functions as a bridge between the different systems and will be developed for each cus- tomer of Intrachain Business individually. This setup permits the software to be used directly after the token purchase by the clients.
After having introduced our technological solution, we now are going to explain how the software works. Our solution consits out of five steps:
In the first step, the process mining engine fills data into the interface at the end of the day/week/month. This data (summarized per project) is sent into the ERP (project management, accounting) system with the help of the Intrachain API and ERP adapter. When the documenting process is finished, the Intrachain Server stores the information.
In the second step, the server prepares the data to be sent to the Intrachain Smart Contract on the Ethereum blockchain. The invoice for Company 2 is created based on the rules as determined in the local configuration database. The responsible user can use the UI of the Intrachain Server to approve the transaction, see alerts, create invoices without ERP connection and more.
In a third step, the invoice alert from Company 1 is available via the private smart contract on the Intrachain Server of Company 2 and is sent to the specific user. The Intrachain Server sends the invoice into the ERP system.
In the second last step, the Intrachain Server receives the command to make a payment from the corporate ERP or accounting system. The Intrachain Server makes the transactions and runs the smart contract to pay the invoice.
Finally, the Intrachain Server of Company 2 receives an alert about the successful payment of the invoice from the Intrachain smart contracts and carries out the transactions into the ERP. Authorized persons from both companies can check the status of the invoice, payments and their account value in the blockchain on every step of the process.
Conclusion
As we have stated our globalized and digitalized world means more complexity for business processes. This development in consequence means that businesses have an increasing need for accurate data. This need will in future be pleased through the services of Intrachain Business.
Our business solution not only transforms relevant intercompany transaction data into smart contracts on the blockchain, but also automates account keeping and booking through smart contracts.
In next week’s blog post we will introduce the challenges accounting faces nowadays caused by the increasing importance of data. Stay tuned to explore the significant problems large firms face today when collecting accounting data and to learn about the importance of blockchain for the accounting world.
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