China Tells State Firms To Drop Big Four Auditors

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Blake Oliver: [00:00:05] I mean, this is ridiculous, right? Like the IRS got $80 billion and now they're saying we're not going to be able to upgrade this thing for another seven years at the end. It's unlikely they'll actually make it. I wouldn't try to fix the IRS anymore like the IRS as it is. I think it's kind of like to too much technical debt to use the tech word to save it. I mean, this system is just too old. You can't upgrade it. You have to rip out and put in new. But the problem is, how do you do that? You can't just stop the IRS for a while.

David Leary: [00:00:40] Coming to you weekly from the OnPay Recording Studio, this is the Cloud Accounting Podcast.

Blake Oliver: [00:00:49] Hello and welcome to the Cloud Accounting Podcast. I'm Blake Oliver.

David Leary: [00:00:53] And I'm David Leary. Blake We spent the last two days together, and now.

Blake Oliver: [00:00:57] Yeah, we did. [CROSSTALK] At the CPA Educators Conference, which was very convenient. It was in Tempe. So right near me, only 30 minutes from me. A couple hours from you. What did you think?

David Leary: [00:01:12] Well, for us, like, if we think about our journey here, right, we fell into education backwards, right? Because of The Cloud Accounting Podcast. And so I feel like I'm just learning from people that have been doing CPE education for years. And it's a mix of like vendors and companies that offer CP like earmark. And then there's the state societies, and it's the people in charge of creating the CP content or offering CP to their state members. And my biggest takeaway and this is like, like going back to like accounting one on one and like there's these standards boards like FAS B and like, and we have NASPA and you there's some states that don't actually use NASPA they don't participate. And I didn't know. I didn't know there was a fracturing. I had no clue that this went on. I thought it was like, well, the national like, everybody uses that one. And I was like, Louisiana, for example, they have to prove all their C They don't use the Naspa standards, which is interesting. So that was like a big learning is just the.

Blake Oliver: [00:02:15] That how, how even though we have naspa so much of CP is still fractured and is different in every state is what you're saying.

David Leary: [00:02:25] Yeah. And they and they all have their own reasons why they don't participate or use them. And I just didn't know it was like that. That was like my big lady. And I think the second big learning for me was the, the opening keynote. Hayden was last name Williams. He's the CEO or president of the Washington State Society, and he does the opening keynote. And quite incidentally, he actually was at ASU and got kicked out. He, like, failed out of school the first time. But he goes on to say how he basically had 12 years of school to get his degree right, had a horrible GPA, but he never actually finished the rest of the story, which the way I heard it was. And nobody cares because you took the CPA exam and you have those three letters. Nobody cares that you had a crappy GPA. Nobody cares that it took you 12 years of school. And that's the three or four different campuses. The only you got the letters and you so you could you could have crappy education for an average education, below average crappy grades. And you still can be the president of your state society of CPAs because you have those three letters. And it goes to my I was like, that just reinforces the point. Like you just want the you just need the letters exam, basically.

Blake Oliver: [00:03:43] Yeah. So for me, I was a little confused about this conference because it was called the CPA Educator's Conference, and I thought we were going to go there and meet educators. And there were some some CPE creators, some instructors there. But I would say 95% of the room was people from state societies who are in charge of CP for their members, and then vendors like Sergent and Akpan and these other companies that work with instructors to create. Cp But there were actually very few instructors there and there were very few CPAs even in the room. I was one of the few CPAs because a lot of these people are like professional educators and they're lovely people and everything like that. But I just think it's strange that, you know, like the CPA, the profession has gotten like so far away from teaching itself, right? We have professional educators. We have all these people that create CPE but aren't practitioners. And I think, you know, one of the things that we want to do at earmark and that we're working to do and I do on the earmark podcast is actually bring in real practitioners to teach because they're actually doing the work right and they know what people need to know. And unfortunately, a lot of times you get these educators who haven't done the work in like ten, 20 years or longer and they're telling us what we need to do. So like, that's that's a problem that I see, especially in higher education, where you've got people who the last time they ever did a reconciliation was 20 years ago or more. And here they are teaching accounting and they're still teaching it the old way.

David Leary: [00:05:10] So and that's when you feel like there are all there, though there's a lot of discussions on how to deliver CPE in different ways going forward in the future because they all they all will admit, I mean, they all having declining memberships in general, people are not. The age of the people doing different types of CPE is I think the lowest was like webinars. The average age is 48, but all the other in-person seminars, all these other ones are all above the age of 50, the average age, and they know they're not getting anybody under the age of like 40, getting C through their programs. Yeah, and it's a it's a dilemma for them. But the way they kind of presented it and I think this was CPA Crossing's their their new CEO and I think they got purchased by Pennsylvania State Society right CPA crossings did right and he was kind of talking about you have to start breaking your content. And long story short, it's almost like in my opinion, it's like a Netflix model, right? It's convenient. There's high quality and it's cheap. And then I step back. I'm like, That's what we're doing with your mark. So it's kind of good. Yeah. Like we're so so we're kind of helping to lead that that conversation a little bit. We don't have all the answers, though. I mean, they're all they're, they're trying to reinvent themselves, all these state societies and what offerings and how they're going to do it.

Blake Oliver: [00:06:29] Well, and every time I ended up talking to somebody at the society, I said, okay, how's your membership trending? Is it going up? Is it going down? And most of the time it's going down, or they would say it was plateaued. And then I asked, Well, does your leadership have any plans or any strategy for fixing this, for increasing your membership or making sure it doesn't fall off a cliff when 75% of CPAs retire in ten years? And the answer was no, they weren't aware of it anyway. Which makes me think there isn't a plan. Right. Which is the really concerning thing for me as a CPA.

David Leary: [00:06:59] They all the most vibe I got to was 150 hours has to go. I was getting that vibe from a lot of people, including the opening keynote. The president of Washington.

Blake Oliver: [00:07:10] Taylor, is in the chat and said, I know when I go to different conferences for accounting professionals, I'm the youngest by far in the room. Yeah, and you know, I'm almost 40 and I feel like a lot of times I'm the youngest in the room. So.

David Leary: [00:07:24] Well, the two accountants that came to do the talk to to present how younger people are feeling about the profession. Right. And how they like to learn and things like that. By the time they were doing their talking, I went to go try to talk to them. They already bailed. They had to go back to work. They were gone. They came in their presentation for an hour and they bounced out. I was like, I didn't get a chance to talk to them. They're gone. Yeah.

Blake Oliver: [00:07:46] And because they weren't.

David Leary: [00:07:48] Even in the profession, their accountant, they.

Blake Oliver: [00:07:49] Were. And they were brought in to talk about what young professionals want, but they themselves were like already ten, 15 years into the profession. That's yeah. So like the people that actually need to be there talking about what young accountants want aren't there. They're all working, you know, 60 to 80 hours. That's the problem. Right. But I want to get off of this topic. Yeah, because we did we got some feedback from a listener that they're sick of us talking about the 150 hour rule. I don't know if you saw that email, David, but one of our listeners said it's something like, Jesus, you guys need to stop talking about the 150 real. I'm sick of.

David Leary: [00:08:20] It. But we cover the news and everybody's talking about it. How can we not talk about it?

Blake Oliver: [00:08:24] How can we not write about it? But in accounting today, I just did a whole series about it. This week. They like three or four articles that came out like today and yesterday.

David Leary: [00:08:32] So going concerns publishing people's tweet threads. Yeah, yeah. It's not going away.

Blake Oliver: [00:08:37] So so unfortunately, I can't promise you that we won't talk about it on this episode because we got an interview with the executive director of the State Board of Accountancy in Arkansas, Jimmy Cawley. He came on our program. We did the interview earlier this week. I put it on LinkedIn and I'm going to play the clip of it for you on the show, but I'm going to wait to do it so I don't annoy the folks who are tired of the 150 hour rule.

David Leary: [00:09:02] But it's not just talking about it. This is like a real person. Just to clarify, is Jimmy the director of the society or director of the State Board Board?

Blake Oliver: [00:09:10] The state Board. Executive Director of the State board.

David Leary: [00:09:13] State board.

Blake Oliver: [00:09:14] Yeah. So it's great. He talks about his opinions on the 150 hour requirement, how we can attract more people into the profession. It gave me a lot of hope, actually, that there's guys like Jimmy running state boards. So we'll talk about that. Hey G tax pro in the chat thanks for joining us. He says I've often said that the only value proposition the CPA title has is brand recognition. I have a mac in my undergrad was in nuclear engineering technology. I still struggle to find time to study. Yeah, the brand recognition is what is the value for most CPAs? 85% of CPAs don't actually need their CPA to do what they do. It's only the 15% of auditors who need it. So the rest of us were. We're getting it and we're keeping it for the brand. And so that's what I'm really concerned about, is how do we keep the brand relevant.

David Leary: [00:10:04] Especially those like investment guys and insurance sales guys that are they're still CPAs, but they don't do any accounting work whatsoever. But they keep that brand because it helps them sell more insurance and it helps them.

Blake Oliver: [00:10:15] I know. Well, you know, and I need to be putting CPA after the end of my name on this stream that we're doing here, if I'm going to really represent. Anyway, let's talk about the news, David, because there has. In a lot of news in the accounting profession and the big story of the week. I think has got to be that China is telling firms that do work with the state or our state owned to drop their big four auditors. And the reason they're doing this, they say, is because they are concerned that the big four accounting firms may be sharing data from these Chinese firms with American and European governments.

David Leary: [00:10:54] Because if anybody be an expert in those behaviors, it would be China.

Blake Oliver: [00:10:58] Right, Exactly. Right. But I mean, hey, it's not hard to believe that this could be happening, but this actually goes back to I don't know if you remember the beef that the PCAOB and the SEC were having with Chinese firms and and getting access to audit papers.

David Leary: [00:11:15] Yes. Yes.

Blake Oliver: [00:11:16] Yeah. Chinese companies weren't giving access to the regulators to investigate the audit papers to make sure these audits were being done right. Pcaob They were.

David Leary: [00:11:25] Threatening to delist them, right?

Blake Oliver: [00:11:27] Because. Exactly. Threatening to delist. And then there was a story. I think this happened like this past summer or something where the PCAOB won. They were victorious. The Chinese firms said, we're going to give you access to the audit papers. I remember they went over there and so it seemed like a victory. But really, I think what happened is the government said we're going to get back at them. Right. And so now this is the way they're going to do it. They're basically going to take away this business from the big four. And that way there's no regulation. That's the access isn't going to happen. More and more firms are going to get delisted. And it's like a multibillion dollar thing for these firms. Let me find the number here. Yeah, it is. The big four earned a combined revenue of ¥20.6 billion. That's 3 billion USD from all Chinese clients in 2021, according to the Finance Ministry in China. So this is this is like another example or it's an example in the accounting profession of how the US and China are growing further and further apart. And, you know, the same way that we have almost two different Internets and we have different companies providing social media access and this is this is going to be a big deal if this ends up happening in the business world. Because think about it, if you're an investor in the US, are you going to trust audits that weren't done by Big four auditors that were done by Chinese audit firms? Right. That are not they're not global and that might, you know, feel pressure, even more pressure than the firms feel now to deliver the audit results that these companies want.

David Leary: [00:13:12] I think for me, the takeaway here is like that's just going to free up capacity for the firms. There's that many accounts now that can do other work, right? They should give a lot of free capacity. But I think just going back to China, I heard another podcast this week. The question was kind of posed like, if China has all this A.I. and they're so far ahead of us, why didn't they invent chat? Gpt And they're saying like, ultimately it's because. To build something like that, you have to have access to data that's freely available and the Internet and the data is so suppressed there that that's why it wasn't built. So you're right. Like the this feels like a political move to I'm surprised no Congress people penned a letter about this banning of these the big four like yeah where's Congress hammering the hammer on this right now.

Blake Oliver: [00:14:03] So what was top of mind for you this week, David? Because I actually have a chat thing we could do right now if you want.

David Leary: [00:14:09] Man, there's been know, there's been so much trying to digest what's next next into it other earnings which was there was, you know, all the other good stuff in the conference call. The big thing I think from the Intuit earnings was that desktop ecosystem revenue grew by grew by 10% year over year to $506 Million. But I think it's deceiving because they raised the prices up and basically they have everybody on a subscription now for desktop. So even if desktop declined, the total users, which they don't report that the revenue still could have grown 10%. So it's a little deceiving because I think, you know, the the team desktop people are like this. It keeps growing, but I don't think it may not actually be growing. This is just the revenue that grew. And then the conference call, there was a couple interesting phrasings that was used and let's see here. Yeah. So they definitely talked about the opportunity for B2B payments in the US and they're bringing Bill Pay functionality to QuickBooks. So they're basically it's both sides. There's the the invoice network, right, for mailing invoices around between businesses and sending them from production. And now they're going to add on the bill page because they really want to attack that 75% of all business transactions are still paper checks. They want to go after that paper check market and then bring that and digitize that. But then I didn't know they did this, so they integrated MailChimp into QuickBooks Online already.

David Leary: [00:15:41] So essentially, how so How does that work? And the verbiage is interesting. So this is, to quote now turning to MailChimp, we're well on our way to becoming the source of truth for our customers to help them grow and run their business. And it's funny how because that sentence used to be kind of the sentence for QuickBooks, and now it's being in this context of MailChimp, but it's because it's tied together. So essentially they've launched a real time data sync that brings QBO data such as invoices, sales, receipts, items, customers and addresses into the email channel. Now, so you could, you could create an email and be like anybody who ever bought this item, send that email essentially. So they're really tying that in together. And then the other one that was interesting, they kind of got in sync, some of the macro of businesses in general. But one of the things he said it twice is on set it one of their goals, they wanted the success rate of small businesses on our platform. So it would be, you know, QuickBooks or MailChimp, the Intuit stack, to be ten points better than the industry. And apparently it's more the results been more than 15 points better than anybody in the industry, but nobody ever really got into like, what does that mean? Is that mean like if small businesses, 10% more, are some more successful on or 15% more more successful if these QuickBooks products, nobody got into what that real number is but that he said it again deeper in the thing.

David Leary: [00:17:07] So I don't know what what that means. Like if I'm a business and I use Intuit products, I'm going to be more successful and it's better than everybody else, 15% better than the rest of the industry. Like other products, nobody asked. So it's not a very clear line on that. And what's the last one little thing? Oh, that they think they're going to still see the subscription flip for QuickBooks desktop run for another one and a half years like it should. Just the revenue should keep growing as they keep flipping people to this subscription model on that. And oh, they're seeing lots and lots of people return to use TurboTax live last year, returning again to use it again. Of course, they have 100 million consumers in the platform and so they can see people's credit scores and credit card balances now. And people's credit scores are down about 13 points and credit card balances are up 20%. And wow, yeah, big impact on this. It's the people that are like the 600 to 660 credit credit score range. I run them with like 9000 credit card debt right now. So from an economic perspective, that's a little scary, right?

Blake Oliver: [00:18:14] Well, actually, I would say that's good news From an economic macro perspective. It's not good for the people who have the debt, like credit card debt is terrible. But from a macro perspective, we need people to rack up the credit card debt so that they rein in their spending. Right. If they have the credit card debt available, they'll use it. And that's what's driving up inflation. Right? So we actually want people to like max out, you know, if well, what we really want is for them to control themselves and not spend what they don't have. But if they're going to be an American consumer, which they are, then they're going to spend what they don't have. And so we need them to hit that limit so that they stop and that prices can moderate. Right. Even if they don't come down. We you know, that's consumer spending is what's driving inflation. So, David, you brought up those are great insights from the from the earnings report. Thanks, David. You brought up TATP. So I wanted to do an example of that GPT in an accounting firm. So this is from Paul Medina. He just tweeted this today. He said daughter of client emails, quote, I owe $700 on TurboTax. How is this possible? I haven't done this daughter's return in five years. How would you answer both polite and humorous answers? Welcome, but would like at least one polite answer. And I thought, Hey, this is perfect for chat. Get to answer. Right? Like it's good at writing strange emails. It's good at.

David Leary: [00:19:44] Well, especially since she is not a client. Yeah, she's a non playing client. So you don't want to actually invest in the real answer.

Blake Oliver: [00:19:51] Exactly. You don't want to invest time in responding. Right. So I asked chat GPT, I said I put in exactly that tweet and I put it into chat GPT So here's the polite response. Dear client's daughter thank you for reaching out about the $700 owed on your TurboTax account, as I haven't had the opportunity to review your tax returns for the past five years, it's difficult for me to say why this amount is owed. I recommend reviewing your tax returns and payments from previous years to determine if there are any outstanding balances or penalties that may have contributed to the current amount owed. If you'd like, I'm happy to assist you in reviewing your previous tax returns to help identify any issues that may need to be addressed. Please let me know if you have any further questions or concerns.

David Leary: [00:20:30] Ooh, that's a dangerous sentence to put in.

Blake Oliver: [00:20:33] Humorous response. I'm sorry to hear that you owe $700 on your TurboTax account. My initial guess is that perhaps you've been spending too much on avocado toast. But I could be wrong. In all seriousness, without reviewing your tax returns for the past five years. It's difficult to say why this amount is owed. I suggest taking a closer look at your tax returns and payments from previous years to determine if there are any outstanding balances or penalties that may have contributed to the current amount owed. If you'd like, I'm happy to assist you in reviewing your previous tax returns to help identify any issues that may need to be addressed. Let me know if you need any help spreading the word about the dangers of avocado toast addiction. So there you have it. It's a great usage of chat G.P.S..

David Leary: [00:21:16] But if you step back and like, think about that answer that was given in both of those, right? It's very like, oh, you owed like it's just like weird gray non-answer. Like, well, you probably owed and you didn't make enough payments when really the answer is probably like, Oh, go look at your pay stubs. You didn't have enough federal withholding taken out. It's not the answer. Right? It's just it's so wishy washy. And I think that's the problem. I think with with this, it doesn't it's not a real answer.

Blake Oliver: [00:21:44] Yeah, but if you send an email and.

David Leary: [00:21:46] Change the one or two sentences, the letter.

Blake Oliver: [00:21:47] Yeah, that's good. Yeah, it's pretty good, right? I mean, it gives you the. It gives you something. Yeah. Thank you, John Alister Joseph Julie for joining us. Joseph said Chat is so cool. I'm going to use it for email responses lol. It's something you can totally do. I've been testing out the Zapier integration with it. You have to go set up an open a account and put a credit card on there and link it up and you know, it takes like half an hour or an hour to do it, but you could actually like put emails into a folder and then ask chat. Gpt like through the, through the Zapier integration have it automatically draft responses to those emails. So if you've got a certain type of email inquiry you get and you want it to just like draft you.

David Leary: [00:22:27] Something that you emails from.

Blake Oliver: [00:22:28] Blake Yeah.

David Leary: [00:22:29] Get a reply to and it'll just be, you know, it'll be in context kind of.

Blake Oliver: [00:22:34] Mm hmm. Yeah. Yeah. So yeah, you know chat GPT for the win there.

David Leary: [00:22:41] Did you see the chat GPT for the loss that happened this week. What's that? So we got this in from a listener, Callie Maxon. Maxon apparently the Vanderbilt University, their staff. Well, there's a shooting. I don't know if you saw it Michigan State.

Blake Oliver: [00:22:59] Oh yes.

David Leary: [00:22:59] Week or whatever. Yeah they use chat GPT to write a sympathy letter text to respond to the shooting and basically then they had to write a real email and apologize for doing that. Yeah. So again, I think there's like when should you use it when you do not use it properly?

Blake Oliver: [00:23:20] I feel like actually that's a great use case for it is like I wouldn't know what to say in that case. Like if, if one of my employees had like a death in the family, I'm going to sit there trying to figure out how to write something that's empathetic and nice, you know, for a long time. And Chad could really help me. So I don't understand why everybody's so down on this. I guess it's because it feels impersonal that they.

David Leary: [00:23:43] Also like that. You know, it went on to say like creating a safe and inclusive environment for all. Like it kind of, I think, push some people's political buttons possibly as well. Right. It feels like, oh, this I waited one way or the other. Now maybe it's because it didn't say thoughts and prayers, which usually is what happens in these situations.

Blake Oliver: [00:24:01] So yeah, it's tax season. David So shall we talk about tax? So we talk about the IRS. I think we mentioned that they gave up on their plan to modernize their ancient technology. Remember that they, they, they had like a plan to get rid of the what is it call the master file system to upgrade that thing. And I guess they just they never got around to it.

David Leary: [00:24:26] Well, they had to shift resources to other parts of the IRS. They don't have time. They don't have the resources to work on it.

Blake Oliver: [00:24:32] Yeah, well, Washington Post wrote an opinion piece. The editorial board wrote a piece the IRS should not be running on 60 year old technology. I mean, I think we can all agree with that. They're really not going out on a limb too far there. But, you know, they include some details that really everybody should know.

David Leary: [00:24:51] And last year, the author on that article.

Blake Oliver: [00:24:53] This is the editorial board of The Washington Post.

David Leary: [00:24:56] Oh, is it the board itself? It's not even an individual per se.

Blake Oliver: [00:24:59] Yeah, No. You know, the editorial board, like when The Wall Street Journal does an editorial piece. Right. Or The New York Times does it? Yeah. So that's what this is. So they mentioned, of course, that the iris only answered 13% of phone calls last year. It has a paper backlog that includes millions of unprocessed returns. And the thing that always gets me is, you know, when they dig into like what is actually the technology issue that is happening here and it's this individual master file that's been around since 1970 when Richard Nixon was president and the Chevrolet Chevelle was a hot car. I don't even know if that's how you say it, because I've never I'm not a car guy. They are both long gone. But the individual master file is still the main database to collect and store taxpayer information. It was built with antiquated programing languages, COBOL and assembly. The IRS says it finally updated some code last year, but COBOL remains in use. And this is the big problem. This is why the iris can't put everything online because they've got this system that uses COBOL and I don't think there's an API for the individual master file.

David Leary: [00:26:04] Well, you think there's an accountant shortage. There's really a shortage of engineers that can write in COBOL. That's the real big shortage.

Blake Oliver: [00:26:12] So they pushed out the project now to 2030. But the GAO warns it's unlikely the iris will meet that deadline. So. I mean, this is ridiculous, right? Like the IRS got $80 billion and now they're saying we're not going to be able to upgrade this thing for another seven years at the end. It's unlikely they'll actually make it. So what what I think that they might want to do is do what FreshBooks did. It's like if I had put on my hat, right, if I was in charge of the $80 Billion, which I would gladly do, I would I wouldn't try to fix the IRS anymore, like the IRS as it is. I think it's kind of like to too much technical debt to use the tech word to save it. And the system is just too old. You can't upgrade it. You have to rip out and put in new. But the problem is, how do you do that? You can't just stop the IRS for a while. So what if we did what FreshBooks did? And I love telling the story about FreshBooks I think I've told it to you, David.

David Leary: [00:27:15] On the show podcast for a week ago or two weeks ago.

Blake Oliver: [00:27:17] Yeah, Yeah. So what they did is instead they were trying to modernize the product, which had been around for 20 years and they were having trouble doing it. And so what the CEO did I think, is Mike McDermott did is he started a new company in secret and he took some of his best people and he put them into this new startup and he gave them the mission of building FreshBooks 2.0, but under a different name. So the idea is it would have all the same features as FreshBooks, but with brand new tech, brand new backend, all that stuff from scratch the way it should have been built if it was built today. But call it something else, build it. They basically created their own competitor. And then once they'd gotten it to the point and it had customers too, right. And once they got it to the point where it could stand alone, they ported over people from FreshBooks one to FreshBooks two. And why couldn't the IRS do this? You could start with like the simplest taxpayers and let them opt in to a new form of the IRS. Call it new IRS or new IRS or Iris 2.0, and then gradually increase the complexity of the forms that this new group could handle. And it could run in parallel, you know, to the IRS. And I know there's complexities to that, but I think that would actually be the way to do it is to actually not try to fix the current IRS, but to build a new one.

David Leary: [00:28:39] But that isn't our government's work, though. But it's kind of this thing's going to get milked for 25 years and and they're going to get, you know, the big four advisors involved. They're going to help in this project. The big four is going to get billions out of it. Yeah, it's it's tricky.

Blake Oliver: [00:28:57] Maybe ask Chad how the IRS should solve the COBOL problem. That's what Dial said. All right, David.

David Leary: [00:29:04] What's next for you kind of staying in this theme? So there was an article this was in the Open Secrets News. It's really an investigative journalism, but that article about Intuit's lobbying efforts and the money Intuit spent. And basically, Intuit has now this. In 2022, they spent 3.5 million on federal lobbying. And it's it's the most they've ever spent. So so it's gotten the highest. But if their increase really only feels very inflationary, it doesn't feel like it's a big, huge jump. But they did claim that it was twice as much as what H&R BLOCK spent. Yeah, but H&R Block's spending on lobbying is down from their high of four point what was it, their high in 2018 of 4.1 million. So they're all lobbying. And then the other piece of this article, which I didn't know. So when they passed the. The Inflation Reduction Act. Did you know that there was $15 million set aside for the Treasury to give the IRS to create a free federal tax filing service? Yeah. Like, so. So. So that's also like 15 million something going to a special project. Research it. It's a good contract if you could get that get that one to something that probably will never roll out.

Blake Oliver: [00:30:19] Iris should absolutely create a like an easy way for it should create its own free file for sure. For like just simple W-2s and all that. Why not? I mean.

David Leary: [00:30:29] I mean, if and to be honest, like, if I was into it and H&R BLOCK and the CPA, everybody should be lobbying for them to try to go make this on their own because it's just like healthcare.gov, like it's just going to be a complete mess and it's just going to make everybody else seem more valuable.

Blake Oliver: [00:30:45] Yeah, well, I mean, okay, great. Yeah.

David Leary: [00:30:49] We'll build it.

Blake Oliver: [00:30:50] Yeah, go build it. And so then TurboTax would have to do a better job than whatever the free government solution is. It's like, you know, I always feel like there really should be. You know, you have the free government option, sort of like we have this with health care now, right? You have the free government option and you have the private options, right? And that way there's always like a free option. Like but the way the system set up now is just so ridiculous. I'm the only way to do it for free is to fill out the forms by hand and mail them in. Right. Like that's absurd.

David Leary: [00:31:17] Which cost the IRS even more. Yeah.

Blake Oliver: [00:31:20] I got a chat from comment from Nathan here. I actually went and looked at a job working for the IRS. As a CPA, you can start at around 50 5ka year and the certification is not taken into account. Yeah, they don't pay that great, do they? Although 55 K is not bad for a government job where you're probably not going to work more than what, 35 hours a week? So when you actually compare it to like what you make as an auditor working 60 hours a week, probably better in that part. G Tax Pro says I was part of a 12 year SAP pilot when it was finally scrapped and we were forced to implement a government made information system which is still being used and constantly upgraded. Heather says a beta version of the iris would be awesome. Yes, let's build it. Let's build a private iris. Right. I always talk about this like Arizona. We have like a semi privatized DMV. David you've experienced this like, yeah. And so, like, it works really well because you can be a private business and you can get a license from Arizona to link into the DMV systems and you can like, process all this stuff on behalf of people. Like maybe that's what the future of accounting firms could be is actually like having a way to be like semi governmental even, I don't know, just a crazy idea. Jg Tax Pro says they already have that. I think this is in in regards to the free tax prep program. It's called the Vita Volunteer Income Tax Assistance Program. The current contract holder is taxslayer for the tax software. I got it. So okay, so they're just they don't have their own. They just have a contract with Taxslayer. Trinity says Intuit or H&R BLOCK should build it and sell it to the IRS. That's the only way it would ever happen. Yeah. What else?

David Leary: [00:33:08] David and I want to touch on the accountant shortage too much, but there's an article that caught my headline because it said how CPA firms are engaging the next tax and accounting pros. And then I read the whole article and it was very slanted because the author his name is Greg Sloan. He's a CFP, CPA. A CPA. Mm hmm. He's the chief purpose officer and co-founder of Go Beyond a talent development company. So it looks like it's a, you know, a people company per se. But he calls out in this article the Big Four, and all of them have these like big purpose statements that, you know, he kind of he references in here. And not only that. So Deloitte, they have their purpose. Our purpose is to make impact that matters by creating trust and confidence in a more equitable society. And they in March of 2021, they named their their first ever chief purpose officer. But all of them, all BWC, e y KPMG, they all have these big purpose statements and I think they're trying to use that because you've said this like younger people want to have a sense of purpose. Yeah, at these companies, but like having the statement, I don't know if that makes Well, is that just marketing, Is that the marketing of this. Yeah. Yeah.

Blake Oliver: [00:34:22] There's a lot of marketing money and if you just have a purpose statement but you don't actually live up to that purpose, then people see through that. The younger generation totally sees through that, and social media makes it obvious that the company is not living up to those values. And that's the problem that accounting has, is that a lot of these big firms like have a really crappy true purpose, which is just to make a lot of money and enrich the partners. Right? Like, that's the purpose of them. If you actually look at how they operate, it's to get it's to, to make money for the audit partners and you know, the the people who can rise to the top of those organizations are not great people in a lot of cases. And I'm sure there are many great people who are partners at Big Four, but I'm sure there's a lot that are pretty terrible because why would the employee experience be that bad if they weren't right? It's funny, they're not on social media. It's like they don't exist. I mean, think about it. You've got Tony Nitti, who, like he wasn't he wasn't big for like until he joined E.y. Right. He came up to E.y because he was such an influencer. Yeah. Like who? Who are the you know, who are the big four partners representing the big firms on like, on social media?

David Leary: [00:35:31] Oh, yeah, yeah, yeah. Because. Because you think there'd be people not for the size of these firms. Yeah. You would know people that there that are thought leaders or they're there's the brand because like brands need people right. Yeah. Evangelists for that brand.

Blake Oliver: [00:35:48] I think that's the problem is like Deloitte is just this amorphous brand that doesn't like who are the people running, you know.

David Leary: [00:35:54] Who are the people that could be the episode title.

Blake Oliver: [00:35:57] Who is who? Who is who are the people? All right.

David Leary: [00:36:02] What else do you got?

Blake Oliver: [00:36:03] Well, we should play that interview with Jimmy Cawley.

David Leary: [00:36:06] Oh, yes. Just that ties in.

Blake Oliver: [00:36:07] Okay. I'm going to try and play the interview that we did with Jimmy Cawley, the executive director of the Arkansas State Board of Accountancy, talking about the 150 hour rule. So trigger warning if you are triggered by our coverage of the 150 hour rule, you might want to turn off this stream right now for the next like 11 minutes. Welcome to The Cloud Accounting Podcast.

Jimmy Corley: [00:36:33] Thank you. It's good to be here today.

Blake Oliver: [00:36:36] We've been talking recently about the 150 hour rule, the fifth year of education that is required in virtually all jurisdictions where CPAs are licensed. What do you think about the 150 hour rule?

Jimmy Corley: [00:36:48] Well, I think we need to take a hard look at it back in the eighties and nineties. Our state adopted it, I think, in 98. So we've had it for 25 years and times were different and they made a decision and everybody bought in. It took a lot, a long time to get that for all the states because I think Florida started like in 83, 84. So it's been a while. You know, things were different. I wish if I could go back in time and change it, I would have made those hours be specific and maybe a master's degree, maybe an MBA or a mac. But I don't know the history. Maybe that wasn't politically feasible to go to that bar. But for whatever reason, you know, we've got this extra 30. And me personally, I've got a bachelor's degree with 152 hours. And my extra hours were I got a minor in philosophy, basically at UCCA. I was in the Honors College there. And so my extra hours were filled a lot with Plato and Socrates and Jean-Paul Sartre and, you know, things that were somewhat interesting for a college kid at the time but don't have much bearing on my career now.

Blake Oliver: [00:37:54] That's funny. One of one of my classes that I took to satisfy my 150 hour requirement was Intro to Philosophy. I consider that to be very valuable, but I do wonder, you know, what does it have to do with being a CPA, right? What value? What value did it add? Because it could be in anything. It could have been basket weaving. It could have been I think we had one one listener said that they earned their credits in interpretive dance.

Jimmy Corley: [00:38:19] We see a lot of that when we review transcripts for licensure. You know, you'll have some nontraditional students that got a degree in biology or communications or just runs the gamut, and they'll have a lot of hours that have nothing to do with not only accounting, but not even business. And so I think that was the the big mistake that we made back in the day. I don't know why we didn't require certain hours or certain degrees, but.

David Leary: [00:38:46] Has anybody ever published that like, Hey, here's all the messengers we issued last year in 2022, and of these here's how many we're accounting degrees, how many were non accounting degrees? Here's what people did for their extra 30. Like any stats that publicly you could release.

Jimmy Corley: [00:39:01] Oh boy we could do something like that for for our state it's not readily available. We'd have to do some some digging and some research, but that would be very interesting to see how many students are taking advantage of that rule and getting something that helps their career. Versus just filler material. If I had to just guess based on what I've seen in my 12 years here, I would say maybe 80%, 75 to 80% of the students do get something that's related to their career. But there's a significant portion that that don't. So yeah, I don't have any hard and fast stats on that but that is there.

David Leary: [00:39:39] Interesting.

Blake Oliver: [00:39:40] 8020 So when Florida was the first state in 83 to increase the requirement at another 30 credit hours, college education was a lot less expensive than it is now. I think we can just take that as a given. Do you see the extra costs of the fifth year as a barrier to entry to the accounting profession?

Jimmy Corley: [00:40:01] I do. And it's not only the cost, it's also the opportunity cost. You're having to spend thousands of dollars on tuition and living expenses and also you're giving up a year of salary. And so especially at a time where we're struggling to attract minority students and first generation students, I think I think most people, if you're honest, when you look at that, you would agree, hey, this is a pretty big barrier to getting into the profession. I don't see a way around that. Again, if there was some sort of agreement that we're going to require a master's degree, something that you could argue, hey, we are really improving this person's credentials and education. You can justify the barrier, but I think we all have to get to a point where we agree it's a barrier.

David Leary: [00:40:47] But I feel like, you know, there are some people that that are on Twitter and they're saying, oh, this is like a badge of courage, right? This is to weed out the people that can't hack the extra schooling. But I think what's happening, a freshman or sophomore in college who's trying to, like, get their ducks in order. They're like, I can't afford another year of school. And they're making decisions before they even give counting a real consideration just because of the 150.

Jimmy Corley: [00:41:10] Yeah, I agree with that. And to me, the badge of honor is the CPA exam. It's a very difficult test. It's hard. You get to study. And to me, substantial equivalency should be based on that. If you pass the exam and you've got a bachelor's degree, that's that should be enough. Most of the people in our profession that are over 45 don't have 150, and a lot of those people are very successful, have done well. And so I don't buy the the argument that we should base the equivalency on these extra hours that don't require certain coursework.

Blake Oliver: [00:41:47] So Naspa the National Association of State Boards of Accountancy. I imagine you're involved in that deeply. As a as the director of a state board. Before we started recording, we were talking about how you're going to be going to you're coming to our state for an annual gathering, is that right?

Jimmy Corley: [00:42:04] Next. Next week in Tucson.

Blake Oliver: [00:42:06] So is it all the all the state boards are coming, getting together.

David Leary: [00:42:09] I might crush this.

Jimmy Corley: [00:42:10] So what it is, it's all the directors and certain key staff and the boards will gather for a three day meeting in Tucson. It's a good, good place to network and also hear from NAB and the CPA about current current topics. I'm sure this will be a hot topic. If not on the agenda officially, it'll be watercooler discussion for sure.

Blake Oliver: [00:42:33] Yeah, well, I imagine it would be because NABA the board of NABA, which is not every director, it's just some. Is that.

Jimmy Corley: [00:42:43] Right? So NABA has about, I think 20 or 25 board members. They select for their, their board positions and they meet, I think, once a quarter to kind of set policy and kind of govern the organization, which which is a great organization. I've had a really good experience with them and my 12 years I've served on several committees currently on their committee, which is of course a document that we try to keep everybody on the same not the same standards, but very similar. So that's an important document and committee. A lot of good people there. I just I don't know. The reasoning for. And I was shocked when I said that all 20 or 25 directors voted unanimously to support it.

Blake Oliver: [00:43:29] And that's surprising to bring up. Yeah. Is that the board voted unanimously last week or the week before to uphold the 150 hour requirement. And I thought that was interesting. They did that because, well, it's because the state of Minnesota, there's a there's a bill in the state legislature there to reduce the requirement from 150 to 120. Well, actually, to create an alternative pathway to allow for 120 with, I think, an extra year of experience in exchange. Right. Swapping experience for the education. So they did this. They they voted. What do you think about that? Would you have voted that way? What do you think about what Minnesota's pursuing?

Jimmy Corley: [00:44:10] Well, first, the boards. I was surprised I wasn't surprised that they voted to support I was surprised it was unanimous. And to me, there's some sort of disconnect between the CPA and the grassroots, if you will. Our board is very concerned about it. I talked to other states. Most of them feel, hey, we need to at least be talking about this and to just shut it down and say, no, the 150 is the gold standard and the golden goose, so to speak, and we should leave it alone. I don't understand that, to be honest. The Minnesota bill to me. Is very good because it leaves a pathway for the colleges to keep offering their programs to students who want to go that route. And so you're not going to eliminate graduate schools for 90% of the country, which would be a disaster. But you do offer a chance for these students that need to go to work, that are ready to go to work, that can't afford that extra year. They can get two years experience instead of one, but they don't have to have the extra 30 hours. And to me, that language in that bill is very good. I'm not crazy about the CPE side. There's a third pathway, but you get 120 hours one year and 120 hours of CPE Just because you could do that in three weeks, right? You could get your CPA. And I just don't I don't think that's rigorous enough. But the first two options to me are really good. And if I had if I was a legislator in Minnesota voting on that bill, I'd have to vote in favor as is even with my concerns about the CPE.

Blake Oliver: [00:45:43] I imagine the reason that Bill is in the legislature is because the state board is hearing from firms in Minnesota that they're having trouble getting accounting students into their firms and and there aren't enough CPAs to go around. What are you hearing from firms in Arkansas when it comes to the talent crisis in accounting?

Jimmy Corley: [00:46:02] It's the same thing we hear from firms that they can't find enough help. They're struggling. We have firms that they've got people that have passed exam at 120, but they've got to go to school at night to get their 150 get licensed. And so, yeah, we're hearing that from from firms. And I think that's what you saw in Minnesota is the boards and societies are getting pressure. And there's been a CPA for whatever reason, aren't really maybe they don't hear the same comments, I don't know. But there's a disconnect there. And so you kind of see this while sheep or black sheep, I guess, going out on its own. And we'll see if it creates any momentum. I will say our state is is looking into it. We haven't found any bills or taken any official action on this issue, but we're very interested in what's going on in Minnesota. I know South Carolina has a similar situation going on with our state society, and so we're very interested to see where this or how this plays out.

David Leary: [00:47:01] Jimi, can you speak to the autonomy that the state societies have and. In the States, in fact, have versus the bigger national organizations. Is it kind of an unwritten like you better play by the rules or is it do you truly have the power to just change it on your own?

Jimmy Corley: [00:47:17] Well, I'll start with state boards that they definitely have. We have our our state statutes. And so we, I guess, somewhat control that. Of course, we have to get it through the legislature and that creates challenges. But as far as us needing the API and SBA to approve anything, we don't have to have their blessing. Obviously, we would like to have that. That helps the process and we get through that from the society perspective. For years, I think that state societies have been kind of lockstep with AICPA and you very rarely saw much challenge about this or any kind of disagreements. But I think we may be seeing the tide turn on that because this issue right now. That's a very good question.

Blake Oliver: [00:48:01] Firms that are able to retain recruit, what are they doing that firms that are struggling aren't doing well?

Jimmy Corley: [00:48:09] I'm not boots on the ground, so to speak. But just from what I hear, you know, it's work life balance. You know, starting salaries are an issue. I did some calculations a few weeks ago. I started with Arthur Andersen back in 2001, and I took my base salary and adjusted for inflation. And from what I hear, the starting salaries are out there now. We haven't even kept up with inflation from when I started back 22 years ago. And so that's that's an issue. Work life balance. We've got a generation of students that don't want to be in the office 70, 80 hours a week and their actions speak speak to that loudly. And so firms have got to get creative in work life balance, salary arrangements. You see a lot about unlimited PTO, which is to me is problematic because we all know the pressures of not being there and having projects to do. And to me it's just a license not to have people be in the office all the time. I think it actually does the opposite. But I think we're going to have to we're going to have to see firms get creative in what they're doing to attracting is one thing, but retaining is a whole different animal. You know, how do you get those folks to stay? And money and time is really the big issues. And how do you balance that out and give folks a reason to want to be there long term?

Blake Oliver: [00:49:37] So that's all the time we have. We talked to Jimmy a bit longer than that, but I think you got the best bits there. Really great to to talk to somebody who's leading a state board of accountancy and, you know, hearing he hears the issues, he's listening to the members. Amaechi says can't lawyers fulfill their legal studies in a law office or judge's chamber in California? Would something like that work in accounting? I'm not sure. Actually, I have no idea. I do think that the comparison of accounting to law or medicine is false, that we shouldn't be doing that to justify the fifth year because lawyers go to law school and the law school results in a law degree and they require that to get to be lawyers. And same thing. Medical doctors have to go to medical school. We don't have accounting school. You know, that's not what this fifth year is. It can be anything. And so, you know, it doesn't it doesn't add it doesn't add value the same way. It's not equivalent. Right. It's kind of like a kind of a pathetic attempt, you know, to do what that was. And I don't know, the legal profession, the medical profession, they're having their own issues with recruiting. So I don't think we want to be copying them or making it even harder. I want to show everybody this poll that Mike Sylvester, CPA did on Twitter. He said last week, should 150 college credits be required or 120 to be a CPA? Personally, I think we should change to 120 hours tomorrow. And so you could choose one 5120 or just see the results. Only 25% of the 562 respondents chose 150. It's only a quarter of that tax.

David Leary: [00:51:18] Twitter get 560 votes. This is a Twitter poll.

Blake Oliver: [00:51:21] Yeah, Twitter poll.

David Leary: [00:51:22] That's pretty good. That's very, very good for a Twitter poll.

Blake Oliver: [00:51:25] Yeah, it's good, right? And so, yeah, 150 got 25%, 120 to go immediately to 120 got 60%. And then there were 15% that didn't didn't give an answer. Just wanted to see the results. So you know if the state leaders and the ACP and ASB are listening to the members, I think majority, well, who knows, right? But at least a solid majority of those online are in favor of going back to 120 immediately. So I don't think this would be actually that difficult to do. Right. There's a lot of support for this in the community. And the argument is, oh, it would take so long to change the law and all the different states. I don't think it would take that long. I think maybe a few years it could be done if we had the willpower to do it from a national level and to get all those hundreds of people working at Naspa and the CPA, like moving on this, right? Like, what else are they we paying them to do if it's not to advocate on behalf of the profession and do big things like this? So I know this is like, do your job right. Don't don't, don't say, oh, it's too difficult as your excuse. There you go. David, do you want to share anything else before we go?

David Leary: [00:52:34] I think our minutes. So so the CPA practice advisor, they do their annual Thought Leaders symposium, if that's the right word they use for it. And they published a whole post about it. Right. And in the title of the post is Accounting Thought Leaders Discuss Future of the Profession, Advisory Services and Tax and VOM all noticed in a bunch of others. If you follow through this thread that it's just a bunch of white people and they talked about diversity and accounting. And the other thing is somebody else called out on the article itself on CPA Practice Advisors post is like, What's the point of this article? It's just like a photo album. They list who's there, There's a bunch of photos, they have bullets of what they talked about, but there's actually no meat and potatoes here of what they discussed.

Blake Oliver: [00:53:22] What did they actually talk about? What did they what conclusions did they come to?

David Leary: [00:53:26] And so I was searching Twitter because I swear to God. This has been brought up previous years. They put out the photo and then people start being like, Where's where's it? It's just, Yeah. Didn't you play that like thing about the construction industry, about it? It's just the same.

Blake Oliver: [00:53:44] It's the same people in the room over and over every year, over and over. It's the lack of diversity of thought. That's the real problem.

David Leary: [00:53:50] But there was someone who said, The nice thing is the 40 under 40 is very diverse now. Yeah. So hopefully.

Blake Oliver: [00:53:59] But isn't that what this thing is for?

David Leary: [00:54:01] Well, this is not the 40. If this is just the thought leaders, which is different than 30 or 40. Okay. You know, they could have brought in two other white male thought leaders if they'd like. The Cloud Accounting Podcast. Oh, boy.

Blake Oliver: [00:54:15] Well, I don't apply for these things anymore. I did it two years and I stopped going because it's it's a bunch of people in a room and nobody's really saying anything that's meaningful. It's all like talking just to talk, which I feel like is a lot of of what the thought leaders in our profession do. They just they they get up and they give a presentation because that's what they're supposed to do, but they're not actually saying anything meaningful.

David Leary: [00:54:40] I think a lot of these things, even the white audience I've I've attended at at the RCP itself, these these things are set up to get vendors to spend money.

Blake Oliver: [00:54:50] Yeah. Yeah. And take photos. Well, at least they posted the photo album this year. Um, David, that's all the time we have for this week. Where can people find you online if they wanna track you down and tell you.

David Leary: [00:55:04] What they think? All the socials @DavidLeary Yeah.

Blake Oliver: [00:55:07] And I am at Blake T Oliver, follow us on YouTube. Subscribe to The Cloud Accounting Podcast and get notified when we go live. And you can join us and you can let us know what you think in the chat. It's so great to see all of you and have all of you join us, especially on a Friday afternoon as we record a little later than usual.

David Leary: [00:55:24] And Friday night. To some of you, we have normal schedules like we'll be live.

Blake Oliver: [00:55:28] Yes, at.

David Leary: [00:55:29] Normal our normal Friday time. We don't have we're not traveling. We don't have any craziness going on, right?

Blake Oliver: [00:55:34] That's right. And we have Dr. Josh McGowan, I believe he's from Troy University. He's going to be joining us to talk about the future of the profession. And he's very bullish. He's an accounting educator. I want to hear everything that's going on in the cutting edge of education, in accounting. And, you know, he's he's a young guy. Let's get his perspective. So tune in for that. Again, subscribe to us on YouTube. Trinity says, Have a great weekend. Thank you, Trinity. I will. I'm going to go for a hike. We're going have some good weather here in Scottsdale. So I hope it warms up for everybody else. I know it's been kind of crazy with the snowstorms.

David Leary: [00:56:13] Be safe out there.

Blake Oliver: [00:56:14] Be safe. All right, David. Hi, everybody. Next week by.

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President and Founder, Sombrero Apps Company
China Tells State Firms To Drop Big Four Auditors
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