Evolution not revolution: Audit and adapting to change

July 11, 2023

Andrew Gragnani, President of MHM, shares insights on the topic of audit and adapting to change. He provides a comprehensive perspective on the developments impacting the sector, offering a glimpse into the future of MHM and how the firm is tackling some of the challenges and developments facing the accounting profession in the United States.

Audit and adapting to change: The evolution of AI

The use of Artificial Intelligence in accounting is a current hot topic hitting the headlines, with PwC recently investing $1 billion in AI technology over the next three years to deliver efficiencies, with plans to train 65,000 staff in AI technology usage and deployment.

When the discussion turned to the role of AI and audit adapting to change, Andrew offered a more cautious approach to AI. He believes the technology is still evolving at a pace that needs consideration,

“We have provided guidance to our personnel on the use of ChatGPT in that it is currently not a reliable source of audit evidence and cannot be used as such.”

However, MHM actively evaluates emerging technologies through its representation on CBIZ’s technology committee. Andrew explains,

“Rob McGillen, as the CBIZ Chief Innovation Officer, is responsible for handling various aspects related to new and emerging technologies, including AI. The committee continues to evaluate these technologies and how they can be utilised effectively to serve our clients. This evaluation is part of the ongoing process as the role of technology in the profession continues to evolve and develop.”

ESG and audit

ESG reporting is another new global development that has had the accounting industry working furiously to put regulation and policy into practice. Andrew emphasises the importance of distinguishing between the non attest standpoint and the attestation standpoint when it comes to ESG reporting.

“When we talk about the ESG implications, it’s important to separate non attest services versus attest. From an attestation standpoint, there is no one set of reporting standards that currently exists and verification of reports or standards is rare in the U.S. In addition, the political landscape is daunting, with 18 states forming an alliance against ESG which has created uncertainty for many outside the United States. For example, Lloyds of London recently exited the Net Zero Insurance Alliance due to the U.S. political landscape and anti-trust concerns. So, from an attestation standpoint, it presents a dilemma for deploying capital and resources.

The AICPA has announced they will be developing an attestation reporting framework, to better assist firms and its clients. We acknowledge that regulatory efforts will have a significant impact on the accounting profession, particularly in the realm of ESG reporting. However, as the rules and guidance regarding transparency, accountability, and reporting are still evolving, we remain in a state of observation, so that we can provide meaningful guidance to our people, and assist clients in meeting their reporting requirements.”

However, whilst policy and regulation continue to progress in the US, MHM will be focused on ensuring clients who do business in countries that have significant ESG developments meet requirements. Andrew is sensitive to the speed at which the issue is unravelling in real-time in other countries,

“We believe that preparing our clients who are material subsidiaries of EU entities for ESG will be important. So far, we’ve only received a couple of enquiries from clients who meet that criteria. In fiscal 2022, our public company practice represented about 4% of our firm’s total revenue so we have not seen much of a need and that could change when regulations change, but currently, it is impacting clients of the Big Four much more acutely than our client base.”

Meeting demand

He expects MHM to experience good growth in the next 12 months, but it is no secret that the industry is facing a shortage of skilled professionals to meet client demand. MHM has approached this challenge by outsourcing to meet increasing demand, stating,

“Through May of this year, we have experienced same unit revenue growth of 9.2%, which is outstanding, particularly in this U.S economic environment. In 2022, we saw a significant increase in the number of clients over $100,000 in attest fees, and these clients represented about 54% of our total revenue. Clients of this size provide significant opportunities, because they are generally more complex and require other services. Because of our growth and the shortage of personnel, we have implemented and are utilizing an offshoring solution in India.”

Andrew acknowledges the challenges faced during implementation but expresses confidence in the value and support they can provide.

“We believe our partner provides value and support to our firm and we’re confident in the quality they can provide.” He further emphasises the firm’s plan to expand outsourcing efforts, saying, “We plan to expand its usage to support our growth.”

Similar to Andrew’s approach to the evolution of MHM in 2023 and beyond, MHM’s unique blend of cautiousness and progressiveness is reflected in its almost 70-year history, creating a compelling alternative to the Big Four, particularly for small and medium-sized enterprises (SMEs).

Humble beginnings

From its humble beginnings as a small, single-location accounting firm in 1954, MHM has experienced remarkable growth and development based on that formula, now with 34 locations spanning the country and ranking (together with CBIZ) as the 11th largest accounting firm in the US market terms of turnover has created a winning formula, ready for a future with continued success and expansion

If you would like advice on any of these changes to the audit industry, please get in touch.