Insights with Mercia & Caseware: Tech Trends in Auditing

Joanne Gregory, a Senior Manager in Mercia's A&A and Compliance team, joins Shez Hamill from Caseware to discuss the latest trends in the accounting and auditing space.

Delving into the evolution of the profession, from traditional paper-based methods to the adoption of cloud technology and AI, the podcast covers market consolidation, regulatory changes, and the increasing importance of data analytics and sustainability assurance reporting. They also explore how firms can stay compliant with evolving standards and the role of AI in driving efficiency and quality in audits. 

For more information on this topic and more, please visit www.mercia-group.com for further details.

Transcript

00:00:00] Hi, my name is Joanne Gregory. I'm one of the senior managers, um, that oversees the publications department here at Mercia, and I'm here today with Shez Hamill from Caseware. Shez, do you want to introduce yourself?  

[00:00:12] Uh, hi, yeah, uh, Shez Hamill. I've been at Caseware 20 years, so it's, it's great to be here, Joanne. 

[00:00:18] It always feels a little bit to me, um, like I'm on hallowed ground when I come to see Mercia. It's a bit like, Going to the institute, you know, I suppose I'm coming to the heart of the accounting profession.  

[00:00:29] Oh, you're very kind. Oh, we're delighted to have you here today. Um, so what we'd like to talk about are some different trends that are happening in the accounting and audit space. 

[00:00:39] Um, so what trends are you seeing at Caseware with working practices?  

[00:00:43] Oh, wow. What are Interesting time, I think it is for the profession at the moment. Uh, as I said, I've, I've been with caseware a long time, so I've seen the, the profession evolve over from literally from people, you know, carrying boxes around, uh, in vans to go and do an audit to, uh, the introduction of computerized, uh, uh, audit. 

[00:01:08] Uh, but yeah, there's, there's some very interesting kind of macro trends. Uh, uh, happening a few years ago, we were talking about, uh, the concern that, that, uh, there was an aging practice population and people, you know, didn't have an exit strategy for their, for their practices. Uh, now we're seeing acquisitions every week, uh, consolidation in the market, private equity coming into the market. 

[00:01:39] It's a really interesting time. I  

[00:01:41] completely agree.  

[00:01:43] And of course, um, as well as the, the market trends, you've got the regulatory trends, you know, certainly auditing is becoming ever more regulated. There's a drive to quality. Yeah. And, um, Uh, I've seen the number of audit firms concentrate from, I think when I joined there might've been five or 6, 000, and now there's probably closer to 4, 000. 

[00:02:15] Yes.  
 

[00:02:15] Audit firms. Um, obviously it's a very broad church, but certainly I think regulation isn't going to get easier. There's going to be constant updates required. And then of course, laid on top of that, there's the technology trend that is Driving, uh, changes, certainly a drive to the cloud, uh, and of course, AI, um, you know, just in its, uh, infancy, uh, and that's going to be an exciting, um, development in the market. 

[00:02:47] I think,  

[00:02:47] I think you're right. Definitely. Um, at Mercy we're seeing trends in respective technology, um, certainly things like audit data analytics, so people moving from their old system of, of. Filing, um, their files. So paper files, leave arch files of the days of old, you know, there, there's some, the phones are starting to switch onto the fact that they can go paperless. 

[00:03:08] So use a cloud system. And then those that have been using the cloud system for a while, they're looking at ways that they can incorporate technology to help them. With their testing, so even picking samples, interrogating data, um, and that kind of thing. So, yeah.  

[00:03:22] And of course, um, it's a very broad church. 

[00:03:26] Yeah. The auditing profession, you know, I think one thing I've, I've always been very proud of for caseware is, um, I see our role as amortizing the cost of development for the entire market. So that whether you're a sole practitioner, Working from home or you're a top 10 firm, you have access to the same tools and technologies and, and, and the same quality of audit as particularly. 

[00:04:00] Exactly. Yeah. And you touched on the fact that as a smaller firm, um, people are working differently. We're seeing more people working from home, um, and hybrid work and even the big offices. Uh, the big firms, the ability to work from home or work remotely is definitely a trend that I'm spotting.  

[00:04:17] Yeah. And, uh, I was talking to, uh, we, we see employment trends quite actively basically, because we can see when firms buy more licenses for our product. 

[00:04:29] And certainly this year we've seen a higher, uh, student intake than we've seen in, in, in previous years. And there may be some. Uh, generational demographics going on there that, that, uh, but we're certainly seeing that, uh, new employees, Gen Z or millennials or whatever you want, want to call them, they're not expecting to be in the office five, five days a week. 

[00:04:55] And, uh, they're looking for flexible working and, you know, working on paper just doesn't support that, um, the new reality.  

[00:05:06] Yeah.  
 

[00:05:07] You're just not competitive, uh, working that, that way. But also clients, they want collaboration and they want, uh, you know, a speed of delivery. We're all a bit more impatient now, aren't we? 

[00:05:21] So I don't think it's enough to just, uh, you know, I don't want to, uh, if someone is still working on paper, I'm not going to say the quality of their audit is any worse than, uh, than, uh, uh, anything else, but their client expectation has risen over the last year. It isn't enough just do an audit. They, they want more than the audit. 

[00:05:45] They want their, your, your advice, your feedback. Uh, and certainly data analytics and, and other tools have a, have a role in, in that more advisory part.  

[00:05:56] Yeah. You touched on regulatory changes there earlier and saying that people who were using paper files are not so much at a disadvantage, but I think the comment I would make is that there was probably a. 

[00:06:07] Yeah. They've probably been making life a little bit harder for themselves because there are a lot of, um, linkage within your, uh, k squared cloud. Um, so if you raise a wrist somewhere, it will appear in different parts of the manual rather than you manually having to link.  

[00:06:20] Yeah, and it goes back to that. 

[00:06:23] Uh, constant drive to quality, you know, um, um, and again, I don't think that trend is going to die off. Uh, I'm very fortunate to speak to auditors around the globe and, and I think the UK can be proud that the UK audit profession is seen as that quality standards, uh, to aspire to. But yeah, it, you know, working on paper, you know, has it practical, uh, limitations. 

[00:06:54] You know, the reality is, you're not going to be as competitive, um, either economically or in terms of quality than using tools that, that speed up the, uh, the process, allow you to focus on, on risks.  

[00:07:11] Yeah.  
 

[00:07:12] Uh, yeah. Technology is there, is there to help.  

[00:07:15] Yeah, so while we're talking about this technology, what kind of technology does Caseware offer to help, um, firms adapt into this new way of working? 

[00:07:24] Well, I mean, the first thing is obviously a secure cloud platform, that, which, which, um, sounds simple, because, you know, we see some startups coming to market and offering cloud solutions, and we think, you know, they're very nice solutions. But we know how large our security team is. And, and I was talking to one of our team, uh, in Toronto the other day. 

[00:07:49] He said, you've got to understand that since the Ukraine war, he's quadrupled his, the size of his team, just because of the denial of service attacks from foreign agents and, and, and, uh, whatever else. So the cloud platform itself, having a scalable, large, secure platform, That has multifunctions, it's got your collaboration, et cetera. 

[00:08:13] So you've got the, the platform level, but then in the engagement level, obviously we we've done cloud, um, uh, audit, uh, You know, and all the different specialisms with Mercia for several years.  

[00:08:26] Yes.  
 

[00:08:27] And the last couple of years, uh, well, how can we push that on? So the introduction of embedded, uh, analytics, we're working on, um, uh, group audit, which we really think is going to be a, uh, a game changer. 

[00:08:40] We we've, uh, shown where we are on that development to a couple of, uh, top 10 firms and they absolutely loved it. So, uh, group audit, uh, is coming. Of course, we also, uh, are replacing our desktop financial suite with, uh, a cloud financial suite and then synchronizing between audit and financials. Uh, so that's coming along. 

[00:09:04] And then lastly, um, you know, the big compliance thing that's on the horizon for the UK, uh, is, uh, ESG and ESG audit. And, you know, we've got, uh, uh, things working.  

[00:09:17] We have, yes, so both Mercer and Caseware, um, looking at this particular kind of like field, very exciting times, so Sustainability Assurance reporting. 

[00:09:27] Well,  
 

[00:09:28] uh, again, you're probably not young enough to remember the introduction of iXBRL, but I'll relay, um, a story, I won't name the name, uh, the partner or the firm. But I had a chat, uh, when IXBRL came along and IXBRL came along, I think 2011, uh, we'd just been through the 2008, 2009, uh, there was pressure on fees. 

[00:09:52] You know, firms were struggling to, to maintain fee levels, uh, in the market. And I was talking to, to this particular partner about IXBRL and he said, I can't charge any more to my clients for doing this. And then I actually showed him what an IXBRL tag looked like. And, and so forth. If you, this is just one and you've got, you know, hundreds, you're in the compliance business, right? 

[00:10:16] This is an opportunity to go back to your clients and say, look, do you know, do you want to do the axe barrel tagging? Or do you want us to do it and generate more fee, fee revenue and ESG? Is a similar opportunity for the entire space.  

[00:10:32] Definitely. We  

[00:10:33] are already seeing, uh, uh, through our, through our client base, the end customers coming to accounting firms and asking for advice on ASG, ASG reporting. 

[00:10:44] And of course, once the report's done. Then the, then the firms are going to want to audit those reports, whether they produce them themselves or the companies produce them, we have to have that auditing too.  

[00:10:54] Very rich though. I think this is a great opportunity as well. Um, in the UK, we're about to go through a company size increases. 

[00:11:02] There'll be less. Audits that need to be undertaken, this would be a great place to generate some revenue that is going to be lost from the typical traditional kind of audit work that you would do. Um, so yeah, completely agree. That's definitely a future area. Um, going back onto the audit requirements though, um, audit firms, as you mentioned, have seen some significant changes, especially with the ISIS in recent years. 

[00:11:25] So, how are Mercia and Caseware ensuring that, um, firms are staying compliant and up to date with all the requirements?  

[00:11:34] Yeah, well, um, it, it's been a genuine partnership, I'd say, for, for 20 years, for my entire career at, at Caseware, it's been a genuine partnership, uh, and it's one built on trust. Um, uh, I, I think the advantage of Caseware and Mercia working together is that clients know they, they'll get. 

[00:11:58] a technological system, we may not always be first to market with something. That's, that's not our goal. Uh, but we want to build robust, reliable technology that stands the test of time. So technologically caseware will adapt. And we know from a compliance point of view, Mercia will, will adapt in time. And I think a great example of that was ISO 315. 

[00:12:26] Yes.  
 

[00:12:26] Where. Being honest, we've seen one vendor completely get it wrong, really struggling in the market now, broken promises, et cetera. Um, on the whole, we haven't always, we'd make our mistakes as well. We're a software company. We have bugs from time to time. We, we have issues. We're not perfect, but on the whole, we have a reputation of trust that's built over meeting compliance deadlines every time. 

[00:12:54] I can tell you that at Mercia, we, when we worked on the ISO 315 update, Um, that was work in progress for, for at least a year, it went through different levels of reviews. So we had external feedback, internal feedback, we passed it to our FAR release to make sure that it guided people through the right working practices, um, to make sure that we were pitching it right. 

[00:13:16] Um, obviously we included a number of forms, um, that we knew weren't, wouldn't be popular and we restructured as well the planning section, which again, we knew wouldn't be popular. But we did this, um, understanding that we had to do this to fit in the extra bits and pieces that IC315 was requiring firms to do. 

[00:13:36] And again, objective number one is get out there in sufficient time for firms to be compliant. Yes. The market tells you what you've got right and what you've got wrong. We are constantly learning and we are constantly adapting and evolving the software. A a and, you know, the, uh, the manuals, it never stops. 

[00:13:59] You, you know, doesn't, you're always looking, what can we do better? Have we interpreted that right? Could we add a tool that makes life a little bit, bit, bit easier there? Yeah. Uh, and the really exciting thing, uh, is, um, how we can use AI now to really drive efficiency.  

[00:14:18] Yes.  
 

[00:14:19] We have recently launched, uh, uh, something called ada, which is, uh. 

[00:14:24] A free AI tool and being honest, uh, it does some summarization. You can summarize leases, et cetera. You can summarize PDFs, but what firms are telling us that they really like is actually, if you're in, uh, you know, a work program and you want to know about the impact of a particular ISA in this section. 

[00:14:49] It's effectively guiding the user as to, you know, they've got citation to, to where that, uh, uh, that ICER is and how it applies to that particular work program.  

[00:15:00] Very powerful. Yes. Wonderful. That's really going to help people that are coming in to audit. You get people in audit at different levels. So you do get people that are training. 

[00:15:10] Um, they're learning their craft as they're doing the practical work. So that's a really powerful tool, isn't it?  

[00:15:16] It's going to be. And that's why we wanted to have that element of AI, uh, free. That's the kind of default. There will be other versions that come along that actually are doing much more complex things that we will need to charge for, because again, they cost more to run. 

[00:15:35] But you're right. And again, it comes back into that. Uh, market dynamics of, uh, firms growing, you know, perhaps having a period where they weren't hiring so many. And then we had a period where even if you wanted to hire, there weren't qualified accountants out there to have, people were having to learn how to do more with less. 

[00:15:58] Yeah.  
 

[00:15:58] Because actually almost the, you know, the, uh, company size changes, I've been through that a couple of times, and there's always the fear that, uh, auditing is getting more specializing and therefore there'll be less work. All of the customers that we've dealt with are all complaining that they're turning work away in reality. 

[00:16:26] And some of that was because they, you know, a couple of years ago, they didn't have the bodies to do that work. We see AI as, you know, You know, if we can get the, as well as the quality, if we can get the efficiency gains out, out of AI, um, that should allow firms to be able to expand the work they do without risk of compromising quality, because that's the fundamental. 

[00:16:52] That's the key, isn't it? That's the balance. Yep. Wonderful. Well, we've talked a little bit about the, um, some short term plans for the future. Um, So we've talked about groups and Ada, uh, fantastic. Are you able to diverge any, any further plans, maybe any long term plans?  

[00:17:10] Well, well, certainly we see, uh, uh, AI, uh, being a key driver. 

[00:17:17] So, in a former life, uh, I was involved in the very early days of the internet. I was actually chair of the world's first trade association for internet service providers, something called ISPA, uh, UK, which is still going today. And, uh, believe it or not, in, in, in the early nineties, um, If you had an email account, the, the country's largest, um, internet provider only guaranteed to, to deliver your email within 28 days. 

[00:17:50] You  
 

[00:17:51] could order a pizza on the internet, but only if you lived in Chicago. Um, and so I spent, uh, those years going to, uh, the Houses of Parliament, uh, Uh, the European Commission explaining how transformational the internet was going to be to MPs who frankly couldn't use a computer.  

[00:18:14] Wow.  
 

[00:18:16] I, uh, and of course now the internet is pervasive in our lives. 

[00:18:20] Um.  
 

[00:18:20] Yeah.  
 

[00:18:21] I feel like AI is exactly that same inflection point.  

[00:18:26] Yeah. Yeah.  

[00:18:27] Now, One of the conversations I had a few years later into the birth of the internet, probably around 96, 97, was, um, when Rightmove came along and there were all these people that say, Oh, estate agencies are dead. You know, it's all going to be Rightmove. 

[00:18:47] You're still seeing the state agent on every high street. Um, but. It's the winning, the people who see what, what a technology is choose. Where they're going to get on that journey. We've talked today about people still using paper to do an audit, which is, you know, I still find quite shocking given that we've, you know, uh, we are in the computer age, but they're still, still out there. 

[00:19:21] Yeah.  
 

[00:19:23] I'm very proud of the growth the firms have had, because frankly, I've seen some relatively modest size firms buy Caseware and Mercyhurst audit solution on a computer because of that, uh, we've been part of their growth journey  

[00:19:42] and  
 

[00:19:43] now they're, they're highly valuable assets. We've got PE firms coming in. 

[00:19:48] AI is going to be the same thing. It's going to have the same impact on the profession. Some firms will dip their toe in early, uh, there will be mistakes. There will be, uh, solutions that come along. Uh, there'll be things that come from left field, you know, that, uh, um, but I think the profession should, should be excited by the possibilities of AI. 

[00:20:19] Um, uh, uh, and, uh, where it's going to drive the profession going forward.  

[00:20:25] Yeah, I agree. Uh, the general consensus at Mercy is that it will be a great tool. Um, use it with trepidation, you know, you see its limitations, it's a tool at the end of the day. Um, but, but yeah, so.  

[00:20:37] Well, again, so with the cloud, uh, when, when we've been on the cloud, God knows how many years now, but when the cloud first came along, all the questions were about security. 

[00:20:48] How do I know it's secure? I've got very confidential client information. I don't want that out in the ether, et cetera. Is it going to, you know, stand up as, you know, what happens if. Your internet goes down, all that kind of thing. We never get asked those questions anymore. People just trust that we have a security team and a maintenance team to keep, keep it live. 

[00:21:12] But you've got the, we're at the same point with AI. Um, so the real critical thing that we've done with our first release of AI is, was, you know, we'll be really adamant. None of your data kind of leaves your interface. We're not learning from it. We're not saving it. Uh, there's no risk of client data going anywhere. 

[00:21:34] We don't even save your prompts. Uh, and, and there is a bit of an argument. Well, how are we going to learn if we don't know what you're asking? But, but no, if you want to tell us, I didn't get the answer. You can give us feedback. We give you a feedback form, but we're not keeping, keeping the data. So I think that the next year or so isn't just going to be about. 

[00:21:54] Using AI, uh, it's going to be about, you know, people getting confident with AI as a concept and the security of it and, and working out what's good AI from bad AI, because there will be some. Uh, some actors out there, if you like, that, that, that may come in under the radar presenting to offer, you know, a great solution that don't have the security controls or, or, uh, behind them. 

[00:22:19] So firms have to be careful, but from our point of view, uh, what we're really doing now is we're asking firms, what's your problem and really dig into how 30 minutes out off that task or an hour off that task. How do we really start driving efficiency, always coming back to, without compromising the quality of the audit? 

[00:22:46] It's been a pleasure talking to you today, Shez. Um, absolute delight having you at Mercy's headquarters up in Leicester. Um, anything else you want to cover before we, uh, offer a wrap up?  

[00:22:56] No, as I say, I always feel it's on hallowed ground. I'm coming to the twilight of my career with Caseware, but I know Caseware and Mercia. 

[00:23:07] I look forward to another 20 years of working in partnership.  

[00:23:10] Yeah, wonderful. I've been here for five years and I've got to say that the partnership that we've had has been wonderful. So I work really closely with my counterparts at Caseware. Wonderful collaboration, so I look forward to that in the future. 

[00:23:23] Wonderful. Good to see you today. Thank you for listening to the Mercia podcast. For more information on this topic, please visit mercia-group.com