The Accounting Podcast

[00:00:00] Thank you to our sponsor, OnPay

David Leary: Many times, when choosing a payroll service, you have to choose between a new startup with a great app, or an established company whose tech may feel behind the times. With OnPay, you get the best of both worlds - a great app from an established company that's been providing payroll services for over 30 years in all 50 states. Stay tuned to hear more from our sponsor, OnPay, later in the episode.

[00:00:23] Preview

Blake: The value of the tax return is, here's what I'm paying so that I don't get fines and prison time.

David: A headache, right? People are- it's the fear, right?

Blake: Right.

David: Of the audit. But if word gets out that the- that you shouldn’t be afraid of it-

Blake: If there is no audit- right, if there is no audit, there is no fear. And then there's no value in the return. And that's why we haven't been able to charge more for tax. Same thing with audit, right? If there's no perceived value in the audit, in the mind of the investor, then we can't raise audit prices.

Same thing with tax trends. It's the fear of an audit and the consequences that go with getting it wrong. Our number one value prop as CPAs is accuracy. But who cares if you're accurate? you said, David, who cares if the return is accurate, if nobody's ever going to check it?

David Leary: Coming to you weekly from the OnPay recording studio, this is The Cloud Accounting Podcast.

[00:01:16] Welcome to the Cloud Accounting Podcast

Blake: Today is Saturday, March 12th. This is The Cloud Accounting Podcast. I'm Blake Oliver.

David: And I’m David Leary.

Blake: And I have been pontificating too much, David. So, I'm gonna let you start this episode.

[00:01:26] Conflicting reports on the Great Resignation and its effect on the accounting profession

David: Well, yeah, we missed app news last week. But now, here's the deal. I'm going to probably set you up to pontificate a little bit right here now.

Blake: Oh, really?

David: As I'm seeing conflicting data, and I'm trying to understand it in my brain a little bit. So, Accounting Today had the tops firms, right? So, they announced their top 100 firms of 2022, right?

Blake: Yeah.

David: And in that report, there's a bunch of quotes from all these firm owners. And this article written by Daniel Hood- the title of the article is ‘Top Firms 2022: What Great Resignation?’ And if you read the quotes in this report, over and over again, Craig Browning, Director of Marketing and Personnel at KWC, CPA's reported that the Virginia-based firm hadn't really been impacted by the Great Resignation either.

“We actually had an overwhelming success, just broadening our recruiting scope in the fall.” Atlanta-based Aprio, “In spite of the talent war, we have not seen any significant change in retention.” North Carolina-based Smith Leonard, this is the Director of Resource Development, Kelly York, “Fortunately, we've had little, very little impact from the Great Resignation.” So, the top 100 firms, over and over again, are saying they're just not impacted by it.

Blake: Uh, huh.

David: Right now, one acknowledged- this is John Norman, managing partner at North Carolina-based GreerWalker, that they're really feeling the effects of the accounting-specific shortage, and not by the Great Resignation. So, is some part of me like, “Are we just splitting threads here? Are we trying to make ourselves feel good saying, ‘Hey, the Great Resignation hasn't affected us?’”

Because you- if we list the last couple episodes this year, you, Blake, are like, “It's an Exodus.” Nobody wants to work for accounting firms. Everybody wants out. So then- and this- and I'll let you go on here in one second, then there was a survey that was put out by CaseWare, and it's got a really funny title. It's the ‘CaseWare International Unveils First-of-its-Kind State of Accounting Firms Trends Report 2022’.

And one of the pieces of data in here I thought was interesting, finding and hiring the right talent is a top issue for accounting firms, with 94 percent of those surveyed describing it as challenging, and 42 percent calling it extremely challenging. They interviewed 3000 firms. So, is there a- the top 100 firms are not having this pain as much as smaller firms? So, this is, here you go- pontificate away.

Blake: Well, I mean- or-

David: I’m trying to understand, because this is conflicting data to me. Or are we splitting hairs on what we're calling Great Resignation, versus accounting shortage?

[00:03:54] Blake wants more data

Blake: Or am I just full of crap, right? And there isn't-.

David: Let’s do it. Let’s do it.

Blake: It's possible. Well, I think in that article that you mentioned first, the Dan Hood survey, it was the anecdotal responses from the top 100, saying that they aren't impacted by the Great Resignation. I think he starts at the top saying it's actually only a small subset that say they aren’t impacted.

The majority are, but then there are some that aren't. And I think that makes sense, that you would have the fastest growing firms not affected because they are the ones that are able to attract people from the firms that aren't growing. Right? They're stealing the talent.

The talent is going somewhere, and it's not all leaving the profession. So, the places that are perceived as being the best places to be are going to be able to attract that talent. You have the haves and the have nots in our profession. And also, the fastest growing firms, I have questions about that.

I want to know- they don't break this down in the rankings- how much of that growth is through mergers and acquisitions, and how much of it is organic? Because once you get to a certain size as an accounting firm, your primary way that you grow is not through organic acquisition of clients. It's by rolling up smaller firms into you, because you become a way for those firms that don't have a succession plan to have an exit.

If you're a partner and you're 50 years old, and you don't have anybody you've trained to take over for you when you want to retire in five to 10 years, what else can you do? You merge in with a bigger firm. So, those firms that are doing a bunch of M&A don't have as much of a problem because they're able to get the employees of the firms that are merging in. That's my theory.

David: So, they're kind of- the net effect for them is kinda zero. ‘Cause they get a- they might lose 10 employees over here, but they acquire a firm, they get 10 employees that are at that firm.

Blake: Exactly.

David: Got it.

Blake: You know, it's sort of how I joked, David, that inevitably, you will end up working at Intuit again, someday, right?

David: Yeah. Consolidation.

Blake: Because Intuit just acquires all the good startups. So, you'll end up being there. It’s the idea with these bigger firms. So, I wish that Accounting Today would break out the growth rates. And also, let's talk about exactly what this top 100 list is.

It's a list of firms ranked by revenue. So, all it is, is the top line number. We don't know how profitable they are. And so, that's also misleading, because we, as accountants, know that revenue is not nearly the most important thing. What matters is your bottom line.

David: They should rank them by the number of billable hours. Well, I think for the industry, it'd be a lot more useful if it broke up audit, versus advising, versus tax-

Blake: I think-

David: -versus the cash practice. I think it'd be easier for people to understand where everybody stands.

Blake: So, they do that in the report. If you download it, it's pretty basic. It is audit tax and then consulting. That data is what allowed us to find out a few years ago that CAS, which is client accounting services, or outsourced bookkeeping work or outsourced accounting work had achieved the 10 percent mark and is now at least 10 percent of firm revenues.

But no, I think it's a fair point. I'm curious to hear from our listeners, is the Great Resignation real? Is it fake? Is my take on it appropriate? From what I'm hearing when I'm reading, it sounds like it's pretty bad in a lot of places. So, it could just be firm to firm, though.

That's the thing, right? I mean, we're a big industry, we're a big place. It's not like every firm is going to be having the same experience. And some are doing great, and some are doing horribly.

David: Isn't arguably the shortage of accountants in the Great Resignation just the same thing? People are resigning because they're fed up with shit work.

Blake: Yeah, exactly. Yeah.

David: Across a bunch of industries, the way- their value system, the way they're working, the amount of hours they're working, all of these types of things, their work-life balance. And those are really the same things that are causing the accountant shortage. So, it's kind of weird that these are called out separately.

Blake: Yes.

David: My point of view. It’s the same thing.

Blake: Yeah, it's all related.

David: And maybe accounting had it starting before, because we had this shortage already before the Great Resignation. Maybe we’re- the accounting issue was the leading indicator of this.

[00:07:55] Your Part-Time Controller made top 100 list – non-CPA firm

Blake: So, one thing also about the top 100 that's really interesting this year is that a non-CPA firm was allowed onto the list. Your Part-Time Controller, listeners will recall, we had a voicemail from their founder, Eric Fraint. Your Part-Time Controller has over 400 employees, and they are not a CPA firm, but they provide accounting services to not-for-profits all over the country.

They're providing CAS, outsourced accounting services, and they are now on the list. So, this is the beginning of what I predict will be the gradual shift of CPA firms to non-CPA firms, or a blend of those, on the Accounting Today top 100, among the big firms, because think about it.

Why would you these days want to start a CPA firm? If you don't want to do audit, why would you put any of these other services, tax consulting, CAS in a CPA firm? I cannot think of a single benefit of that, because your clients don't care if you're a CPA firm or not. All they care is whether or not you have CPAs on staff.

I wouldn't do it. If I were starting a new firm again, I wouldn't be a CPA firm. There's just too much red tape. So, I think we're going to see- as with the EisnerAmper thing, where they split off the assurance firm to grow the consulting firm, I think you'll also see just a lot of firms that don't do any assurance.

David: So, you're predicting this list, which to some extent, outside of mergers and acquisitions, it's kind of the same list, but you're saying over time here, it's going to look considerably different because you're going to see a lot more firms that are not true CPA firms-

Blake: Yeah. Yeah.

David: -start getting on this list.

Blake: And you think about it, in 2010, most of these firms that we know, these non-CPA firms were a few dozen people or 10 people. Now, they're in the hundreds. So, what's going to happen over the next 10 years? They are also going to start bringing in firms through mergers and acquisitions, and we're going to have corporate model, non-CPA firms providing these services.

And then of course, we have the startups doing this from scratch, like the pilots and the benches and whatnot. So, we're going to, I think, see a big diversification of the types of entities that provide accounting attacks. And I think it would be a good thing because the conflict of interest that exists when you've got audit and consulting in the same firm are, it's a problem for our profession.

It creates all these conflicts of interest, and you know, why- it would be so much better if we just had auditors in audit firms, and that's all they did, is audit. And then they didn't have to have these conflicts, and we didn't have to play these games.

[00:10:31] Separate audit firms from everything else

David: There's this subset of our population, it's like, “I love audit. I'll do audit. I can make a living at audit, and I'm just happy with that.”

Blake: That's what the CPA is for, right? It's the only thing you really need it for, is to sign off on audits. So, why don't we just double down on that, and actually make audits useful, too, right? I think part of the problem is that audit is a pass-fail system. The audit report doesn't give you useful information, generally.

There have been sort of attempts to make that happen, but generally, no, investors do not find audit reports useful. So, we need to sit down and actually think of what we provide as a profession from a customer experience standpoint. And who's the customer of an audit report and the audited financial statements? It's the investment community.

And if they're not using this stuff, then that means we aren't providing a valuable product. And that's why I believe the value of audits has stagnated. And so, our pricing has stagnated. We can't charge more for audits. Audits are worth less than they used to be, when you adjust for inflation.

And therefore, you can't raise the salaries of auditors because you can't maintain the same margins, which is why people are leaving audit and going to other more lucrative areas. And I'll bet you, actually going back to your question, that the firms that are growing the most- I know this for a fact actually, cause Aprio’s on the list, Armanino’s on the list, BerganKDV, I think is on there.

Your Part-Time Controller is obviously on there. What's the service line that's growing for them? It's not audit. It's really not even tax. It's the consulting and the CAS, the outsourced accounting is growing, and you don't need a CPA to do that stuff, so.

David: So, do you want to- I know the- I mentioned that other survey, but I think you looked at that survey a little deeper.

Blake: Which survey?

David: The CaseWare survey.

[00:12:12] Cloud computing accounting article is 10 years too late

Blake: Oh, yeah. With the headline, the great headline? What was that?

David: Yes, the great headline.

Blake: So, the headline I saw was in Accounting Today, ‘Cloud Computing Expected to Skyrocket in Accounting Firms’, is this what we're talking about?

David: I think it's the same one. So, mine's from CFOdive.com, and their title was, Vast Majority of the Accounting Firms Plan to Tap into Cloud Technology Due to the Pandemic: Global Survey’. I was like, “This is two years late.”

Blake: Yeah. Yeah. I saw this on LinkedIn, Rachel Fish posted something like, “Guys-” I don't remember exactly what she said, but you know, “It is 10 years later.” For a lot of us in the Cloud Accounting world, this has already happened, right?

We are fully embraced cloud accounting, but it just shows you how far we still have to come that this is the headline: cloud computing expected to skyrocket in accounting firms. I mean, it's there. It's there for the taking, but obviously, many have not.

David: So, you jumped into this survey a little bit more. There are 2022 state of accounting firms trends report.

Blake: Yeah. This is the one that CaseWare put together.

[00:13:13] Thank you to our sponsor, FreshBooks

Blake: This episode of The Cloud Accounting Podcast is sponsored by FreshBooks. Recently, I chatted with Twyla Verhelst, director of the Accountant Channel over at FreshBooks, because I wanted to see what they've been up to. For those who don't know, FreshBooks was the first accounting software I used as a freelance bookkeeper back in 2011.

So, I've been really curious to see what's new. Turns out, a few years ago, FreshBooks launched a new platform that is now more than just invoicing. FreshBooks is now a full general ledger with financial reports, bank feeds and journal entries.

FreshBooks also has your favorite app integrations, even some embedded ones like Gusto for payroll. And with the launch of their new accounting partner program, Twyla and the FreshBooks team are creating a platform and a partner experience that’s showcasing that they're really listening to our feedback.

If you want to learn about the benefits of working better together with FreshBooks, head over to cloudaccountingpodcast.promo/freshbooks. That is cloudaccountingpodcast.promo/freshbooks.

[00:14:25] Tyler's email about job fulfillment

Blake: So, I want to get to that, but first, can I play a voicemail?

David: Oh, yeah, absolutely.

Blake: And we got an email from Tyler. And I have transcribed it from text to speech. Let's hear AI Tyler's voice.

Tyler: Hey Blake. Just finished listening to episode 260 of the Cloud Accounting Podcast you guys had released right before the New Year. I had a couple thoughts I just wanted to share.

First off, I like the idea of having a firm doing a SOC 2 report on the IRS. I am currently with PwC in the assurance practice, more specifically, performing SOC 1 and SOC 2 audits, and think the increased transparency and accountability these reports provide over systems and controls could help the IRS. Perhaps if there are several issues found, then congress would be more prompt to provide additional funding for the IRS.

Secondly, I wanted to share my thoughts about the audit profession, especially at a Big Four. I related to all of the issues you guys stated on this topic. I have only been with PwC for 8 months, and just feel empty in what I do. It just does not feel like I am contributing to anything useful, especially as a new associate.

There are aspects I do like, such as the flexibility with working from home, and the pay, personally, for me is good, but I think we make a little more because we are considered specialists, versus core audit. I’m just not sure other than pay, there is anything big firms can do to make these roles more attractive.

For myself, just the lack of strategy in my day-to-day almost makes me feel like a mindless robot. I think it will be a growing problem for firms, going forward, but just wanted to share my thoughts. Thank you, guys, for putting together a great podcast.

David: Well, I just want to give him a hug.

Blake: Yeah, right? It's tough. It's tough when you don't feel like your job makes a difference. And this is the problem that big firms have, that I was talking about last week. It's not- the pay can help, but ultimately, it doesn't matter how much you pay people if they feel like what they're doing doesn't matter.

David: And I'm going to take a guess that this is somebody that's young and they're starting the career. I don’t know, I have no clue.

Blake: Yes. Yeah. No, no, he said that.

David: So, you finish high school, you go to college, you somehow decide that “I'm going to go into accounting. This seems like a great profession.” You do all the hoop jumping you need to do, you get your CPA, you go work for this firm and eight months in, you're like, “Oh God, did I make a huge mistake of my life?”

Blake: That seems to be a typical experience.

David: That's horrible. It’s horrible.

Blake: Well, I mean, it's not that people are going into it blind. I mean, you'd have to basically not do any research to not realize that work-life balance is going to be a challenge; you're going to put in a lot of hours.

David: I seriously doubt the big firms have SEO-optimized blog posts about how you might feel unfulfilled once you get out to- you know what I'm saying?

Blake: Yeah. Yeah.

David: I don't know if the research- the research is there, I guess, if you're in the Reddit boards and things like that, but how would you know to even go looking for that? Because the message you're getting is how great it is to move to these firms.

Blake: Yeah. Yeah.

David: The recruiters are coming to your campus, right?

Blake: Yeah. And it- again, it's the Big Four education industrial complex, where they're churning out folks to go into these programs, to go into staff roles at the Big Four. And yeah, they're not being fully- they're not going to be- I mean, maybe some professors are totally honest about it. And again, I'm not-

David: But you get [CROSSTALK], it shows that you’re in touch with what's happening out there a little bit.

Blake: I like to think so. You know that we sit here in front of our computers, and we look at what is being written, not just in the accounting publications, but also, on social media, and we can draw some conclusions. And we hear from our listeners. And the listeners, thank you so much, Tyler, for writing in, because that makes a difference for us. It helps.

It helps put a face on all this stuff. And I want to know what you feel like. You know, do you work at a big firm? How is it going there? Are you part of one of these big firms that’s growing where you don't have the Great Resignation problem? If so, let us know. Give us some insight into all of this.

And you can email me at Blake@BlakeOliver.com, or better yet, you can email me and include a voice memo, and we'll play that on the air.

[00:18:23] Back to cloud computing report

Blake: So, let's get back to this report. The cloud computing expected to skyrocket in accounting firms. The big takeaway from the report is that nearly two thirds of accountants plan to adopt some form of cloud computing technology over the next two years.

And a third of them are expecting to do so within the next 12 months. 77 percent of respondents already use collaboration software to communicate and share files with their clients. And a majority of users said their overall client engagement process is not as efficient as they'd want, pointing, for example, to finding time to use the technology, and internal resistance to new tools.

That was always my biggest challenge, was, “I have this great new tool guys. Let's adopt this.” And then the staff say, “Ah, we're fine. We like doing it the way we've done it. I fill out my time sheet. I don't need more work.” So, here's another stat. The poll found that 43 percent cited using new technologies as the biggest practice management challenge encountered over the past year, outranked only by new tax laws at 47 percent.

So, very close. Very, very close. I would say probably within their margin of error, that new technology is almost on par with new tax laws as the biggest challenge. And I find this ironic that this is a study by CaseWare, which I'm not sure I know that CaseWare is a leader in the cloud space. The last time I had to use it, it was desktop. But maybe they've branched out.

Blake: Maybe that’s why they’re doing this.

David: And that's- is this third customer base that they’re- ‘cause we've already seen data, firms that were already 100 percent cloud, 100 percent there, these weren’t issues. These technology issues were not issues for them during the pandemic.

[00:20:02] The split in the accounting world between small and big firms

Blake: Yeah. Well, and again, there's a big split in the accounting world, between smaller firms- mostly smaller firms that are completely cloud-based, and then you have big firms, where a lot of them have not made the switch at all. And they are just beginning now the switch from desktop to cloud. And I looked up CaseWare, and they do have CaseWare cloud now.

So, they have a cloud product, which is probably why they did this study. And now, they're trying to get their desktop customers to move over to the cloud. But yeah, the big firms are way behind. So, this is the problem too, is we've got the Great Resignation, and the bigger firms just sort of sat around in all the years leading up to this crisis, and didn't modernize because, “Hey, we're fine. We're profitable. We're making lots of money. We’ll keep things the way they are.” But then-

David: It's the next partner's thing to worry about.

Blake: It's a next partner thing to worry about, right. And then the pandemic happens, and everything goes to shit, and they hadn't prepared, and so now, they're scrambling. And that's just really challenging, because you're trying to do the same amount of work with fewer people.

And you're making them learn new technology at the same time, which doubles their workload. It's putting a lot of stress on folks. And there are firms, I would bet you too, that those fast-growing firms that aren't experiencing problems, they already migrated.

[00:21:19] Disneyland and the customer experience

David: So, I think you mentioned to me you're going to Disneyland this next week.

Blake: Leaving tomorrow, yeah.

David: Leaving tomorrow?

Blake: Yeah. Doing three days.

David: And it just got me thinking about that customer experience, right?

Blake: Yeah.

David: So, I saw that DoorDash announced that they're going to partner with Office Depot to deliver supplies. So, DoorDash typically is who you get your lunch delivered. So, in the office, “Hey, everybody want lunch?” We order our lunch. Well, now, if you need some printer paper or copy paper, they could go get the paper and bring that from Office Depot to you as well.

And so, I was kind of thinking about this like, if I can get lunch and printer paper delivered, and I'm thinking about my tax organizer issue. The tax organizer, it's filled out, done, foreign personal taxes. But I have to take a whole stack of 1099s and W2s, and all this documentation now, and scan it and upload it to the organizer. And I'm just like- I just see the pile and I'm like, “I don't want to do that.”

And I'm a little anal, so every time I scan something, I'm going to give it good file names that are consistent, right? My stuff will be organized, but I’m like, “Wouldn’t it be better if a firm just said, ‘Hey, great. You filled out the tax organizer. My intern, whoever I got, is going to swing by your office, pick up all your stuff and we'll scan it for you.’”

Blake: Yeah, right. Yeah, I think that would be great. Just send all your clients a pre-packaged- a pre-stamped envelope and just say, “Put everything in here, and send it back to us.” And then have an army of interns scanning it and just putting it into the file system. That would be better in a lot of ways, right? It would be a great customer experience.

David: And I was listening to our last episode. And you were talking about that whole, why people choose the firms and people. This is why the impression is it's less work to use TurboTax, versus working with a firm.

Blake: Right, yeah.

David: because I would just type this right into TurboTax and be done. I don't have to scan it and give it to you. It's just, it's extra work. It really is. And that goes back to the experience. But as I know you're going to Disney, and it made me think about the experience on this stuff.

Blake: Well, and I'm going to be thinking about that, because they are a great example of a company that knows how to do customer experience. Even my wife was telling me about a story she heard, ‘cause she's on all these forums right now with all of these moms, learning about, what do I do to have the best experience at Disneyland?

And apparently, one of the things they do where they go above and beyond, is if your kid is on a ride and gets sick and throws up all over themselves, normally, that would ruin your day at any other place, right? Because chances are, you don't have a change of clothes, everything's ruined. You have to go back to the hotel. Sucks.

Well, at Disneyland, if that happens, immediately they see it happen on the ride, and somebody is waiting there when you get off, takes you and the kid to one of the stores, the closest store that has merchandise, clothing, they find you clothes that fit your kid and change their clothes, and give it all to you for free, and you get to go back into the park.

David: Amazing.

Blake: And you might think, as an accountant, “Oh, no, that's so expensive. They probably just gave away $200 worth of merchandise for somebody who's paying $75 to be in the park.” But-

David: If you're getting into the park for 75 bucks, I'm very impressed.

Blake: Well, that's what it used to be the last time.

David: I think it's 150, 200. I think, I'm not positive.

Blake: Well, yeah. So, you know, you're losing money if you do that. But what you're doing is you're creating this incredible experience where now, this person is going to talk about for the rest of their life, how great Disneyland was.

And this is the thing too about Disneyland is, the company, they don't think of Disneyland is a moneymaker, because where do they make their money? It's not the one time you go to Disneyland, because most people, they can only afford to go to Disneyland once. It's not that time, it's the stuff you buy and watch after, because you are now in the Disney-

David: The Disney brand ecosystem.

Blake: The Disney ecosystem; you're subscribed to Disney Plus, you're buying the Disney merchandise, the toys for- it's all a holistic customer experience. So, I'm going to be paying a lot of attention to that. Maybe I'll have some thoughts for the accounting profession when I get back.

David: I'm sure you'll have some observations about prices. This will be good. This will be good; take notes.

[00:25:27] Bringing surge pricing to accounting

Blake: Well, I mean, one thing that I've noticed is as you get closer, there's surge pricing. So, if you buy your ticket way in advance, you get one price, they have deals for the hotels, and then it's double as you get closer. And most accounting firms could do this very simply during tax season; charge more every month that you get closer to the deadline.

So, you tell your clients, “If you get me everything in December, it's this price. If you get me everything in January, it's this price. In February, it's this price. In March, it's this price.” And then you have no fights because you can say to somebody who calls on March 10th, asking for you to do their corporate return by March 15th, that, “Our prices are 4X because of surge.”

And they can decide if they want to do it. And if they say yes, then you're happy because you just made a great profit. But there's a lot of firms that don't do surge pricing. Most- I think most firms don't. I'm curious if any of our listeners do this, and what the feedback has been, ‘cause it seems like a no brainer to me.

David: Yeah. At surge pricing, actually, yeah, 100 percent agree. Makes perfect sense. Especially if somebody is like, “No, I don't want to do an extension.” “Okay, fine.”

Blake: Right, yeah. You gotta pay.

David: Yeah. You gotta pay more so I can do your return this week or whatever it might be. Yeah.

Blake: And that's- you know what? Everyone talks about how timesheets are great for managing capacity. You know what's better for managing capacity? Pricing. Just price such that- right?

David: Yeah.

Blake: Price so that people will extend, and you don't have to worry about the capacity. So, shall we get into app news, David?

[00:26:56] IRS news

David: Let's touch on the IRS before we do that.

Blake: Okay.

David: ‘Cause there's a lot of IRS- loosely connected news here with the IRS. So, I think the first thing is there’s a new budget spending bill that's out there, that the house just approved. And they tweaked it up a little bit for the IRS in here. And so, they're not getting the- I think they wanted to get that 14 percent budget increase.

And apparently, it's only going to be a 6 percent, and it goes on this article on Accounting Today, which I think is pulling data from tax notes.

Blake: What's the headline on this one?

David: The headline is ‘IRS Budget Increase Slashed in Latest Spending Bill’.

Blake: I mean, why? Why? Keep going.

David: So, some of it- and now, it's starting to turn into a bi-partisan issue.

Blake: How so?

David: So, there's a quote from this Republican representative who said- I can't find the quote, but the hype of the quote was, they're not properly spending the money we already gave them. Why would you give them more money? They're not doing a good job with the money we already gave them. That's the vibe of the quote.

Blake: I know, but that logic doesn't- it's terrible logic. I mean, it's- and it’s like, I don't know, if you're in a business and you underfund a particular division, then you blame them for not delivering results. Right? That doesn't make sense. Right? And we know the IRS funding levels have been cut over 10 years, and they have more work to do.

So, it's kind of objectively true that they don't have enough resources.

David: Yeah. So, it's kind of getting cut. So, then they had another announcement, they’re raising the fees for enrolled agents because you know, they need revenue. So, apparently, enrolled agents is moving from a $67 a year fee to $140 a year.

Blake: Oh, they're not going to like that, no.

David: Yeah. So, they're changing that. This is also tied to, you know, they want to hire 10- they've announced they're gonna hire 10,000 people- 5,000 as soon as possible. Some, they're going to have these job fairs in some cities here, the Kansas City, Austin, in Ogden, Utah, and they're going to some of these events. You'll get hired right then. You could get hired for a job.

Blake: Wow.

David: There are going to be entry-level clerk and tax examiner positions, with no prior tax experience. You're going to get this low government, you know, the G plate, the G men, all the G ratings.

Blake: I'm looking at the table. They have, you know, 15 grades with 10 steps each.

David: Yeah. But it's going to start at about $27,000, which $15 an hour at Walmart, 40 hours a week is more money. And so, tying this back to this last IRS story, which is, you know, they continue- it's another story about how they're auditing the poorest families.

Blake: Five times the rate of wealthy people. Yeah, because it's-

David: Five times the rate. And it almost makes you think, remember that- isn't there a famous Henry Ford quote about, only paying the people just enough on the assembly line to buy the car, the Model T?

Blake: Well, no- so, I don't remember the quote, but the story is that- and I know this may be apocryphal, but Ford believed that it was good to pay your employees more than market rate, because then they could go and buy your products. So, they could afford a car. He wanted his own employees to be able to afford a car.

David: Yeah. But it's just- but not too much, right? You only want to pay them enough to buy the goods that you're making.

Blake: Right.

David: But that's kind of this. So, you're going to hire thousands and thousands of workers that basically are not going to be capable- you’re paying them so little, you're not going to get high quality people, which means you can't do audits if complicated-

Blake: Returns, yeah.

David: Returns. So, basically, you're just going to hire people to go audit people just like themselves. And it's like, how's this helping anybody?

Blake: Yeah. no, it doesn't. And I've been very critical of the leadership in our profession, especially the state societies, and the AICPA for not addressing this issue with the IRS. We all know, we all acknowledge that they are underfunded. We have heard this, but nobody wants to say what needs to happen.

In my view, a significant budget increase is necessary to even get caught up. To even get those 20 million returns caught up is going to take a lot of people, but more importantly, they need to modernize their technology. And I just don't think they have the expertise on staff to do it.

David: And I think their numbers of what they're claiming they audit are completely inflated. Basically, they say they're auditing four out of every 1000 returns. But A, a vast majority of those are people that are a $25,000 or less, their earn income tax credit. But they're also considering it.

So, let's say you file a return and you forgot to attach a document.

Blake: That's called an audit?

David: And they reach out to you and say, “Hey, mail us this document.” They're counting that as an audited return. So, it's like the actual audits happening is probably 1 percent, one out of every a thousand. And so, if that's the case, everybody should just do their taxes themselves and make up whatever numbers they want. Why do you need accountants and CPAs?

Blake: David-

David: Because the odds of getting caught for anything-

[00:31:51] Underfunding the IRS actually hurts accountants in the long run

Blake: Yes, you nailed it. So, this is why an underfunded IRS actually hurts the accounting profession. So, we have all stood aside for a decade or more while the IRS funding has been cut. And I believe the reason that accountants haven't said anything is because we've thought, “Oh, well, it's nice if our clients don't get audited, right, that's good for us because it's less work for us.

It means that all these tax strategies that we're using aren't going to get questioned. We can keep selling those.” So, we've basically been complicit. I don't know if complicit is the right word, but we've just stood by, and we haven't helped. We haven't fought this at all.

We just let it happen. But if it goes too far where you don't have any audits happening, which is essentially the situation now- it's really hard to get audited, right? So, few returns, that creates a problem, because then, there's nobody checking our work. So, you get a ton of tax repairs who are just doing garbage work and there's no consequences.

And that reduces the value of a tax return. The value of a tax return is not how many hours we put into doing the tax return. In the mind of the taxpayer, the value of the tax return is, “Here's what I'm paying so that I don't get fines and prison time.”

David: The headache, right? People are- it's the fear, right?

Blake: Right.

David: Of the audit. But if word gets out that the- that you shouldn’t even be afraid of it-

Blake: If there is no audit, right. If there is no audit, there is no fear. And then there's no value in the return. And that's why we haven't been able to charge more for tax. Same thing with audit, right? If there's no perceived value in the audit in the mind of the investor, then we can't raise audit prices.

Same thing with tax trends. It's the fear of an audit and the consequences that go with getting it wrong. Our number one value prop as CPAs is accuracy. But who cares if you're accurate? Like you said, David, who cares if the return is accurate if nobody's ever going to check it?

David: Well, if your firm files a thousand returns all incorrectly, you might only hear about it, I want to return. You're just assuming all the returns are correct.

Blake: Right. And I think that's why when you look at Tax Twitter, you see so many CPAs who are good at what they do just shocked at how bad some of these returns they get are. Just totally screwed up people with no business doing tax.

And I think it's because they can get away with it, because the consequences for their firm of doing shoddy tax work are very low, because there are very few audits. It doesn't create a lot of work for you to do bad work.

David: So, yeah. So, in summary, basically, the audits of the poor, it's same as it was 20 years ago. And you know, the IRS, the size, the head count’s basically, what it was in 1970. So, things just keep getting worse and-

Blake: So, the economy is growing. There's more taxpayers, there's more tax returns, but the numbers-

David: It's more complicated.

Blake: -have shrunk or stayed the same. Yeah. And they're not paying- they're not able to pay their people well. So then, you have, you know, unfortunately, the best of the best aren't going to go work for the IRS. And if you ask me, the IRS should be funded so that we have some of the brightest people in our profession working there.

Isn't that what we want, both on the tax and the technology side?

David: I mean, isn't that kind of- I'm just stepping back. I'm assuming the FBI, it's the best and the brightest, right? It's people that could have gone in law enforcement. These are people are getting hand-selected; it's the best and the brightest, in theory, training the FBI. I don't think that same hiring culture is there for the IRS.

Blake: No, it's literally, do we have a body that can answer a phone? I mean-

David: They should be competing with the Big Four, out-recruiting them.

Blake: They are going to be hiring people for $27,000 a year. And yes, there are government benefits that come with that, but you can make more money working a warehouse job.

David: You could work 80 hours a week-

Blake: You could work at Amazon.

David: -at a big firm and get paid a lot more than that $27,000. Yeah, I don’t know. This is crazy, but it's all tied together. One thing leads to the other. I mean, if you hire people that can only audit poor people, that's what you're gonna get.

Blake: And my- just to wrap this up, my feeling is, we did this to ourselves, as a profession, by standing idly by while we watched all this happen. And look what's happened? Same thing with not investing in technology in your firm. If you wait too long, it becomes a problem you now have a really hard time solving.

[00:36:02] Thanks to our sponsor, OnPay

David Leary: This episode of The Cloud Accounting Podcast is sponsored by OnPay. If you're wondering why OnPay is great, it's because it was built by payroll experts with over 30 years of payroll experience. They handle all the complicated stuff that other payroll providers don't, like agricultural payrolls, including Form 943, multi-state payrolls, and employees with H-2A visas.

Even while handling all the complicated stuff, OnPay remains an easy-to-use, full-service payroll and HR app that is the right fit for all of your clients, whether they have just one, or 500 employees. It helps them stay organized, save time, and get compliant. OnPay has flexible and customizable integrations with QuickBooks and Xero. OnPay's Partner Program offers free payroll for your firm, discounts, and special bonuses for moving clients to OnPay for 2022.

The program also offers a dedicated support team to offer white-glove service to both you and your clients. To learn more about offering your clients the award-winning OnPay Payroll and HR, head over to cloudaccountingpodcast.promo/onpay. That is cloudaccountingpodcast.promo/onpay.

OnPay - nobody takes better care of your clients.

[00:37:07] Practice Ignition drops practice from name

Blake: So, app news?

David: Yeah.

Blake: Well, I got one to start us off. Practice Ignition has dropped the practice. They’re done practicing, David. They are now just Ignition. I guess they've been practicing for a few years. I always thought that Ignition would be better. And I always thought that they should probably expand beyond accounting, which I take it as why they're doing this.

Because there are actually a lot of firms- a lot of professional services firms, not just accounting firms- that are using Practice Ignition. Practice Ignition, for those who aren't familiar, is a proposal and payments platform for professional services firms. Along with rebranding, according to Accounting Today, they are going to work on helping firms with conversion rate optimization in the proposal process, as well as more flexible billing options, and having three-option proposal templates.

They've actually already done that. And now, they have integrations with Gusto and Xero practice manager. So, congratulations to Practice Ignition, Guy Pearson and Dane Thomas on all the growth.

[00:38:17] Brazilian firm raises 60 million from SoftBank

David: So, I have something from Brazil.

Blake: Brazil?

David: Brazil. So, I'm going to try and say this word correctly here. ‘Contabilizei Receives Investment of 60 million led by SoftBank’. They are the Brazilian back-office accounting services firm for small to medium-sized businesses. And they've raised $60 million. I was like, “Wow, pretty impressive.”

Blake: That's one of those non-CPA firm, accounting firms.

David: Non-CPA firms. And they- it's going to be used to grow their startup product, offering expanded services. And then it talks about mall stores in more than 60 cities in Brazil. And so, they were founded in 2013, and they were launched to help do bookkeeping; help companies launch and keep accounting needs current.

And they’ve done this by helping business owners open bank accounts, invoicing- you know, helping them invoice- helping them pick out payroll, health insurance for their family and their workers, right? And what they've done now, is they've grown this and they are physical brick and mortar in the malls. Right?

So, if you think about how H&R Block used to be in Sears and JC Penny's, they're in the malls, they have 30,000 clients.

Blake: Wow.

David: Now, put this in perspective. There's 70,000 accounting offices in Brazil. In those offices of just- you know, this would be all their competitors, right? They only average 80 to 100 clients, each office. So, they have a massive piece of the market here.

Blake: That's incredible. And we're just-

David: And they’re doing it- it's service, right? You go there while you're shopping and getting your- what- I should think the quote yet. “While you go have your coffee and do your shopping, you can stop by ask questions about your business. We'll work on your stuff.” It's a service experience.

Blake: Yeah, I like that. I always wanted to open up a CPA firm or- not a CPA firm, a non-CPA accounting firm that's a coffee shop. Kind of how the- is it- one of the banks does this now. Is it- it's not Citibank, it's Capital One? Have you ever been to one of those?

David: No, but I saw the commercial.

Blake: Yeah. So, I've been to one in San Francisco where you walk in, and you're like, “This is a bank? It looks like a coffee shop.” And then you can- there's the bankers at their desks and stuff, and you can hang out and you know?

David: I can just sit at Starbucks and open up my bank website. Same experience, right?

Blake: That's true. Yeah. Yeah. It's better, though. Well, that's interesting. Interesting.

[00:40:30] Patriot software patents dual ledger feature

Blake: Patriot software has patented a dual ledger feature. This caught my attention. It's not often that you see accounting technology getting patented. As reported in our favorite publication, Accounting Today, the patent explains it as a system and method for selectively displaying accounting data in both cash and accrual basis formats.

This allows a user to track cash, modified cash and accrual basis simultaneously, with the software automatically writing transactions in each method at the time of entry. The feature can be enabled per user in the software, letting them toggle between views, and change accounting methods without the need for manually adjusting entries.

David: But you toggle it through a switch. And so, I read this, and I was like, “Okay, this is in QuickBooks.” When I run a report, I hit cash or accrual. I basically have a switch. It's just what they're doing is they're actually ledgering the data.

They're not just calculating after the fact, like when you run the report, real time, they're actually recording it the ledger in both forms, it sounds like.

Blake: Yeah, exactly. So, they were making an extra set of entries each time, and what's-

David: I don't know if there's an end-user benefit or not, on this. But-

Blake: Well, so, the end user benefit is like, QuickBooks doesn't properly do this because they are adjusting after the fact. And this is actually a pain point for a lot of accountants, David. I don't know if you get this ever, but-

David: Oh, I did five years of tech support for QuickBooks. Trust me, I've taken more than my fair share of why is there a negative AR? Why are the retained earnings negative? Or-

Blake: Yeah. And it's because QuickBooks tries to make those adjusting entries, and it doesn't always do it right because it's super complicated. Right? And then you have to go and fix it. This is one of the reasons why I always love Xero, is that Xero actually does the cash conversion properly, whereas QuickBooks never did.

So, you can actually do both in Xero, whereas with QuickBooks, you basically have to choose, and your reports are going to be correct on one or the other, but not on the other. Right? Does that make sense?

David: Yeah. And that's weird thing about this, too, is, cash basis to file your taxes is different than cash basis accounting. And a lot of people are doing accrual-based accounting. As soon as you have ARAP, you are now accrual-based accounting.

Blake: Right, right. So, by default, right, you're- well, it’s modified.

David: I always felt like in QuickBooks, as soon as you turn on, you create one invoice with just- QuickBooks should just turned off the cash option. It should just be hidden from that point forward.

Blake: But you need the cash option because that's how businesses file their taxes.

David: Taxes, yeah.

Blake: Yeah, but the problem is it doesn't always do it right. And that's why you have- it's like, how can I have A- how can I have accounts payable on the books when I'm cash basis? Right? That's always one of the problems in the balance sheet.

Anyway, Xero does this correctly. And so, I'm not really clear what Patriot is doing that is different. And also, we've known for a long time that Sage Intacct, one of the reasons people like it is because you can use multi ledger, and you can have two sets of books. You can have a cash set of books and an accrual set of books at the same time, and flip between them.

Or you can have some other standard set. You can have a gap set and- anyway, I don't know exactly what's different here, but they got a patent on it. So, maybe Patriot is going to get rich because now they can extract a bunch of money from all these other companies who want to do it.

David: I don't know. I've seen other apps that get patents for mapping accounts to another account, and I don’t know. It is what it- I mean, I get it. And in theory, I remember years ago, IBM would just come knocking at the door because they have thousands and thousands of patents. And I think this is what Bank of America strategy is.

Bank of Americas is, it's gathered all these patents now. And they're just going to go to all these neo banks once a year, “Oh, you're using our patent, that patent that patent,” and they’re just going to collect the check the way IBM did. And I think at one time, Intuit had a big push a decade ago, like, “Oh, we need more patents, we need more patents, so that we could push back,” right?

Blake: Mm-hmm.

David: You know, and so, as you want to protect yourself, but at some level, in the grand scheme of things, I think these patents kind of protect you, and there's a way to make money off of them. But in the grand scheme of things, do they do anything for the customer experience?

And that's what's going to win in the long run.

Blake: Good point.

David: Unless your business is to collect a bunch of patents, and you just go milk everybody every year. Right?

[00:44:35] Charge B acquires a collection management platform

Blake: Charge B has acquired a collections management platform. Charge B is a subscription revenue recognition app, and they have acquired Numbers, a platform that automates accounts receivable and collections. The move will allow the company to provide additional services through the newly formed Charge B receivables. If you want to learn more about them, where do you go? You go to charge.com.

David: Sorry, I was just waiting for the anticipation.

Blake: Well, you know, I don't want to say chargeb.com, ‘cause so many apps don't have the .com anymore.

David: Yes, it's hq or yeah, .co, yeah.

[00:45:14] MarginEdge - restaurant management platform - Intuit solution?

Blake: Yeah.

David: I saw an interesting press release: MarginEdge- are you familiar with MarginEdge?

Blake: No.

David: So, MarginEdge- I always had them bucketed into my accounting firm with engineers bucket. But it feels- now, when you go to the website, it doesn't really say as much bookkeeping anymore.

It's really their restaurant software for scanning all your bills that come into the restaurant, figuring out the- how much a slice of a lemon costs, tying it back to your point of sale and your sales. Right? So, it's a restaurant management platform, to some extent.

At one time, I thought they were getting into the “Hey, we'll go straight to small businesses, restaurants, and do their bookkeeping.” I don't really see that on their website as much, and maybe it's something they mentioned while I was at a conference, but nonetheless, the announcement that I thought was interesting is, they've now announced with Intuit, a unified restaurant solution.

Restaurant management platform, MarginEdge, announced that they have been selected as Intuit's first restaurant industry unified solution provider. It even has a quote from Gavin Orleow, VP of Global Partnerships at Intuit, “A restaurants accounting system is one part of operations puzzle. And working with MarginEdge provides restaurants the most complete back-of-house management solution possible.”

It goes on to say, “This is another proof point of Intuit's focus on providing mid-size businesses with the right tools to help them grow and succeed.” So, what's interesting about this, poking around, looking at the product, I don't see any extra stuff here, but it's a step. I don't know if- I don't see anything on the Intuit side about this, when I was poking around.

So, I don't know if this is one of those- they just improve their QuickBooks Online integration, and they got some random VP at Intuit that doesn't know better to provide a quote. But it's just interesting that it's being played up this way as this unified solution, to keep an eye on this.

Now, I did go and look at the job posting. So, that's how you can really figure out what these companies do. And they are hiring an account manager. And the account manager, their job, using our software to review, approve, and organized restaurant purchasing data.

Blake: So, they must-

David: That sounds like bookkeeping, right?

Blake: Well, well, so it sounds like- and you go to their homepage, you see the headline, it says, “Real-time food and recipe costs updated daily. We use point-of-sale integration and invoice data to give you a real-time view into your prime costs and more.” So, they must have an army of people on the backend processing invoices and all this data.

David: I mean, it's a little- it's a Dext autoentry type, right?

Blake: Right.

David: You take photos of receipts and all that, and you scan them in, but it's just more detailed for restaurants. There's other companies out there, Plate IQ’s there, right? These other companies exist, but-

Blake: Well, this is really critical for restaurants because your food costs- especially right now with inflation, you've got to really manage your pricing and your food costs in order to maintain your margins. So, they're in a really good spot. And if they are automatically doing a lot of this, then that's work that a bookkeeper might've done.

So, they really are doing bookkeeping here. Maybe it's only a certain type of it. Right? It's just the cost on the food, but that's the hardest part. So, that's neat. I mean, so, your inkling that they might be an accounting services firm with software, I think there is an element of that.

David: I think to a part, it's very- it's a little- I think we have to keep an eye on this. It's just, it's a little confusing what the relationship is, right?

Blake: Right.

David: Is there something more here than there actually is? Or is it- and I've seen apps, you know? They send the right email to the right VP at Intuit, and they get some silly quote, and they stick it on their press release, and they apply their relationship with Intuit bigger than it is. Right? But it’s something to keep an eye on; we'll find out.

Blake: Yeah.

David: But I just found it was interesting if they are going to head down this role where Intuit's going to start partnering with all these new shops really deeply.

[00:49:05] Thank you to our sponsor, Scribe

David: This episode of The Cloud Accounting Podcast is sponsored by Scribe, like it or not, your firm is probably going to be impacted by the Great Resignation, which means you'll need to scale both yourself and your staff. But showing the same things to your staff or clients over and over again does not scale. Good thing, there is Scribe.

Scribe allows you to document your processes, workflows, onboarding app instructions, help docs, and how-tos by automatically recording your actions as you use your computer. Then Scribe automatically creates easy-to-follow, step-by-step visual guides called scribes, that you can share with your staff, coworkers, or clients.

You can use Scribe to document processes in cloud apps, like QuickBooks and Xero, and with their desktop plug-in, you can use Scribe with all your desktop apps as well. Scribe allows you to customize the automatically-created scribes by adding and removing steps, redacting sensitive information, and providing additional comments or instructions.

Guides created in Scribe can be shared via link, a PDF, or embedded directly into a website, or the dozens of other tools that your firm may be using, like Notion, SharePoint, Process Street, ClickUp, et cetera. To try Scribe Pro free for one month by using promo code ‘cloud accounting’, head over to cloudaccountingpodcast.promo/scribe.

That is cloudaccountingpodcast.promo/scribe.

[00:50:29] Fieldguide raises 17 million in new funding

Blake: Fieldguide, Fieldguide raises 17 million in new funding. This is one I hadn't heard about until our friend of the show, Byron Patrick, announced that he's joining Fieldguide- leaving Botkeeper to go to Fieldguide- 17 million now.

David: And there's two people who have moved to Fieldguide.

Blake: Oh, who's the other?

David: Todd Robinson.

Blake: Oh really? Wow.

David: You know, he left VKI, I noticed. So, Fieldguide is- is it a practice management software?

Blake: Well, so, this is the thing. I went to their homepage, and-

David: Fieldguide.com?

Blake: Fieldguide.io. Gotta be careful with the .coms.

David: We just talked about this.

Blake: Until you raise your series C, you can't afford the.com. So, the Fieldguide headline on their homepage says, ‘Powering the Future of Trust’. And I'm like, “So, is this audit?” It's gotta be audit, but it's a weird way to put it. The subhead, ‘Fieldguide supercharges assurance and advisory practices with a complete workflow automation and collaboration platform’.

So, that's an interesting assurance and advisory. That's everything, right? It's audit and consulting, or CAS, maybe. So, if you go to the product pages, it makes a lot more sense. So, they have an audit engagement platform. That's their product. So, track progress across all your engagements, act on client-provided files and comments, view app mentions from team members and clients.

David: Upload documents, comment.

Blake: Yeah, they got pictures here of percentages requests, 73 percent; 22 of 30 completed. So, ACME SOC 2 is the project, and it's in progress. And you've got this risk assessment that's due on March 17th, and you've done the initial planning template. So, it's a checklist, right, for audit.

David: Oh, I see at the bottom. Frameworks, it has pretty much flexibility to automate any workflow. SOC 2, HIPAA.

Blake: It’s got signoffs, yeah. So, that's what it is. It's basically modern audit management checklist, but theoretically, this is what we always talked about at FloQast when I was there. FloQast is a close management tool for corporate controllers, but it was actually built on the experience of Mike, our CEO, who was an auditor.

Because audit firms, especially the big ones- he worked at EY- they have built their own solutions like this, that are very robust and allow you to collect the documents and get the sign-offs. And it's all workpapers management and everything, but that really hasn't existed in the cloud for small firms, in a good way. Most of the audit software out there is desktop-based, just like the tax software is desktop-based. Right?

So, this is the future of that. and it could-

[00:52:55] Cloud-based audit and tax software

David: All right. ‘Cause we've talked about this before on the show. In general, on the accounting and bookkeeping side, and the CAS side, there's just been this explosion of cloud apps. And you could actually get by never using desktop apps anymore. But on the tax and audit side-

Blake: Oh, yeah.

David: You still had to have some hosted software.

Blake: Yeah.

David: So, you're saying, maybe this is the tipping point. It's starting to tip. You're starting to see apps like this show up, that are 100 percent cloud.

Blake: Yeah, and you’ve got solutions like MindBridge AI- that's another audit platform in the cloud. I think audit’s going to come first, and then eventually, we'll get somebody to make a true tax platform in the cloud. The problem with tax is that it’s so complicated that nobody can start from scratch because you have to do it all.

So, it's actually going to take one of the big tax companies, one of the tax software providers to see the light and do what Adobe did and make the switch to cloud. It's not going to be a startup going from scratch in that world. And a lot of small firms that are in the cloud is the only reason they still use hosted solutions for the tax software.

Yeah, really cool to see Fieldguide; check it out. Fieldguide.io. Do we know anything about the team behind it? The CEO and co-founder Jin Chang. Jin said, “As a former practitioner at a top global firm, I've always wanted a platform like Fieldguide to simplify and modernize complex risk and compliance projects.

Our team is dedicated to advancing the audit and advisory profession, which serves a noble purpose in ensuring commerce and capital markets run with trust.” Well, I would add to that, that if we want to ensure that commerce and capital markets run with trust, we should probably include ‘and increase the value of audits’.

[00:54:28] Why is audit a pass/fail decision?

Blake: Maybe it shouldn't be pass/fail, you know? Why are audits pass/fail? It doesn't-

David: Instead of A, B, C, D, E, F?

Blake: Yeah, why-

David: Like a rate-

Blake: A rating. Like when you go to a restaurant, are you more comfortable knowing that there's an A, B, C, D rating, or would you prefer pass/fail? I think as a diner, you like knowing that there's a scale, right?

David: Yeah. And especially when it's over A plus, and then next quarter, A plus, A plus, A plus, yeah.

Blake: Yeah. So, we should have ABC audits. There should be a rating system, you know? Is that crazy? I think it would improve the value of the audit because then, we all know there's all these companies that are on the edge of failing their audit. Wouldn't we like to know who those companies are, so that they can improve, as investors?

But instead, we don't find out until they collapse. And auditors are really reluctant to fail a company, a client.

David: And then it's always like, “Why didn't the auditors find it?”

Blake: Right. Well, because they don't want to, because guess what, if you fail an audit, you’re like, they're not going to hire you again. Right? That's the problem. No auditor wants to fail a client. They only do it in the most extreme circumstances. So, I don't know. I mean, I feel like this stuff just seems so obvious, but maybe a- you know, I'm not an auditor, so maybe I'm just an idiot.

Yeah, you want to increase audit fees, you want to increase the profession, and get people coming back, make audits actually useful as a product. Think of them as a product. Think of audits as having a customer. And the customer is not the company you're working for. The customer is their investors.

[00:55:57] Found.com raises $60 million

David: Hector Garcia turned me on to this company, it's called Found, found.com. So, this is another tech bank, right? They took a $60 million raise. And the reason he sent this over is they have a whole page of bookkeeping. When you go to their website, it says home baking, bookkeeping, taxes, invoices.

Blake: Found.com, it's a bank called Found?

David: Yeah. It actually reminds me a little bit more like collective- we've talked about them- that are really targeting these-

Blake: Freelancers?

David: Freelancers, solo entrepreneurs, and it's all under one roof, right? You open your bank account, we're going to handle your bookkeeping, we're going to handle any taxes for you, and we're gonna help you do your invoices. A lot of its bank feeds accounting, ultimately, right?

But yeah, they just took $60 million. My suspicion is, if this is the average round these companies are taking, we're going to see 30 companies like this pop up.

Blake: Well, how much money did they take?

David: 60 million, series B.

Blake: Yeah. I think that's because in banking, there's a lot of infrastructure. You got to build a lot of software. You've got to build- and it's very expensive. So, they got to take a lot of money to do it.

David: I don't buy that, ‘cause this is-

Blake: You don't think so?

David: I guarantee you, this is built. Let's throw that on the bottom of the page here. Oh, this is banking service provided by LendingClub. They’re just building on everybody else's stacks, right?

Blake: Yeah.

David: It's, you know, people are built on Evolve, and they're built on Silicon Valley Bank and-

Blake: But you know what?

David: I'm a Visa, MasterCard, APIs and Plaid.

Blake: Yeah.

David: I guarantee you, I'll come across Plaid in this if I signed up, you know what I mean? You're getting- they're all built on everybody else's stacks.

Blake: So, they offer bookkeeping. They have it, but at least, that's one of the products that they advertise. Do they actually do bookkeeping for you, or is it just, there's some accounting features in their app?

David: Oh, this is how you find this out. We click on careers. Let me see who they're hiring.

Blake: Yes, that's good.

David: Explore open roles.

Blake: I see that you can send invoices with it.

David: Paid services, marketing, ESE; they have to spend that money, the VC money. So, they all- you got to run lots of ads on Facebook.

Blake: Oh, they're hiring for a SEO.

David: Engineers, engineers, customer service associate.

Blake: They're not hiring bookkeepers, ‘cause I don't see any of those. I don't think they're doing bookkeeping. I think they just have some bookkeeping for freelancers in the app. Just the way you can send invoices. But this is the combination of-

David: But that they’re marketing that, right? They're marketing-

[00:58:08] Banks and accounting software are becoming all-in-one solutions

Blake: Well, this is like banks are becoming accounting software, and accounting software is becoming banks. And ideally, they're both together, right? That's what you want. You want it all in one place. Why wouldn't you want your- where you move your money to be connected to your accounting? That's been always the dream.

And that's been the problem is, in QuickBooks or Xero, I go pay a bill, why can't that move the money? Well, because there's no good way to send that data to the bank, and the banks don't have good APIs. So, what's the solution. You build a bank with an API from scratch, and then you build your own software on top of it that lets you send money.

And so now, you've got BillPay inside the bank that syncs with your accounting system. But eventually, for simple stuff, you don't need a separate accounting system. You could just do it all in your bank website. That's the ideal customer experience. Have it all in one place.

So, thanks for bringing that. That was interesting. All right. We're at the top of the hour here. So, anything else you want to chat about quickly, or can we save it for next week?

[00:59:04] Crypto Joe

David: I guess we could save it for next week. I'll let you go on it, but they're calling a Crypto Joe. You know, Biden made some announcements on the- or we could actually mention it really quickly, because I know there's a lot of- it's a lot of headline, and not a lot of news, but the Biden administration, this is this week, they announced they're putting their support behind the research and development of ‘U.S. Central Bank Digital Currency, also known as CBDC’.

So, isn't CBD the oil, the cod oil?

Blake: Well, it's- yeah, it's the non-

David: Or is that CDB? What is it?

Blake: Oh, CBD. Yeah.

David: So, this is going to be CBDC.

Blake: That's great. So, we'll wait to hear more about that, but I think that's inevitable. We're going to have a Central Bank Digital Currency. It's just-

David: They basically provided no information on how it's going to work. So, it's just like the announcement is there for show.

Blake: It's research, right? Yeah.

[00:59:53] The Big 4 withdrawal from Russia

Blake: Oh, the other thing we have to talk about is the Big Four withdrawing from Russia. So, we gave them a really hard time last week- I did anyway. I went on my Soapbox and as of March 12th, when we're recording, PwC, KPMG, Ernst & Young, and Deloitte have each issued statements that they will cease operations or withdraw member firms from within Russia. And the fifth largest public accounting firm, BDO, announced its withdrawal from- with Russia on Wednesday.

And of course, right after that, that's when the AICPA issued its own statement that it will be withdrawing its services. So, I gave the AICPA a really hard time for issuing a press release without any action saying, “We stand with Ukraine,” when they hadn’t actually-

David: Yes. Now they took action.

Blake: Now they took action. But of course, they waited for the Big Four to take the lead, which, you know, I guess I get it. The Big Four pay your bills. You know? You're not going to lead them. They're leading you, tight? That's how this works.

David: And I also feel like- you remember we talked about this? Canceling payments and stop Putin and all this sort of thing. I think it's a different relationship. I think the theory is, “Oh, we’ll cancel all commerce. And then the rich people in Russia are going to get mad, and somehow, get him out of power.”

Blake: Yeah, yeah.

David: But it's different. Unlike the United States where the rich people control the politicians, in Russia, Putin decides who gets to be rich; it's the opposite. And the same thing happened in Venezuela, right?

Blake: Yeah.

David: We cracked down and what it did is it just drove the ultra-wealthy closer to the core power.

Blake: yeah.

David: So, the cancel strategy will work on us, actually. We could get them all-

Blake: Yeah. But I think the only way it changes is if we do cut off Russia economically. And unfortunately, it's going to hurt a lot of Russians, but how else do you get them to remove Putin from power?

David: Yeah.

Blake: Right? Well, everyone, thank you so much for listening to this episode of the podcast. If you would like to share your thoughts, we love to hear them. I've been getting emails and voicemails every week now, and I just love it. Please send those to me at Blake@Blake Oliver.com. David, where should people get in touch with you online?

David: I'm just on all the socials, @DavidLeary.

Blake: And do follow us on social media, Cloud Accounting Podcast, @CloudACCTPOD on Twitter. You can join our mailing list, cloudaccountingpodcast.com, scroll to the bottom, and you'll see that sign up, and you'll get notified of new episodes. And you can get CPE credit for listening to this episode. Open up the Earmark app on your phone.

And if you don't have it, you can get it earmarkcpe.com. Take a quick quiz and get an hour of CPE credit for every episode. The courses come out about a week after these episodes. So, if it's been a week since this episode dropped, then go open the Earmark app, and you'll see it there, and you can get your CPE credit.

I'm going to go enjoy a bit of a vacation spring break and I’ll-

David: Well, we need the Disney report. The firm experience report.

Blake: I'm going to be thinking- you know, this is me. I can't just disconnect. I have to be thinking about the accounting profession while I'm at Disneyland. And with that, I'll end things. See you here next week, David.

David: All right. Bye, everybody.

[01:03:05] Classifieds

David: Time for the classifieds.

[01:03:10] The Ambitious Bookkeeper

David Leary: Do you dream of starting a bookkeeping business, but you don't know where to start? Join the bookkeeping biz workshops, a four-day live workshop series hosted by Serena Shoup, CPA. You learn where to start, what it takes, what tech to use, how to build a business, not a job, plus, how to get comfortable on discovery calls.

The workshops begin February 23rd. So, register today bkworkshops.online. That is bkworkshops.online.

[01:03:39] Royalwise

David Leary: As humans, we're programmed from birth to learn watching others. Video has the power to engage, entertain, and educate without ever feeling like work. When you want to become a QuickBooks Online expert in the shortest amount of time, the Royalwise on-demand web-based learning solutions are the obvious answer.

With 40 easy-to-understand QuickBooks classes designed to bolster your confidence and increase your accuracy, Alicia Katz Pollock’s training will take you from beginner to advanced user. Pick just the topics you need or save money by subscribing to their entire QuickBooks Online library and coaching program for one low monthly price.

Listeners to The Cloud Accounting Podcast can enjoy their first month of silver membership for only $1 using promo code ‘podcast’. So, head over to learn.royalwise.com. That's royal like a king, and wise like an owl. Register for a QuickBooks class, become a member for just a dollar, and make learning a hoot. That's learn.royalwise.com.

[01:04:37] Oh My Fraud: A True Crime Podcast for Accountants

Blake: Hey, podcast listeners, it's Blake. And I wanted to let you know about a new show I'm working on with CPA/comedian, Greg Kyte, and blogger/former CPA, Caleb Newquist. It's called Oh My Fraud, and it's a podcast all about financial crimes. That's right, a true crime podcast for accountants, by accountants.

Caleb and Greg are going to come together every couple of weeks to unpack their favorite frauds, and explore the circumstances, psychology, and interpersonal dynamics involved. They also fully indulge in victim blaming the defrauded widows, orphans, infirm, and feebleminded- because who can resist?

If you fancy yourself a trusted advisor or prefer your true crime with spreadsheets instead of corpses, listen to this show to learn what to watch out for, and to keep your clients, your firm, and even yourself, safe. To subscribe, go to ohmyfraud.com, or search "Oh My Fraud" on Apple Podcasts, Spotify, or wherever you get your podcasts.

[01:05:37] How to advertise in these classifieds

David: Want to get the word out about your newsletter, webinar, party, Facebook group, podcast, e-book, job posting, or that fancy Excel macro you just created? Why not let the listeners of The Cloud Accounting Podcast know by running a classified ad? Hit the show notes for the link to get more info.