The Accounting Podcast

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Blake Oliver: [00:00:05] Auditors. One of their primary jobs is to determine what is material and what is immaterial. And if it's immaterial, then it doesn't matter. And the court said that Bdos audit report is immaterial because it's so general to be useless.

David Leary: [00:00:22] Coming to you weekly from the OnPay Recording Studio.

Blake Oliver: [00:00:29] Hello and welcome back to the show. I'm Blake.

David Leary: [00:00:32] Oliver. And I'm David Leary.

Blake Oliver: [00:00:33] And this is our last live stream of 2023.

David Leary: [00:00:37] The last one of 2023. Wrapping up the year.

Blake Oliver: [00:00:41] David, you haven't taken any official paid time off. How are you doing? Are you feeling productive in this strange week between Christmas and New Year's?

David Leary: [00:00:51] I feel like we're in a weird spot, right? Because it's our busy season. Everybody wants CPE. I also feel like accountants. I get a lot of out of office messages, but they're all kind of really working because they're catching up on conversations we had in October. So email threads from October September are now bubbling up into my inbox and I'm like, oh no. So I'm putting stress on myself. Like, I got to reply, you got to be on top of these. So I'm feeling this like I'm still in the crunch. I think yesterday the wife even gave me some grief about like, like most of the world slows down this week and I've not felt like I've slowed down this week. Yeah, hopefully. Hopefully this evening and tomorrow for sure.

Blake Oliver: [00:01:26] I don't like taking off time this time of year in December because I feel like things slow down anyways a little bit. So I want to stay up on my email. I don't want to let that inbox build up so that I have a big one in the new year, and then I take time off in January. But maybe that's just the nature of our business, right? Cpe continuing education with earmark 80% of CPE or something like that is earned between December 1st and December 31st, which is totally ridiculous.

David Leary: [00:01:56] People doing CP on Christmas. People are subscribing to the earmark app and taking classes on Christmas Day.

Blake Oliver: [00:02:03] So if you're in that group, which, hey, I've been there, um, you can you can get some really high quality CPE for listening today to this episode. Uh, finish listening to this hour and then download the earmark app and you can register for the course. It'll be online. Although actually, I don't know if we'll have the course up for this episode until next year, but you can go back and get credit for all of the other episodes you've listened to and, uh, get your CPE out of the way.

David Leary: [00:02:33] Or you can get your CP for this one. It puts you off onto a good start for 2024.

Blake Oliver: [00:02:37] That's right. Exactly. And that's the key. All right. New Year's resolution. Don't let the CPE pile up. Use the earmark app every week to get a free CPE credit and, uh, do a CPE every week and you're done before December even rolls around. We have a lot of folks who, uh, drive to work, listen to an episode, get CPE. But my favorite example is, um, we had a listener, Hannah, who said, uh, she she got her nails done and earned CPE. With while getting a manicure. Like, I mean, isn't that amazing? What a world we live in now. Self driving we don't have we don't quite have the self driving cars, but we do have the CPE, CPE while you get a manicure. But I want to talk about busy season because that's coming up. I know that the anxiety is weighing on some folks already, and if you are a firm owner or you have a team that you manage, you may want to pay attention to this new study by slack. A global survey by slack involving over 10,300 employees, revealed that 37% of employees work after hours at least once a week, with 54% doing so out of perceived necessity. So over half are working late because they feel like they have to. However, this pressure to work late leads to a 20% decrease in productivity during the day, increased work related stress and burnout, and lower job satisfaction. So if you force employees or you compel employees to work late to work more hours, they will be less productive during the day. This kind of seems obvious. But now we have data to support it. We have a survey to support it. Brian, welcome to the live stream. Brian says when I get my next tattoo, I'll listen to you so you can say, someone got CPE while getting a tattoo.

David Leary: [00:04:26] That's wonderful.

Blake Oliver: [00:04:27] Amazing. Maybe, maybe at some point, Brian, we can sponsor a tattoo.

David Leary: [00:04:36] Well, I have a challenge. When when earmark gets its 100,000 subscriber, I'll get an earmark ear tattoo, I will.

Blake Oliver: [00:04:41] You'll get an earmark ear tattoo.

David Leary: [00:04:42] The logo. Get 100,000 subscribers. Yeah. Where would you.

Blake Oliver: [00:04:44] Get the tattoo, David?

David Leary: [00:04:46] I don't know, probably forearm or somewhere, I don't know. Okay. On my ear. Make it green.

Blake Oliver: [00:04:50] On your. On your forehead. Forehead. Yeah, yeah. Hey, thanks everyone who has joined us live today. We got some folks in the office getting ready. All pro lemon Tansy says left Big Four for internal audit. First time not having a busy season in four years. Congratulations. How does it feel? It must feel amazing not to have to worry about that. But anyway, I want to get back to the survey. So here's the important thing. Right? So we had this 20% drop in productivity. So David you know I'm your boss right? I make you work late. The problem is the next day now you're 20% less productive. So let's let's math this out. If you work late.

David Leary: [00:05:33] Then I want to work extra right to.

Blake Oliver: [00:05:35] Well. So if you work extra at in the evening the next day, you're less productive. So it kind of like offsets itself, right? Like, let's say you work an hour after hours or two hours today, then tomorrow you're 20% less productive, you know, 20% of an eight hour day, let's call it a ten hour day since we're overworking you is two hours. So we just lost it. So there's no there's no net benefit for the people you forced to work late. Now the difference.

David Leary: [00:06:01] Compound.

Blake Oliver: [00:06:04] Right?

David Leary: [00:06:05] I don't know.

Blake Oliver: [00:06:06] Well, if you're always 20% less productive during the day, then all the extra work you're working after hours, right? Doesn't doesn't help move the needle.

David Leary: [00:06:15] Yeah.

Blake Oliver: [00:06:15] Now, here's the thing. If if people work of their own accord during post work hours, they actually have slightly greater productivity and wellness scores and don't report the same amount of negative impact that they're pressured to work peers do. So if you can motivate your employees to want to work over time. There's no disadvantage to that. Now. Also, there's some interesting data in the survey about surveillance. The pandemic led to increased surveillance of remote workers by bosses and executives concerned about productivity. However, research indicates that workplace surveillance can negatively impact job performance and increase the likelihood of employees quitting. It also encourages productivity theater, where workers spend time appearing busy after completing their tasks. The survey found that employees appreciate autonomy and the ability to manage their own time. Half of all office workers rarely or never take a break, leading to high burnout levels, worse work life balance, and lower productivity. Allowing employees to decide when and how they work appears to improve their job performance.

David Leary: [00:07:24] How much of this is. Management and how much it is just people's own personalities. Wherever you put this burden on yourself to answer every email, work extra. Even if you're managing your own time, right? Right. You're like, I need to get this done, so I'm going to skip my break or I'm not going to take a lunch today or I won't shower, especially for working at home. I'm taking a shower today. Like, because you're like, I need that half hour. I need that 20 minutes or I can't, I can't go to the gym. Right. How much is it people's personalities versus management really controlling them?

Blake Oliver: [00:07:53] Well, that's like nature versus nurture the classic argument. Right. But I think a lot of it is the environment we're in. So I just think back to the brief time when I was in a big public accounting firm, and we had the managers on the outer ring of the office, and then we had all the staff in the bullpen in the middle and the staff. I had staff tell me that they would just stay at their desk all the time and not leave and take a break, because when the partner walked around, they wanted to be there, visible, because that's how that's how productivity theater. That's productivity theater. So not taking the break is productivity theater to make the partner think that you are being productive. In reality, you are not being productive. And you know what's interesting? I wonder how much time that people are in offices during busy season is just completely wasted. And it's just people being there for productivity theater. And the reason I think that is because you and I were just having a chat with Gail Perry at CPA Practice Advisor, and she told us that CPA Practice Advisor, a publication for CPAs and CPA firm owners in particular, gets most of its like readership in January, February, March time frame, which is supposed to be the time when everybody is working too busy. So what are people doing? They're probably sitting at their computers and they're reading websites. They're not working. But it's this productivity theater, right? You've got to be there in the office supporting everybody. And that's, uh, why we have had these mandatory Saturdays, which I think are finally starting to go away. David, you had some information about mandatory Saturdays.

David Leary: [00:09:29] So county today has there and it just came out this morning, the 29th. Just this morning it was released their year ahead in numbers, where they've surveyed about 300 firms comparing their thoughts about the future, what's happening in 2024. And I'll skip down to that slide you're talking about about working weekends. Tax life balance. So they do plan on working less Saturdays and tax season this year. Firms do so as you can see, compared to 2023.

Blake Oliver: [00:09:56] So in 2023. 40% of firms made staff work all Saturdays. In tax season. Is that what this chart is showing?

David Leary: [00:10:09] I don't know if that's a record of what they did. I think it was the record of the previous survey of what.

Blake Oliver: [00:10:15] They intended.

David Leary: [00:10:16] To do, intended to do last year. Right. So this is a survey of intentions. It could have been 80% that actually did it right. But they have better intentions this year. Yeah.

Blake Oliver: [00:10:25] Well so so last year it says 40% said staff have to work all Saturdays and 23% of firms said they only have to work some Saturdays. Yep. And this year what are the numbers.

David Leary: [00:10:39] So 34% think they're going to have to have their staff work all Saturdays and just 32% I think it's going to be some Saturdays. Okay.

Blake Oliver: [00:10:47] Well I guess that's an improvement, right? I mean we're down 6%, 40% to 34%. But it's still concerns me that like a third of firms are making their staff work all Saturdays.

David Leary: [00:10:58] And that could be I mean, another part of this survey that actually wasn't. So they summarized it in graphs on this post, but then the PDF of the survey had an interesting chart we can jump into.

Blake Oliver: [00:11:10] I just can't believe I'm just I mean, I know this is classic, but like to make to make your staff, all of them work every Saturday is insane to me because. But what if you have staff who are really talented, who get all their work done? They still have to come in. Like there's no incentive to be efficient.

David Leary: [00:11:30] But a third of the people that they in the survey do not have a strategic plan at their firm. So if you don't have a plan, you're just running around in chaos. You probably expect to have to work Saturdays because you didn't plan a way to not work Saturdays.

Blake Oliver: [00:11:45] That's a good point. Okay, so walk us through this chart.

David Leary: [00:11:50] So this is a large scale planning they were asked about.

Blake Oliver: [00:11:53] Is this the same survey?

David Leary: [00:11:55] Same survey. This is just this graph wasn't in the summary post. It was deeper in the deck. So this is on page ten of the actual PDF okay. They basically asked you know about planning. So a strategic plan 61% either say they have a current plan or plan to implement a strategic plan. But that means one third 40, almost 40% don't have any plan, any strategic plan.

Blake Oliver: [00:12:19] And it says only 41% of firms currently have a strategic plan.

David Leary: [00:12:22] Yes, yes. So less than half have a strategic plan right now today.

Blake Oliver: [00:12:26] Which I mean I understand right. Like most firms are small. Yeah. And if you're a tiny firm with just one, two, three partners, you're not gonna like, what are the odds you have a document strategic. Do we have a strategic plan, David? You and me.

David Leary: [00:12:40] In our heads. We talked it out, but it's not. It's not written.

Blake Oliver: [00:12:43] Down. Documented. No, not yet anyway.

David Leary: [00:12:46] But what really concerns me about the plan on this, you know, 50% are planning or have a plan for a succession plan. So that.

Blake Oliver: [00:12:54] Means 50% have no plan or like no.

David Leary: [00:12:56] Plan at all. But when you think about succession plan, who does that solving for usually partners. Right? Yeah. Partners.

Blake Oliver: [00:13:02] And the survival of the firm. The client survival of the firm.

David Leary: [00:13:05] Right. But this kind of feel like is the issue with retention. And we can talk about that on some of the other slides like, but if you think about the only less than a third care about having a plan for a health and wellness program, less than a third basically want a mentorship program, right? Yeah. A mentorship or sponsorship program, um, 60% to have zero plan to become more diverse. Right? So it's where the focus is, right? The focus is succession, right? Not taking care of people lower down on the ladder. Yeah. From a from a planning perspective, making plans around those types of things. But I imagine you can't do any of the others until you have your main strategic plan. Like how can firms not all firms have a plan, especially if you're in small business class and you're advising clients like, aren't you helping your clients make plans like, this is the pot kettle here on that one a little?

Blake Oliver: [00:13:59] You know, this is actually a great job for I. Ask it to help you make a strategic plan. It could at least get you started, get you thinking about what categories you want to have in your strategic plan.

David Leary: [00:14:12] Yeah, so.

Blake Oliver: [00:14:14] Maybe I'll do that.

David Leary: [00:14:15] They all have, uh, expectations to hire more firms in the survey. Want to hire. They all have expectations to hire, obviously, based on the size of firm firms that are, like, staffed 29 or 20 employees to 99 or 97% are expecting to hire one or more staff in 2024. Um, but what's interesting, are they.

Blake Oliver: [00:14:32] All going to come.

David Leary: [00:14:33] From? Yes. And that's where this next graph. So they have their diminishing expectations. So this is average number of staff firms expect to hire in the year ahead. And in the 2022 survey, 46% of the firms responded saying they expect to hire in the year ahead. But in the 2023 survey, only 22% say they expect to hire. So I'm wondering, is, is that a result of less hiring plans or is it just they've reconciled the reality of, oh my God, it's going to be so hard to hire. We're going to have.

Blake Oliver: [00:15:04] We're just not even going to try.

David Leary: [00:15:05] What's not even tried, but just the they have realistic expectations now of like, oh, I'm going to have positions I might not be able to fill. Yeah, right. I thought that was interesting. And then one thing they had a question that's really is really indicative of where people's heads are. And it's a really good question. It's like what's keeping firms up at night? And they asked small firms, they ask mid-sized firms and they ask large firms. And really for small firms, if you look at it, a lot of it has to do with like staffing, right? They can't keep up with tech, they can't keep up with regulatory change. They probably don't have a sales team to find new clients. So they're having a lack of staff. They're just not big enough. These small firms. Right? Yeah. Midsize firms. You'll get these recruiting retention 66%. Keeping up with change 33%. Partner and staff accountability 28%. Managing remote hybrid staff 24%. These are all management issues. They're having management people, HR issues. Right.

Blake Oliver: [00:15:58] This is interesting to me as how much of a difference the recruiting and retention is at the midsize firms, 66%. That's their biggest issue and it's only.

David Leary: [00:16:08] 33% 33.

Blake Oliver: [00:16:09] Firms. So it's twice as the bar is twice as big for the midsize firms with recruiting and retention.

David Leary: [00:16:17] And that's possibly because they have enough staff where it helps these other things get solved. But they have a whole different set of problems. The fact that they have to keep partner and staff accountability, like that's a big issue they have now, big firms don't really have that. Big firms still have the recruiting retention issue at 65%. But really a lot of again, succession planning is important at the big firms like that keeps people up at night. Well, that's that's.

Blake Oliver: [00:16:40] The thing is. Right. So right now I keep hearing how the midsize firms are getting bigger and bigger because they're absorbing all of these smaller firms that don't have a succession plan. But now the mid-sized firms have a problem, which is they have all these clients and partners that came in from the small firms, but they don't. They're having trouble keeping the staff. Yeah. Because one of the benefits of working for a small firm is you get that smaller, firm culture, you get probably more flexibility, and you go to a midsize firm, and now they're making you come to the office and they're making you use certain tech. And, you know, there's a lot of disadvantages to working for a mid-sized firm. It becomes more corporate culture might not be what you'd had in the past. And like, at what point does this become a crisis?

David Leary: [00:17:27] Yeah. Because you're if you acquire 3 or 4 firms now you have different managers. There's politics. Like I could see why these midsize firms like these are the problems. They're all people in HR related issues. Um, one thing that I was a little confused about on this slide, so they want to ask how much time these firms are spending on compliance advisory and administrative. And pretty much it's 20% administrative advisory is 35% of their time in compliance is 44% of the time. But they're asking them like how you're going to spend on these areas going forward in 2024. Are you going to increase more or decrease 27% of the firms expect to increase compliance, 49% to increase their time spent on advisory, and 16%, uh. Expect to increase for administrative and the only decreases that were major were really the administrative. 18% of the firms think they're going to have less. But if you take these three things and think about opportunity cost, if you have the same person answering the question, if people if 49% are saying they're going to increase the time spent on advisory, 27% are saying compliance, wouldn't a decrease in administration have to be higher? It's almost like nobody's being very logical about their pie of time, right? Yeah. You can't do all three of these if you increase two of them.

Blake Oliver: [00:18:46] So and the contradiction in the in the profession right now is there's this big push to away from compliance toward advisory. But advisory is the hardest thing to staff because it requires the greatest skill to deliver. Yeah. So if you're a midsize firm and you're like, let's build an advisory virtual CFO practice, that's really challenging right now with the talent shortage, to pay and hold on to those people because you need mid-career professionals, you need CPAs. Finance professionals in their 30s to deliver advice. You can't, you can't. You know you can't do it like these consulting firms like McKinsey and put 22 year olds advising CEOs, you know, like you can try, but I don't think it's going to work in the in the CFO role in the finance role. Yeah.

David Leary: [00:19:37] So and the only last one they had a graph of which I wish they would do it a little bit different is they're talking about the percentage of firms that are filing extensions for clients. Um, and essentially, oh.

Blake Oliver: [00:19:48] This is fascinating.

David Leary: [00:19:50] One third of firms are putting 25% of their clients or more on extensions. And usually the bigger the firm, the more clients they're putting on extension as a percentage. But I think the question I'd rather see is how many firms are putting 100% of their clients on extension to to smooth out the workflow for the year versus, oh, we didn't get the work done. Hurry up. Put him on extension. Right.

Blake Oliver: [00:20:11] So we have we have heard from a few firms that do this. When you become a client, you agree 100%. You will go on extension. All the clients go on extension and they like you said, the work gets pieced out over the course of the year. You could totally do this as a firm right now. There's so much demand for your services. If you if you have a full book of business. Instead of getting rid of clients to make room, because you have to do all that work in like 3 or 4 months, you could just make everybody agree to go on extension, and you could keep the clients and spread out the work.

David Leary: [00:20:47] So because essentially you've eliminated all deadlines.

Blake Oliver: [00:20:50] I know, I know, people say.

David Leary: [00:20:51] The deadline at the very, very end, but I mean.

Blake Oliver: [00:20:53] You still have to do the. You still have to figure out the tax liability because you've got to pay the tax. Right. But you don't have to file the returns then like on in April. Yeah. So that does help and it does help spread out the work. And I don't understand why more firms don't do this. And I know the clients push back on this because, oh, I want my refund or I want to get it done. But like you have control. You have leverage. If you're in demand, you could you could make this a requirement. It's totally doable. And we've heard from firm owners who are doing it successfully.

David Leary: [00:21:23] And that's where you put them. People that have that argument, you're like, great, next year you're going to you'll be the first return done, because we're going to put you on our tax preparation plan all year, where we figure out your estimated and we figure out things along the way so we can instantly do your taxes. Right? Yes. Either way, you're going to go on an extension or you're going to buy the the, um, better prepared plan, whatever you want to call that. Right. Move them through.

Blake Oliver: [00:21:45] We got a question from Chatan. Chatan says hi, Blake and David. I am a junior accounting student right now. I love the podcast and resources you guys share. What advice do you have for me as an accounting student to navigate the uncertainty? Well, first, thanks for listening. And. I'm so glad that you are studying accounting because we do not have nearly enough accountants in school, so stick with it.

David Leary: [00:22:12] That's my advice. Do not quit. Yes, but I agree.

Blake Oliver: [00:22:15] Like navigating the profession is probably the hardest thing there are. There are awful jobs in accounting that will burn you out and will make you want to quit and leave, like many people do. And there are amazing jobs in accounting that offer flexibility and freedom. And that's what drew me into accounting. Was that flexibility. Ironically, that's why every time we we do our busy season shows, I just I have a hard time understanding why this is the way the profession is, because there's there are plenty of roles where you don't have this workload compression. And it's almost like we do it to ourselves in a lot of ways. Um, so, gosh, I mean.

David Leary: [00:22:57] I'd say just don't really. You have to stick to it and don't quit because you're going to have a bad accounting experience. It's a roll of a dice. It's probably high probability. Somewhere along your journey you're going to have a bad accounting experience. Just don't quit the industry. There are good accounting experiences out there. You just have to not quit. Really?

Blake Oliver: [00:23:14] Well, I guess I would say like for me. I think the best area to go right now is accounting services. Client accounting services, advisory services, virtual CFO kind of stuff. If you can do that, I think that's really rewarding in the right firm. Um, I mean, but I'm biased because I got my start in bookkeeping. And so I just I loved accounting software and bookkeeping and combining those two things and figuring out how to automate all the bookkeeping and the flow of the data, as Doug Slater calls it, the digital plumbing. That's fun.

David Leary: [00:23:53] Well, I mean, it's rewarding, right? Because you're providing value to the client when you're helping them with their bookkeeping and that stuff versus an audit, which arguably people are saying it's not even valuable anymore.

Blake Oliver: [00:24:02] But I also see how tax can be, like really rewarding and exciting and fun. Um, there was this one partner at Armanino who specialized in real estate in LA, and the nesting and layering of all of these different entities and the ownership interests, the diagrams she had actually printed out for one client that was a huge real estate investor, this this flow chart of like LLCs that had 50 entities or something or more on it and, and was really proud of this and showed it to me. And I just thought this was that's so cool. Like to be able to understand that and to be able to manage that is really interesting. I guess I guess my advice would be just like, find something that you find fascinating in accounting and follow that, because if you really enjoy the mental challenge, then you'll be able to overcome any of the work issues, environment issues. And that's true, I think, for any job. Right? If you really love the job. So don't take a job just because it's secure. You don't have to worry about that anymore. There's plenty of jobs in accounting. Um, you know, I mean, work on those interpersonal skills, right? Not all of us, uh, got into accounting because that's our strong suit. So if you can, like, do Toastmasters or something similar and learn to, like, network with people. I mean, that's also really challenging, right? The young people don't get as many in-person opportunities these days. So much stuff is online. Um, if you can build up those skills where you can, like talk to people in person and be personable, uh, your opportunities in accounting are really unlimited.

Blake Oliver: [00:25:42] So I guess follow your passion and work on those personal skills. Um, and then of course, you know, have the basic knowledge, get good grades, right. Understand what you're talking about. If any of our listeners have feedback for Chayton, please feel free to put that in the chat. We'll pass it along. Madman Dan is talking here in his comment about the, uh, that idea, David, of extending everyone mad man Dan says we always had that on our engagement letter. I never understood why firms stressed it out to get clients to agree ahead. Put the extension through. Awesome. Good to hear. Joe says, I wish I didn't have a call at 12:30 p.m.. Love being able to see these live. Sorry, Joe. One of our New Year's resolutions is to figure out how we can get this show to be, like, on a regular schedule when we live stream, and somehow even send you a calendar invite so that it just shows up on your calendar. And we need to figure out how if we change the time, it just changes your on your calendar. I think a lot of people would want that actually. If if anyone is listening and knows how we could accomplish that, where we can like send everyone, people can just sign up for a calendar invite. We thought about using a Google group or something to do this, and just putting like a link to the live stream in there.

David Leary: [00:27:00] I think we're able to do it through the earmark app, I.

Blake Oliver: [00:27:03] Think through the earmark.

David Leary: [00:27:03] App, because the apps on your phone, it connects to your calendar. We can that's what we're going to do it soon.

Blake Oliver: [00:27:10] Mad man, Dan says agree on the automations. Should check out or join some groups or online communities to see what tools are used by some of the techie firms. Helps to take time to learn the tools and to gain experience. Yep. Oh, and that's a good point, is find a firm that doesn't work you to the bone so that you have time to develop your skills beyond just whatever the work is that you're being assigned, because that's how you increase your value, especially when it comes to technology. So like look for a firm that's using the latest tech or that gives you the time to learn the tech and implement the tech. I think that's really important.

David Leary: [00:27:48] Do you want to talk about? I think you had a story about the a judge or something said audits don't matter. I'd love to see this because I have an audit story, too. I could possibly tie it.

Blake Oliver: [00:27:58] Yeah. So this headline in the Wall Street Journal is burned. Investors ask, where were the auditors? A court says, who cares? So this is the result of a ruling by was it the Second Court of Appeals, the second US Court of Appeals in a case in which Bdoe got sued for a failed audit? The auditors didn't do their job. The company misled investors and investors lost a bunch of money. Bdo USA was the external auditor. Amtrust Financial Services overstated its profits for years. Eventually, as tends to happen, the truth came out. Investors lost a lot of money and they sued the auditor saying, hey, you signed off on these financials, right? You issued a clean opinion, unqualified opinion, right? We we want our money. And. You would think this would be good for the auditors, that the court ruled that BDO was not liable. But the reason that the court dismissed the claims against BDO is because, they said the audit report is so generic as to be not material and therefore did not matter. So no investor could have actually relied upon the audit report. And therefore the case is dismissed against BDO. Like think about that.

David Leary: [00:29:30] This goes to your argument which people are buying stock. They don't care about the financials. They don't care about the audit reports. They just they're buying stock for other reasons. Right? They're investing in companies for other reasons. But the second something goes wrong now the investors are like, why wasn't I warned in the audit? That's that's basically the argument of the case here.

Blake Oliver: [00:29:48] Right. And the court said that no, you didn't actually rely upon the audit because the language of Bdo's audit report was so general that an investor wouldn't have relied upon it. Consequently, the court said the audit report wasn't material, meaning it didn't matter and upheld the dismissal of the claims against BDO. So. I love the irony of that. Auditors, one of their primary jobs is determining what is material and what is immaterial. And if it's immaterial, then it doesn't matter. And the court said that Bdos audit report is immaterial. Because it's so general to be useless.

David Leary: [00:30:28] And so isn't this going to encourage paedo on all future audits to be as generic and useless as possible so they can protect themselves from legal troubles?

Blake Oliver: [00:30:36] I mean, well, this is so this is what's this is actually the outcome of regulation over years and years in which we have made the audit report so generic, so standardized to render it inherently useless to investors. So we've created this situation as the accounting profession. We created a situation where we are so protected, the auditors are so protected from any potential liability. We've removed the risk entirely from the audit. As long as you check all the boxes, which is easy enough to do right, there's no risk. And, you know Ron Baker, he says. All the time that profit derives from risk. If you don't take risk, you can only make a small profit. Yeah, that's the nature of trading and commodities. Right. Very little risk, very little reward. The bigger risk you take, such as starting a business, right. Investing in startups, you can have a massive a massive reward. Right. And so because we've we've regulated audit into this state where there's almost no risk, there's very little reward, which means the profits. Are capped. And this is why salaries have not changed in 1020 years. Because when you reduce the risk, you reduce the money, the profit, the commodity reward. It's a commodity. There's no.

David Leary: [00:32:11] Service. There's no there's no value add.

Blake Oliver: [00:32:13] Right. So a company has to get an audit and they have to just go to any they just have to get it from somebody. So the only distinguishing factor between audit firms really is the size of the firm. Can they handle your audit. Other than that it doesn't really matter. And it's a pass fail system. So you know it's sort of like the CPA exam where all the audit partners are just trying to do enough work to get that pass to pass the client and nothing more. So why is audit quality so terrible? It's because we've created the system that incentivizes auditors to do the least amount of work possible.

David Leary: [00:32:50] Doesn't this article does it talk about these, uh, investors that are suing, like how much market cap or valuation they maybe, maybe lost because because I think I'm seeing this in, like, they sued over this. But then I have an article that I saw in fortune magazine that I'm reading hearing you, I'm like, oh my God, investors are going to be suing like crazy. Uh, two firms in particular. So this is an article in fortune. Spac companies accounted for at least 21 bankruptcies in 2023, and a staggering $46 billion was lost of investor value. So if we rewind a little bit when we talk about Spac companies, these are those special purpose acquisition companies. Blake. Yep. And, you know, it's like maybe there's a public taco shop that's listed on one of the public markets. It's cheap. We see, we buy the company and then we roll our company into that stock, and we just bypass the entire workflow and vetting due diligence of an IPO like it's a.

Blake Oliver: [00:33:44] Backdoor.

David Leary: [00:33:45] Ipo. It's a backdoor IPO. I cannot believe it. So sometimes they call it blank check companies. Yeah. Sometimes they refer to it as that. Yeah. So you have your wework's. These are the companies that have done this well. And you know, 21 and 2023 at uh declared bankruptcy. But now they're suspecting 120, 24, 140 other SPACs are going to need financing in the next year to keep operating. Right. And so these are kind of shocking numbers. But the real shocking numbers, if we go back to episode 231, you brought this to the show and we talked about SPACs and how with them and Markham are doing most of the audits. So this is like, yeah, the Big Four 2021.

Blake Oliver: [00:34:25] Big Four wouldn't touch it.

David Leary: [00:34:27] Yes. Yeah. They won't touch it at all. And, you know, with them brags about it on their own website, they even have it looks like they made a little image, a badge. They're the number one 2020 Spac auditor auditory of record. Is that still there? Super, super proud of all these things, right. Yeah. Um, but here's the scary thing. So like with them, 90% of all their public audit engagements are SPACs. 90%, 90% are SPACs. So and between the two firms, 78% of all SPACs, they're doing all of them. So now, like step back. If a big chunk of your book of business, your audit business is going to declare bankruptcy. Like, are these firms screwed with him in Markham? Like, like these are the majority of your audit? Well, at least the audit practice is probably in big trouble if most of these. If because if if they're doing most of the SPACs. And that's most of their book of business. And most SPACs are going to declare bankrupt. Yeah. Yeah. And then to then this goes to the more yeah, more layoffs on the way. And then it goes to the lawsuits like, ah, where this is going to have to bubble up because they're really the only two firms that were doing these. Um, and as a percentage, the big four, less than 1% of their clients are SPACs, their audit clients. Mm. So these two firms, like, they've almost exposed themselves to a how do you explain that to the other partners? I'd be pissed if I was a partner and be like, wait a second. Half of our book of business is in bankruptcy.

Blake Oliver: [00:35:55] Well, possibly. How do you recruit new partners? Right. At what point do. Managers and directors stop wanting to be partners. And then you have unless you have a.

David Leary: [00:36:04] Good bankruptcy advisory practice and you just shift them over to that division and keep making money on their bankruptcy.

Blake Oliver: [00:36:09] Procedures. There you go. The smart firms can can serve clients no matter what life cycle they're in, right? All the way from IPO to bankruptcy.

David Leary: [00:36:18] But but that's the right logic. If 100 former SPACs this next year are going to have to take additional financing to keep operating. So they're on the tinkering of going bankrupt. And with them and Markham are doing most of those. That's a lot of their client base that is in trouble financially.

Blake Oliver: [00:36:34] A lot of chatter in the live stream, Chris Maxie says, I find one interesting difficulty with accounting right now is the work life balance. Conscious firms versus nose to the grindstone firms hourly compensation with the expectation that they only work 2000 hours a year versus salary at 2800 hours, is a hard concept for prospects to understand. I agree. Yeah, it looks like to somebody who's never done it, you want to take the bigger salary. But. That extra 800 hours has severe consequences for your mental and physical well-being. So personal story. Six months ago in the height of the record temperatures here in the Phenix area, I decided I just couldn't be inside. We had like 53 days of 110 degree temperatures. And, you know, I have an elliptical at home, kind of like a small one. And it's just like I was getting tired of that. So I started swimming because. That's what you can do outside. And I got really into it. I just, I discovered I'd never really swam. I took lessons as a kid, but I'd never really done it as an adult. Um, and my son was taking lessons too, so that also inspired me. I just started swimming at, like, the local pool. And. I've gotten to the point now where I'm swimming. Well, I'm getting on my Apple Watch, says I'm getting an hour and a half of exercise every day. So basically, I've set aside like a two hour block every day to get exercise. I could not do that if I was in a traditional firm.

David Leary: [00:38:12] At 2800.

Blake Oliver: [00:38:13] Hours. Yeah, yeah, even the firm that I worked at. So I worked at a the largest California based accounting firm in LA, and I had a commute. I didn't have to work crazy hours because I was in the accounting services team. We called it outsourced finance and accounting, and we had a busy season, but it was much more moderate, right? So I don't even know what it was. Maybe I was working like 2200 hours, but I couldn't do this schedule if I was in that firm. And the reason I bring it up is because ever since I started doing this like six months ago, I've lost 20 pounds and I feel better than I have ever felt in my whole life. And. Everybody should be able to do this, and I'm more productive when I am working. So I'm actually I had to cut out work hours, you know, building earmark. I had to say, I'm going to stop working at this time every day so I can go swim. But the hours that I do work in the morning and the early afternoon more productive. And the things that I'm not doing are just not that important, apparently, because we continue to have amazing growth. Uh, I looked at our I don't know what our numbers are for this week. We get a lot of signups at the end of the year, but last week. We were up like 2.2.8 times what we were last year. So we have doubled, tripled. And I'm still able to do this.

David Leary: [00:39:46] It goes back to your first article about the extra two hours a day working, right that the extra work. Like really, if you think about that extra 800 hours for the 2800 hour work year, you're probably it really stacks right and you're not being productive. And then the next year, because you skipped exercising for a year, you're less healthy, which means you're probably less productive. And yeah, the vast consequences of.

Blake Oliver: [00:40:06] This, this, this mentality in the profession where every hour is an equal unit of work output is totally false. And it's probably the the biggest barrier to us advancing in accounting is that we have this mentality. You work an hour, you create an hour of output, whatever that is at your billing rate, right? You work an hour and you create $300 of value and. I mean, it's not true. The Pareto principle. Go look that up. If you've ever heard of that. It's this idea that if you haven't heard about it, look it up. It's this idea that 20% of our inputs, 20% of the work we do, creates 80% of the outputs. It's a rule of thumb, uh, definitely applies in sales organizations, where about 20% of the sales people create about 80% of the revenue for a company traditionally, and a lot of other areas, too. And I think it really applies to some extent in the work that I do. And so as long as I do those really high value tasks every day, the company will continue to grow and thrive and succeed. And then my goal is to automate everything else that doesn't add a lot of value.

David Leary: [00:41:13] Matthew Kanis wrote an article for Accounting Today, and he like the piece that really stuck out in this to me is really aligns with this. You know, this. And he calls it out as like interest versus action. Right. And if you think about it, you know, all the firms and all these surveys, it's staff shortages. It's inefficient manual processes. It's too much client work. And really everybody's trying to hire more and more and more. But then on the other side, the action side. Right. Hiring can't be the only action. And there's other surveys are saying basically 82% of accountants say they're intrigued or excited about AI, but only 25% are actively either training their teams or trying to use it or implement it. Right. And it's like maybe, maybe the answer for a lot of our problems are not just hire more like we got people start start having to go other paths. It's not more hours like make people work 32 100 hours a year instead of 2800. Maybe that'll solve the crisis. Yeah.

Blake Oliver: [00:42:06] The firms that we talked to, that I interview on my earmark podcast, one of the themes is reducing what you do, cutting back. Uh, we talked with Kyla Hill Traywick on our show recently. Yeah. And she scaled back the services she offered. She got rid of payroll and she got rid of paying bills for clients, because that way her team wasn't dealing with urgent payment requests and they could have constant deadlines.

David Leary: [00:42:33] There's always deadlines, right.

Blake Oliver: [00:42:35] And I've done that. Anyone who's done that knows payroll and bill pay require you to be available and to not mess up, like on a daily basis. And you can't really take it's really hard to take time off on a on a small team. And she has a small team and doesn't want them to be beholden to those deadlines. And so she got rid of it. And her firm is grown and they're happier. Uh, that's something that doesn't happen a lot in most firms. It's just add add add add add services. So we got some advice for Chaton HQ says Chaton know your worth, don't tolerate the bad, and also be kind to yourself. Yes, you know, this whole question from Chaton takes me back to the interview we did with the Uworld guys. Peter Olinto, formerly of Becker, and Roger from Roger, CPA. And. I. I understand their attitude or their teaching method, which is like Peter Olinto in particular. He's all about motivating his students to push through the CPA exam. Like set aside everything else. Tell your family for six months you're going to be studying. Don't get a girlfriend. Girlfriend? Yeah. You know, sacrifice, sacrifice, sacrifice for the big financial benefit of becoming a CPA someday. And that's true, right? There is a tangible benefit. You make a lot more money as a CPA than you do without it. But the problem is that. If you sacrifice like that for too long, eventually it becomes ingrained and then there's nothing left for you as an individual. And the firms are complicit in this because they continue that. So you become a CPA, right? You study for the exam and Peter encourages you to work yourself.

David Leary: [00:44:20] That becomes your personality, right?

Blake Oliver: [00:44:22] Right. And you have nothing else in your life. And you think, oh, that's just going to be six months a year. But then you go work for the firm. And the firm now says, just grind it out. It'll be worth it later. So you grind for 2 or 3 years, and by the time you've been grinding for like 4 or 5 years, it becomes really hard not to because it becomes ingrained in you and you don't even know what to do when you're not grinding. I was like that in school. I was really good academically. I worked hard in high school so I could go to a really amazing university. I went to a top ten school and. I didn't know what to do with myself when I wasn't studying. And I had a crisis when I graduated, and I realized the real world was nothing like this artificial environment that I'd been conditioned in. And. I kind of wish that I'd figured that out a lot sooner. I'd have 20 years of my life back. You know, I mean, I'm glad I figured it out now because I'm. And I'm not like, a 65 year old, you know, audit partner who. Just realizing this. Going back to the ruling by that second US Court of Appeals. Mad man Dan says, UFF, that ruling was kind of savage wonder. Does that ruling give precedent in some way for future cases? Lol. Possibly well. I guess the question is what's going to happen next? Because I think, like the SEC commented on this and said, uh, like this is, you know, audits are valuable, right? They protect investors, all that stuff. But like, I don't know, I'd be curious to know. Um, well.

David Leary: [00:46:02] I think we're going to see a lot with all these Spac cases. There's gonna be hundreds of these. They're going to they're going to go belly up here soon.

Blake Oliver: [00:46:08] Curtis Smith says, hi, Blake and David, I'm a master of accounting student entering the field. I am wanting to do tax. I heard a lot of audit horror stories. Do you think, uh, midsize. Do you think of midsize or local firms start my career? So, um, I mean, I primarily network, like, my social. World is small firm owners, progressive remote firms that are not like traditional firms. Most of them don't even have offices. So that's that's the world that I live in. Um, and I think they're great. Now, there's disadvantages to starting in a small firm, which is like you'll get less experience working with big clients. And so. That's something I really don't. I'm not really qualified. I mean, but. Well. So I got to work with some big clients for like a year before I quit the big firm I was at. And that was a really interesting experience. So there is valuable experience at a, at a larger firm for sure.

David Leary: [00:47:07] I mean, it's not 100%, but I think like most of these small firms that are progressive, right forward thinking, doing really amazing things right now, almost all of them have been started by people that did do a stint in public or at a big four at some point in their career. Early on, obviously, they figure out what they liked and didn't like and they started their own firm. So to say there's no benefit to it at all would be hard to say because they obviously it's influenced how they're running their firms.

Blake Oliver: [00:47:33] And I'm one of the biggest critics of large firms. And I'll actually tell you, based on my experience, I learned a lot. I didn't last very long, right? I didn't last the 2 or 3 years. I lasted one year, but I still learned a ton in that one year at the large firm. So. I think I'm going to say I'm going to go on the side of. As long as you don't get brainwashed. Does that make sense? Like go work for the large firm, but don't let them condition you and they will try to brainwash you.

David Leary: [00:48:06] Well, that takes place earlier at the university, I think.

Blake Oliver: [00:48:08] Well, it starts.

David Leary: [00:48:09] There, right. For the big four. Yes.

Blake Oliver: [00:48:10] Yeah. You got to understand the way these big firms work, they're like a machine. They are designed to extract as many billable hours out of you as they can get, because that's how they charge clients. Even if stuff's on a fixed fee, the whole performance incentive management system of the firm is all based on realization, utilization, billable hours. And you will get really messed up if you are a super ethical person in these systems, because the way to get ahead is to lie on your time sheet or distort your time sheet. Call it whatever you will. It's not to report the actual hours, and you can't let that, um, turn you away from accounting either. I mean, it's it's awful that that's the system that we live in, but like, you just gotta, you know, if you can't do that, um, what'll happen is you'll you'll build the wrong amount of hours, and then you'll piss off somebody and you'll get managed out, you know, like, it's just it's a messed up system.

David Leary: [00:49:06] So if you're going to do it, go look at somebody like BDO. So at least you build up a little equity for two years. If that's your plan, it's like, hey, I'm going to go get 2 or 3 years of experience. You know, maybe I get ability to travel, maybe I can participate in a remote audit type situation. But at least you're building up some equity. So after three years you left with something versus all the other firms that don't have any employee ownership type models.

Blake Oliver: [00:49:25] If you're in the live stream and you see Curtis's comment here and you have some advice for Curtis, you know, you you probably if you're in tax, you're definitely more qualified than me to answer questions about tax. I know lots of people who are in it. Like some people really like the workload compression, and they'll earn like 80% of their income in four months and go do adventurous stuff the rest of the year, if you can hack that, like if that works for your personality, that's great. I think like find find something that fits there. Um, but maybe you don't like that. I found that I actually really like spreading things out. I like working a little bit every day. And I'll even do that like on the weekend, right? I work kind of just constantly. And, uh, it's just sort of like I'm always on, I'm always working, but I'm also always on vacation, if that makes sense. Like, I like that kind of lifestyle. Do you have to find what works for you? Chayton says summit virtual CFO seems to be doing it right by measuring outputs and not inputs.

Blake Oliver: [00:50:26] I think they are definitely one of the I mean, they're now part of a big firm. Anders. They're like a $13 million practice now, but they still kept their own, you know, organizational structure. And I just interviewed Jody Grunden, the founder of summit CFO, on my earmark podcast. So go search for Earmark on Apple Podcasts or on Spotify, and you'll find Jody. He's the founder. And then I interviewed two of his virtual CFOs who are in their 30s. So go search for summit CPA and you can listen to both of those interviews. And I agree, I think they're doing amazing. And they've got a performance, um, compensation system that is based on your book of business is a virtual CFO. So you can choose how much you work based on how big your book is. And if you're really efficient, you can actually make a lot of money and work less, which I think is a great structure and would have appealed to me versus me just billing a bunch of hours or being more efficient and then lying on my timesheet.

David Leary: [00:51:27] Yeah, you motivate your your staff to figure out how to handle twice as many clients by using whatever means necessary technology, automation, you know, hopefully they share with their other team members. But yeah.

Blake Oliver: [00:51:38] Chayton says, this is really amazing advice. I've always worked too many hours and need to avoid that when I get into my long time career. Yes, especially when you're young. Like, I kind of regret I didn't travel more when I was younger because I was working and there are definitely benefits. Like now I have the money to travel and I have the time to do it because I've like set up my life that way and I don't know if I necessarily would be where I am now if I hadn't hustled more when I was younger. But there's trade offs, right? Like my knee, you know, I'm 40 years old and my knee hurts like every day, a little bit like, you know, like there's certain things like, I'm gonna. I'm gonna go hike Half Dome this summer, hopefully, like, I have to worry about whether or not my leg is going to be able to handle that. I would not have worried about that 15 years ago. Right. Like there's there's things you need to like, contemplate, like your life. Your life will be long, but your physical health, like the point of your life where you are in this peak physical condition and can do really cool stuff and travel and and just deal with anything like that, that doesn't last very long. So I would say, don't give it up completely. Clayton says. I have a friend who has taken all of the CPA exams as a sophomore in college through Guam. Do you know anything more about this? I don't if anyone does, feel free to chime in. David has put the interviews with Joey and Hannah from summit slash Anders in.

David Leary: [00:53:04] Actually, I didn't do that either. Somebody else did it. Oh, sweet. Thank you. Invisible.

Blake Oliver: [00:53:07] Thank you to the earmark team at work.

David Leary: [00:53:10] In the earmark team.

Blake Oliver: [00:53:10] Yeah, those are on the those are on YouTube in the YouTube comments. So if you're watching on YouTube, you can find the link there. Awesome. Um, well, wow, this hour just blew by.

David Leary: [00:53:20] It did go fast.

Blake Oliver: [00:53:22] What have we got left?

David Leary: [00:53:24] I mean, you turned me on to this story. I didn't see it on social media, but I guess it was pretty big. And we don't talk about it too much. It's more of, uh. It just pisses me off about the apparently the the accountant that had a breakdown at the airport.

Blake Oliver: [00:53:38] Oh yeah, I saw that.

David Leary: [00:53:41] And the and apparently there's another video of him cussing out a neighbor. So he's gone viral twice, apparently already. And so he might just be an asshole for all I know. Who knows. Right. But the problem is, is the way the media treats us now, both these stories were in the Daily Mail, the UK. Right, which is very, uh, National Enquirer style reporting per se. But they could have said like crazy bald guy, crazy dog owner, crazy traveler. But no, instead they chose to say crazed accountant. Right? And it's just like the this goes back to, um, throwing the IRS under the bus in the Barbie movie and just this freedom of the press and mainstream. Just a constantly toss accountants under the bus. Right. And I'm always like, where is the ACPa defending this? Right. Like come back and like because there's no there's there's zero reason to mention he's an accountant at all, right? Right. Like you said, some asshole loses his mind at the airport. No, instead they said accountant. That's. But then I just first searched. I searched for crazy accountant on Google, and you get things like crazy accounting lady, sex crazed killer accountant. There's like these other like, it's so common. Like we have to start breaking that stereotype. I mean, that's really the story there. It's not so much this video, it's just the fact that they could have chose any other title to refer to this guy, and they chose to put the profession in.

Blake Oliver: [00:54:56] Yeah, yeah.

David Leary: [00:54:59] It wasn't at a firm. It had nothing to do with accounting in any way, shape or form.

Blake Oliver: [00:55:03] No, but I guess crazed, crazed accountant was what they went with. It's it's it's part of the image problem our profession has.

David Leary: [00:55:11] We're supposed to be mild mannered.

Blake Oliver: [00:55:13] I think so, yeah. When the accountant loses their shit, that's when you know everything is going bad, right? That's when you know it's time to get.

David Leary: [00:55:23] Out of time. Story is what it really is.

Blake Oliver: [00:55:25] Time to get out. Yeah. Well, everyone, thank you so much for joining us today. For those of you who joined our live stream, we really love having you and chat. And good luck on all of your future endeavors. And to any of the students who are listening, accounting is a wonderful field. You just got to find your way. Um, the traditional path is not the only way. And if you have never followed us on YouTube, subscribe. It's the fastest growing podcast platform. You can see us, you can get notified when we go live and you get the episodes earlier, actually, than on the podcast feed. And, um, you can email us, send us your thoughts. We've got a bunch of listener mail that we want to get to. We might have to do a bonus episode, uh, in the new year when you get back from your vacation. David. Um, and we'll get to that. We read all the emails. You can email us at the accounting podcast at earmarked me. And don't forget, you can get CPE for listening today. Download the earmark app from the iOS App Store or the Android Google Play Store. Sign up for free, get a free hour of CPE and if you want to support the work we do at earmark, you can buy an unlimited subscription and get as much CPE as you can cram in before the end of your renewal period.

David Leary: [00:56:36] And I think, like for some of you who have payroll 1099 season W9, we might not see you for a couple of weeks. Uh, come back and catch up on some of those episodes in January. But then for the rest of you, if you have to actually go into the office and participate in that working theater, what'd you call it?

Blake Oliver: [00:56:52] Productivity theater.

David Leary: [00:56:53] Productivity theater. Yeah. You know, join the live stream, turn it on, press play in your cube. You know, well.

Blake Oliver: [00:56:59] You're earning CPE, right? So like, you're being double productive when you do that. Awesome. David, uh, have a happy New Year to all our listeners. Um, by the time you hear this, you'll probably be in the new year. So welcome to 2024 and I hope you have an excellent year. And, uh, our best to all of you.