The Grand Arcanum or The Great Art is Ishval's version of Alchemy that is exclusive to the 2003 anime. Is reveled in Episode 36 to Al and Ed by the Ishvalan Exile to be an old method originated in Ishval of altering matter at will, but was considered cursed by going against Ishvala's dogmas so it was banned and passed secretly through the generations of Ishval. It's also briefly mentioned in the PS2 game Curse of the Crimson Elixir as the art used to create Golems.
Origin and general usage
The Great Art appears to work similar to alchemy and has it's own circles, with a similar look to transmutation circles albeit being tribal-like in appearance. It would appear that the Ishvalan Exile was the only known person knowledgeable of the Grand Arcanum. He first taught Scar's brother how to use it when he was researching alchemy, and later tells Ed, Al and Scar about it, letting them known how to make a Philosopher's Stone using It. Another way that The Grand Arcanum can work is with the user tattooing their body with special texts and designs in order to use it, and when making a Philosopher's Stone this type of usage effectively makes them a living Philosopher's Stone by drawing all the souls into their own body. The Grand Arcanum Array shares resemblance with the Transmutation Circle that Ed and Al used to transmutate Trisha/Sloth, being a hexagon within a circle and having specific points highlighted throughout it. The Array is used as both a human transmutation circle and to create a Philosopher's Stone, being tattooed in Scar's Arm but only proper appearing for the first time in the 5th Lab and altered by Ed during the events of the 5th Lab arc (being changed to a Heptagon), used by Scar in Episode 42 to create a stone, used by Shou Tucker in order to recreate Nina's body (being a modified version of Ed's Heptagon Array) and used by Ed in his Final Sacrifice, it is also shown as tattoo form in Scar's Brother's body, Scar's arm and Alphonse Elric. Of course everything stated here is only truth in the 2003 series, since in the manga/2009 series Scar's tattoo is the theory of decomposition synthesized by his brother mixing both Alchemy and Alkahestry.
Usage in creating a Philosopher's Stone
The Grand Arcanum uses a similar method of creating a Philosopher's Stone through alchemy, that being hundreds to thousands of human lives. Different from alchemy however, it also permits a person to create a Philosopher's Stone by using people's lives being taken in a war or massacre and their suffering when they are being killed overtime, not needing to kill them only to make the stone but using their deaths instead.
"A falling city, or an entire tribe lost in genocide, atrocites of war so horrific [that] all that remain are the graves. Tens of thousands or hundreds of thousands of misplaced souls, in the hands of a skilled alchemist these lost souls are brought together [and] forged into a philosopher's stone." - The Ishvalan Exile
Scar's Brother was the first to use the Grand Arcanum to create a stone in the anime, in order to revive his lover (the human who as the base of Lust), he intended to use the Ishvalan lives of the ones being killed in the war to do so. While he couldn't get through it, he turned himself into an unfinished Philosopher's Stone and then later passed that to Scar when he gave him his arm (it is heavily implied that Ishval was destroyed, possibly ordered by Dante, in order to pressure Scar's Brother or another Ishvalan alchemist to create a Philosopher's Stone). The Grand Arcanum is once again used to create a Philosopher's Stone by Scar in Episode 42, it is shown to work by a very large Transmutation Array around an area (similar to the Nationwide Transmutation Circle from the manga/2009 anime). When activated, the Array will take the souls of everyone inside and turn them into a Philosopher's Stone. In an unexpected turn of events, Scar facing death after being injured by Kimblee, decides to transmutate Alphonse into the Philosopher's Stone in order to save him, who was turned into a bomb by Kimblee. He the same type of arm/tattoos transfer that his brother did to him and transmutated his arm into Al, uniting the unfinished stone to the armor and finalising it by using the lives of 7.000 soldiers who invaded Reole.