Lyft's Big Financial Typo

Attention: This is a machine-generated transcript. As such, there may be spelling, grammar, and accuracy errors throughout. Thank you for your understanding!

Blake Oliver: [00:00:04] The productivity gains from generative AI. It's going to be the same as cloud accounting for bookkeeping. So 80% reduction in time to do the same task five times productivity bump 5 to 10 times productivity bump on a lot of stuff like you cannot miss out on this as an accountant. You will be the dinosaur that's still, you know, using the ten key calculator to do your work instead of a spreadsheet, right?

David Leary: [00:00:35] Coming to you weekly from the OnPay Recording Studio.

Blake Oliver: [00:00:40] Hello, and welcome back to the show. I'm Blake Oliver, I'm David Leary.

David Leary: [00:00:44] Like, I know you love your surveys. I know you love the data. Right. Survey results. Data. Well, just this morning news article came across my plate and it's got all this survey data in it. So but I want to play a game with you because I want you to tell me what profession this is. So here's some of the findings in this survey. Go for it. Um, 90% of X report feeling burned out on a regular basis. Is that.

Blake Oliver: [00:01:07] X the Twitter platform or just X the.

David Leary: [00:01:09] Anonymous profession, the blank insert profession here? Yes. Uh, more than 60% of the respondents. And they said they have considered leaving the field.

Blake Oliver: [00:01:17] Okay.

David Leary: [00:01:18] To keep up with workloads, X are spending an average of 15 extra hours a week working what they call as pajama time. Nearly 60% of X in the survey feel they don't have enough in-person time for their clients. More than 75% feel overwhelmed by clients excessive communication demands such as frequent texting, calling, emailing, outside schedule visits. About 78% said poor staff retention and shortages are affecting their organizations. And despite all these obstacles, 83% of X said they believe I could help Blake. So what? What profession is this? It sounds like our profession, but what profession is this? Sounds like.

Blake Oliver: [00:01:57] Accounting. But obviously it's not. Or you wouldn't be quizzing me. So I'm going to just go out on a limb and say like medical it.

David Leary: [00:02:04] Is doctors and physicians.

Blake Oliver: [00:02:05] Yes, I knew it.

David Leary: [00:02:06] And it's the reason I brought this up. And I thought it was perfect timing because I went to the doctor yesterday and I think I tweeted about this, you know, I've been dealing since October, some, uh, low back pain and. I was just driving home because I did not get service again. It's like you're in these appointments for 48 seconds. I was like, man, if the accounting industry was as shitty as the medical industry, right? But then the survey came out and I'm like, yeah, I'm getting I basically threw 5 or 6 appointments, have a total of two minutes and 48 seconds of actual doctor time in that time. And I still don't have a resolution. And I'm like, golly, what if we treated our clients that way in our profession?

Blake Oliver: [00:02:45] You know, I tried something new the other day. I was also frustrated with doctors and going to offices and having to wait weeks to get an appointment. So I tried Mdlive as a, you know, regular just customer. It's something that's offered through our insurance. Um, and so I did it and I didn't even have to meet with a doctor. I just submitted photos through an app, which feels weird at first, but, you know, it's HIPAA compliant, right? So you send it, you take the photos with your phone, they're high res. You send them in with a description of the problem, and then the doctor can message with you. And then, you know, you get your prescription basically. And it was super affordable. I mean, it wasn't paid for by insurance, but I know if you pay a cash, it's really affordable too. So maybe that's the way things are headed. David, it doesn't make sense for us to be making appointments, to go into an office for something that requires like, no real like there's a lot you can do without actually doing a physical inspection, right? Yeah. I don't know what. Whatever the doctors call it when they poke you. Right.

David Leary: [00:03:50] And then you then it's like, oh, but we can't actually do the thing that I'm going to want to do until a different appointment right now.

Blake Oliver: [00:03:56] You got to come back. Come back? Yeah. What a waste of time, right?

David Leary: [00:03:59] Yeah, totally.

Blake Oliver: [00:04:00] So I think accountants are actually ahead, at least the listeners of our show, the smart and attractive listeners of the accounting podcast, are ahead because they're building practices that are in the cloud. And they are, you know, not doing all this like in-person appointment stuff, which makes no sense. So I think we're winning. But maybe some of the profession is held back a little bit because I saw an article in CPA Practice Advisor, the headline is accounting firms should think twice about leasing solar panels. The author of this article strongly advises against leasing solar systems due to numerous complaints from businesses and homeowners about difficulties in obtaining service for their leased units, especially when the seller goes out of business. And I think, okay, that's that is true. That's probably good advice. And now I regret leasing a solar system for my house. But also, couldn't you just not have an office as an accounting firm? Wouldn't that be better? Like, let's go a little further than just not leasing solar. Let's not have that 8000 square foot office that you don't really need.

David Leary: [00:05:04] You could build a patio with solar panels and just work from there.

Blake Oliver: [00:05:07] You could have a small office where you just go to meet clients, but the staff mostly work from home, that sort of thing like this is this is all doable. So, David, we got some big news this week. We got to cover. You have been paying attention to the Lyft financial typo fiasco. That would actually have been a better title for this episode. Perhaps we've got to talk about the Trump. New York State Court decision, Judge Engoron issued his multi hundreds of millions of dollars penalty against the Trump Organization. And there's some interesting reporting requirements that the mainstream press didn't really dive into with this independent monitor that's now going to be installed at the Trump Organization that I find fascinating. Regardless of which way you fall on this issue, whether it was like the right decision or not, I think like, how is the Trump Organization going to deal with this requirement now, I find interesting, I got a story about how companies are going to start to use generative AI to improve their businesses. Some actual practical examples from the Wall Street Journal. We can talk about work life balance in public accounting firms. Why it often fails. You've got a story about how the IRS is going to try to collect half a trillion more in taxes. So got that. Should we start with Lyft? Since that's our headline, let's.

David Leary: [00:06:27] Jump into Lyft. Okay, so this happened 4 or 5 days ago. Maybe at the end of last week, Lyft released their earnings and their stock shot up to a 52 week high almost instantly.

Blake Oliver: [00:06:39] A lot. Right? Like like. How much did the stock go up? All time.

David Leary: [00:06:43] High? Uh, almost 60%. It's always confusing to me because, like, they, they measure after hours trades differently than you know. But it hit a 52 week high. Maybe that's an easier way to say it. And in general, I think the report was okay. It was a decent report. But what happened was they had a typo.

Blake Oliver: [00:07:01] And is this related to why the stock shot up?

David Leary: [00:07:04] This is why the stock shot up. There was a typo in the earnings release, the press release. And it wasn't discovered until people were asking questions about it in the conference call. You know the earnings call which usually never the same day, it's usually the next day or 2 or 3 days later, right. People are asking about it, and then they discovered it. And then the internal team member, her jaw dropped and they they corrected the press release. But essentially what what this was in their press release, they have their fiscal 24 directional commentary section, and I'll read the the line. They said adjusted EBITDA margin expansion, calculated as a percentage of gross bookings of approximately 500 basis points year over year. So they said 500 basis points instead of 50 basis points. So that's like saying, um, a half a percent versus 5%.

Blake Oliver: [00:07:53] And this is gross margin.

David Leary: [00:07:56] The. I guess that you're the accountant. Is that what.

Blake Oliver: [00:07:59] What did you. I missed what you said.

David Leary: [00:08:00] Okay, so.

Blake Oliver: [00:08:01] So it's.

David Leary: [00:08:02] Ebita margin expansion calculated as a percentage of gross bookings.

Blake Oliver: [00:08:07] Ebitda. So they're saying that their earnings went up 5%.

David Leary: [00:08:12] As a percentage of the gross bookings.

Blake Oliver: [00:08:14] Okay. Yeah. That's like that's really good. Yeah. So that's why so the so the stock jumped on that news.

David Leary: [00:08:23] It's jumped on that news. And then I'm thinking they discovered on the conference call. And I've been through I've sat through a lot my fair share of conference calls and listened to earnings reports like this. And they feel very rehearsed, like there's never a question from an, uh, somebody in the press or an analyst that they don't have the answer to. Right? Right. The the CEO or CFO, whoever's on that conference call. So now the, uh, the CEO went on to, uh, CEO David Riker. He went on CNBC and talked about how a thousand eyes were on this. Like, they don't know how this was missed an extra zero, right? Yeah. So I'm kind of like stepping back and thinking like, how did this get through? Right on this press release. And then I was thinking, was this something I could have detected? Maybe is the reason it's there is because I wrote the press release. You know, I was kind of thinking on those paths. So I said, all right, let's do this. So I took the press release, I put the extra zero back in, and I gave it to ChatGPT and Claude, and neither one, I said, hey, are there any anomalies or things that I should be raised concerned about? Neither one recognized this as being an issue. Well, you'd.

Blake Oliver: [00:09:35] Have to give it the financials as well.

David Leary: [00:09:37] I didn't give the full financials, but the press release has like summary.

Blake Oliver: [00:09:40] I would be really curious if you gave it the full financial statements like the SEC filing, and you gave it the press release. Could it detect any errors in the press release? Yeah.

David Leary: [00:09:52] And and what's weird is asking just about the, um, ranges for, uh, basis points. It'll actually give an example of here's an acceptable range or a normal range for the edible ones. Right. So, so it provides it knows in context what it should be, but in the context of the whole release it doesn't know. Yeah.

Blake Oliver: [00:10:12] Well so and this is a big difference. Like this is a this is ten times more profit than they.

David Leary: [00:10:19] Its percentage of bookings. Yeah. The press release.

Blake Oliver: [00:10:21] Is saying that our profit is ten times better than it really is. Yeah. That's what that's what happened here.

David Leary: [00:10:26] And so then I was like, okay, what if I ask it just to focus on that line? So I asked Claude to focus on that line. And Claude basically made almost gave me arguments of it's convincing of itself or trying to convince me why the number was valid. The 500 MW like, well, maybe they had good growth and this happened and they're a tech company and all of these other reasons. So I just the conclusion is I didn't pick this up as being an anomaly. So how could a thousand other eyeballs pick it up? Right I don't know.

Blake Oliver: [00:10:58] Yeah. Well, again, I think you need to give the eye more information to really test this because with just the press release, there's no reason to to think that this is not possible, that Lyft couldn't have had 500 basis points improvement in EBITDA.

David Leary: [00:11:15] So let me I'll add this to the share. Let me add this so you can see the what's in the press release.

Blake Oliver: [00:11:22] I mean, unless there's conflicting numbers in the press release itself that but but the press release is based on the financial statements. Right. The numbers in the financials okay.

David Leary: [00:11:31] So have some in there.

Blake Oliver: [00:11:33] Yeah. Okay. So it has the EBITDA number. It has. The adjusted EBITDA, I guess. Is that what we're let's just assume that's what we're talking about for now. Yeah. So it has the three months ended and the year ended. So I guess the question is what is the comparison that we're making here. And I can see how I would have trouble parsing this.

David Leary: [00:11:57] Unless even if all the data for the whole thing.

Blake Oliver: [00:12:00] I don't know. Even if. The question is, is that chart that's in there? Does that provide the comparative data you need to calculate that headline number, adjusted EBITDA. Did they fix it in the press release by the way?

David Leary: [00:12:12] They they uh fixed the press release. And there's a little paragraph at the top that says they adjusted it. But it's interesting.

Blake Oliver: [00:12:17] Here. Yeah. Okay. So we found something that I can't, uh, can't track, can't can't catch an extra zero. What's interesting is that the stock price has stayed up even though it was corrected. So why is that?

David Leary: [00:12:36] Well, in general the numbers were decent, right? Like this might have been a legit typo, but obviously there's going to be investigation and I think there's already class action lawsuits. And of course, you know, I wonder do these days.

Blake Oliver: [00:12:47] Yeah I wonder like will there be consequences to lift for this if it's if it's an honest mistake? I don't think that, uh, there would be necessarily. But you could see how, like, a company could manipulate their stock price with a typo in the future. So if there aren't any consequences, then the question is like, well, can't anybody do this and just claim feign ignorance, say it was a mistake? I don't know, yes. Um, well, thank you for bringing that to the show, David. Fascinating example. I wonder if anyone will lose their job. Definitely some a mistake you don't want to make as a CFO or a controller or a chief accounting officer, that's for sure. Uh, perhaps a career limiting mistake. Who? Who proofread this? Anyway, let's let's go on. We got to talk about the Trump court decision. In New York State. This is the case that has been dragging on for a while. I guess in the context of, you know, how long most cases take, this one didn't take that that long. Um, thank you to Ray for sending me the decision and some of his favorite quotes from it. Um. The decision was 92 pages. So I fed this into AI and I asked for a summary of it as well. And this is the thing that I love using Claude for. It's my favorite AI application, as I can take a big court decision and I can say, give me an executive summary, and then I can ask questions about the document and it gives me really detailed answers.

Blake Oliver: [00:14:21] And if any of these are wrong, I invite our listeners to fact check me on this. But I then I have then in many cases gone back into the PDF and I've searched for these particular keywords and I find the answer and it's right. The AI is not misleading me because it's searching just that document, and it does a great job of summarizing. This is one of the best uses of it. So the court ordered 168 million to be paid by Trump personally, and the Trump entities all reflecting ill gotten interest savings from loans that got a lot of headline attention right. The total amount of money, additional disgorgement. What a great word is that? Additional additional disgorgement includes 126 million from profits on the sale of the old Post Office hotel, and 60 million from the sale of the Ferry Point golf course contract. So, you know, hundreds of millions of dollars, right, of financial penalties. And why? Because the court found the defendants liable for fraud and conspiracy to commit fraud through submitting false and misleading valuations of assets, uh, and related documents provided to lenders and insurers. This included persistent overvaluation of assets as well as falsely including non-liquid assets as cash. Now, the question we have asked on this show and I have wondered about. For months is. If there was no usually. A fraud has a victim and Trump's defense has been well, the banks did just great. Everybody's happy. Everybody made money. They didn't lose money. So how can how can this be a crime?

David Leary: [00:16:00] And the other piece of this that I didn't see until the article that came out this week about the decision. Um, so remember Eli Bartov, the NYU professor that's been testifying in these making bank? I think it's probably nine. I think we talked about on the show, we said a grand or something crazy amount of money.

Blake Oliver: [00:16:16] Like $1 million.

David Leary: [00:16:17] But apparently he testified, I didn't pick this up or see this before in any reporting so that they have memos where, uh, Deutsche Bank actually scratched down his numbers and change the values to what they think it was worth anyways. Yeah. So, like, if that's true, I'm like. Like, was anybody deceived? I don't know. Right. It it just feels very outrageous. The the fine amounts are just completely outrageous.

Blake Oliver: [00:16:45] So. So I asked who the victim is, right. Going back to this victim question. And there is no specific victim identified, but. The law in New York state is a little different than common law. So common law fraud, right. Which is not written down. Right. There's common law. And then there's like actual statutes. Right. And in common law fraud, there is usually a specific victim who relies on fraudulent statements and suffers damages. But this action was brought under New York Executive Law section 6312, which gives the Attorney General broad authority to seek penalties in injunctive relief when there is evidence of persistent business fraud, without needing to prove reliance or harm to a specific victim.

David Leary: [00:17:33] Persistent might be the magic word here. Yeah.

Blake Oliver: [00:17:36] Persistent business fraud. So. This makes me suspect that this will stand on appeal. Like you're not going to be able to appeal and say there was no victim because the law doesn't require there to be a victim because it.

David Leary: [00:17:50] Wasn't repeated typos like, yeah, it wasn't a one off thing. This was over and over again.

Blake Oliver: [00:17:54] But you know, you could sorry. Go ahead. I was gonna say.

David Leary: [00:17:57] Can you explain? Because I know there's a there's an independent monitor in like there's then they have to hire a director of compliance or install a director compliance. Like, who's the monitor now? I just they just refer to these vague people.

Blake Oliver: [00:18:10] Yeah. So the Honorable Barbara Jones, a former federal judge, has been appointed as an independent monitor overseeing the Trump Organization's financial reporting for at least three years. And she's already served as a monitor for a year, for over a year under a preliminary injunction order. And she provides regular reports to the court detailing her observations about ongoing issues and lack of financial controls at the Trump Organization. So the court gets to put somebody in the organization to report back. Uh, her authority, though, is now enhanced. She will review and approve financial disclosures to third parties in advance to prevent fraud or material misstatements. So when Trump when the Trump Organization wants to apply for a loan, this independent monitor is going to review it to make sure that it's accurate.

David Leary: [00:19:01] So then the banks can just hey, it's it's been it's verified or it's, uh, what's the stamp on all the social media now like verified true or whatever. Like she's going to give it the approval and then the banks, they could fire somebody now because they don't need somebody to look into the details on these applications.

Blake Oliver: [00:19:18] Yeah. Uh, so that's the independent monitor. Basically make checking everything that goes out of the Trump Organization from a financial reporting standpoint. And then there's also an independent director of compliance that the court has ordered to be installed at the Trump Organization. Uh, this person will ensure good financial and accounting practices, establish written internal protocols over financial reporting, and approve any financial disclosures to third parties. So this person will have oversight and authority over the financial reporting process and make recommendations on improving practices, and will report to the independent Monitor. So you've got the independent director of compliance reporting to the Independent Monitor. And the Independent Monitor is going to recommend candidates. And the Trump Organization will have to pay them appropriate or reasonable compensation, which I assume will be determined by the independent monitor or if there's a problem with the court. So really the court now has two people will now have two people inside the Trump Organization overseeing reporting on all this financial stuff. Trump is not going to like that. No, I feel like that's even worse than the financial penalty for him. And of course, there's all the previously reported issues where, you know, like Trump and his sons are not going to be able to, like, be the CEO of the company, run the company directly themselves.

David Leary: [00:20:40] Yeah, they can't officially serve as an officer, but that's and I always think I feel like that feels like, you know, in the, the movies about the mafia, even though the mafia got by the bosses in jail, he still kind of running things on the street, like, like I seriously doubt like, that's like, okay, I'm not going to be involved. I don't know how that works. Where do we.

Blake Oliver: [00:20:58] Go from here?

David Leary: [00:20:58] David, I'd like to follow up. So last week you talked about and you've been talking about this as it's been a burgeoning issue is the commercial real estate. And it's how it's going to start showing up in affecting balance sheets places.

Blake Oliver: [00:21:11] Right, right. Which all ties into this idea that people are working remotely, like you and me, David, we work from home. We don't go to an office. Uh, offices are at like, it depends on where you are in the country, but let's just say 50% where they used to be. Yeah, and that's putting a lot of pressure on landlords. And landlords borrowed the money. They have mortgages on these office buildings, and they're not going to be able to pay back the loans when the loans come due. And now.

David Leary: [00:21:40] Predicted financial doom because of this.

Blake Oliver: [00:21:42] Potentially. I mean, there's banks that could go under if a bank has, you know, say, 20% of its loans or commercial real estate. And we talked about last week how only something like 25% of them are being paid off in full. Yeah. Like that 75% of your loans could be delinquent. You might end up owning a bunch of commercial real estate. That's not worth what it used to be like. The banks could be undercapitalized, but this is and this is the important accounting thing. You don't see it on the bank balance sheet, because the banks are allowed to classify these as held to maturity in a lot of cases. Right. So that's that's the summary.

David Leary: [00:22:21] See this that you didn't bring up is taxes. So this article just came out this week. And they have a whole PDF with graphs. And we'll scroll through this. But Boston's Policy Institute um, issued a PDF talking about the fallout of Boston's empty offices and how it's going to cause a $1 billion tax shortfall for the city of Boston, $1.

Blake Oliver: [00:22:44] Billion for the city of Boston, because the offices are empty and the.

David Leary: [00:22:48] Offices are empty, more than one third of their revenue comes from commercial property taxes. Wow. And you can see this over time how it's just over time since 2002, this graph just keeps going up to, um, almost 75% of their total revenue is coming in from property tax collections.

Blake Oliver: [00:23:08] Wow. So they're going to have to raise taxes elsewhere. There's, there's.

David Leary: [00:23:13] And then they also show like versus other cities. We're good in Phoenix. You're good in Phoenix. Wow. Only commercial property lowest commercial.

Blake Oliver: [00:23:21] Property tax is like almost zero here. That's fantastic.

David Leary: [00:23:24] Um, Boston is leading. Dallas is in second. Um, the amount that they depend on it, but by far Boston is almost two x of everybody else.

Blake Oliver: [00:23:32] I'm confused by this chart here, David. This percentage here is that the percentage of the taxes okay. That's the percentage of tax collections that are related.

David Leary: [00:23:41] Of overall right of your overall budget.

Blake Oliver: [00:23:44] So this is crazy because I've heard so Boston that's crazy that Boston's okay. So it's not their commercial property taxes that are 70 something percent. It's all their property taxes put together are over 70% of their tax collections. See how there's the green.

David Leary: [00:24:03] There's the this is all property tax on this property tax. Yep.

Blake Oliver: [00:24:06] This property if you scroll down to the breakdown you'll see that commercial property though is still like just under 40% of tax collections. So that if you take that 40%, let's say only half of the offices are occupied. Now, that's like a 20% reduction in their total tax base.

David Leary: [00:24:25] Yeah. So they start to project this out over the next couple of years here.

Blake Oliver: [00:24:29] I'm just doing napkin math here people.

David Leary: [00:24:30] Yeah. And so over five years it's going to be a tax shortfall of about $1.4 billion. Wow.

Blake Oliver: [00:24:38] So. This is the thank you for bringing this to the show, David, because. It's mirroring this issue that we're seeing on bank balance sheets where. What if 20% of the bank's, you know, assets, these, these loans that they've given out are actually not there?

David Leary: [00:25:01] Yeah. And so I googled a little bit about trying to figure out who the largest tenants are right in Boston. So we work out a blog post in 2020 literally titled How We Work, became the largest tenant in Boston. Oh no, that we were kind of basically under the table. Now they're in trouble. And then but guess what? There could be a savior here. Guess who just signed the biggest lease last year. Who's that in Boston for office space. Deloitte. So accounting firm because I think isn't Boston like a big, uh, tech hub. Well tech but it's also the accounting Big Four. Right? Yeah. They have huge offices there. A lot of.

Blake Oliver: [00:25:38] Consulting. Right.

David Leary: [00:25:39] Because you've got.

Blake Oliver: [00:25:40] You've got MIT, you got Harvard, right? People come out of school and they go work for these consulting firms. They want to stay close to campus.

David Leary: [00:25:47] So maybe accounting firms will save the city of Boston.

Blake Oliver: [00:25:52] I know about that. I've heard that some of the big four are cutting their office space, like, uh, in certain areas. So maybe maybe this is a move.

David Leary: [00:25:59] Deloitte moved from another building, apparently. Yeah.

Blake Oliver: [00:26:01] Maybe Deloitte is capitalizing on the the lack of, uh, tenants. Right. The the the high supply. Low demand. Yeah. Probably got a great deal. Where do we go from there? Let's talk about some, uh, generative AI stuff. How are companies using gen. Gen AI to improve their businesses? Wall Street Journal podcast um, gave some great examples recently. Early adopters like Cisco and Ally Financial are using generative AI for applications like making help desks more efficient, summarizing customer service calls, generating code snippets for software developers, and more. So I'm talking about this because a lot of people ask me who work in accounting firms, like, how can we actually use this in operations? I understand we could use it for sales, for marketing, for generating blog content, all that fun stuff. Right? But how do we actually like operationalize AI? I think customer service is a great example. And that's an operational thing, right? Like the way you interact with clients. Uh, help desks, right? Responding to questions, that sort of thing. Automating replies to common questions. These early adopters are seeing productivity lifts of 10 to 20%. From simple deployment of existing tools with generative AI features. More complex redesign of critical functions like software development, marketing and customer service is yielding 30 to 50% productivity gain gains.

David Leary: [00:27:33] Is operationalizing it the the best route. And because I'm thinking like that's going to take a bigger effort, an organized team and only a small percentage of your entire staff might benefit from that versus more of a non-operational rollout where you kind of get everybody up to speed a little bit to where people, one person here, they figure out a way to save two weeks a year, another person saves 2 or 3 weeks a year. Like, isn't that the big I was? I would think almost the non-formal way might have a bigger bang even for us with our work. Right? Like I used I did something with ketchup, created a formula one formula for Google, and a Google Sheet that would have took me a week to figure out on my own, with blog posts and things like that. And then it's saving our operations. Person two full people weeks a year, right? But I use ChatGPT, so it's not I'm never it's done right. Once the work's done, it's not really operationalized. And that's what I mean by that.

Blake Oliver: [00:28:25] That's true. I guess there's that. Yeah. There are two different types of AI deployments, right? One is you give the tool to your individuals and you let them automate their work. And the other is you do mass scale automation and. The cost of these mass scale deployments, I think, will mean that most accounting firms will be doing what you did, David, which is giving it to their people and letting them figure out how to use it to do Excel stuff or to use existing tools. And just so our listeners know that what you did was really cool. You took a single spreadsheet, a Google Sheet with all of our webinar registration data for earmark, and you figured out how to create individual sheets, um, children. Sure, if you want to call it that. Yeah. For each, uh, sponsor. Right. And it automatically populates from the main sheet. And, you know, doing that is not something that's super difficult for somebody with a lot of experience with Excel or with sheets, but it's a formula that we were unfamiliar with. And it's a big long one. Right? It's like a bunch of nested stuff. Right? It would have taken a while to figure out, and you were able to do it just by telling, how did you do it? How did you get the formula?

David Leary: [00:29:34] Well, I just flat out said, how do I connect a parent Google sheet to a bunch of children's Google Sheets? So data on the parent shows up in the children. That's what you've asked.

Blake Oliver: [00:29:43] And that's what you said to ChatGPT. And he gave you a formula. Yeah. And then did did the formula just work?

David Leary: [00:29:48] Well, how do I make it dynamic. And then I, you know, and then it gave me an error and I said it's giving me this error. But yeah, start to finish hour and a half. It would have taken me three days, eight hours a day of like messing around with blog posts, researching, looking on bulletin boards and pumped the whole thing out. Yeah.

Blake Oliver: [00:30:04] And how much time is it saving us?

David Leary: [00:30:07] Two full people weeks a year?

Blake Oliver: [00:30:09] Two. People weeks a.

David Leary: [00:30:11] Year. And it literally is one formula in one cell, like if you think about that, right? Like like like that's all I had to do is I used it to create one formula that goes into one cell. Yeah, right. And it's not a big long one. And over again big long one. But it's a one time use that's going to have a huge benefit that it's not tied. It's not like AI is constantly doing stuff. But that's to me that's the bigger bang for the buck is everybody can save a lot of time solving a problem that they have and having AI just help them.

Blake Oliver: [00:30:39] So imagine if you're in an accounting firm with like 100 people, 100 people doing work like this, and you give them all access to ChatGPT teams. Through your firm. See, now you've got data protection and security. That costs you, I think, $20 per user if you pay annually. Right. So you're looking at. Uh, $2,000 a year for those 100 users. And if each of them uses it to save two people weeks a year.

David Leary: [00:31:13] If just one person does it, it pays for the cost to pay for the GPT tool if just one person does it.

Blake Oliver: [00:31:20] Oh yeah, and so imagine if everyone did it. Now you're saving. Uh, 200 people weeks a year. That's like four people. Right. 50 weeks? Yeah, a year. So you could save four people for $2,000 a year. That's unbelievable.

David Leary: [00:31:46] And I would argue that's the better way to implement it. If everybody can get 10 to 20% more efficient because of it, that's a better way to roll out AI in your firm than trying to build stuff. Because my argument, my point of view, is by the time you build it, some third party off the shelf tool is just going to have that built in and you don't have to build it yourself. Right? So it just doesn't make sense to put a financial outlay into build some custom interactions with AI. Just have everybody in your staff just do it personally over and over again. That's where the real savings comes in my opinion. So.

Blake Oliver: [00:32:18] So, um. Before we move on, we should hype my. I webinar recording that I did. Yes. So on earmark webinars, I did a webinar. You can watch it on demand, where I spent an hour just walking through all the different potential use cases of AI in your firm, just showing examples of how you could use it in your accounting firm to do stuff. So if you haven't watched that, um, we put the audio on the earmark podcast, so you can go subscribe to the earmark podcast and look for the practical AI episode. It's called practical AI. Or even better, you can find it on our YouTube channel, right? Earmark search for earmark on YouTube and practical AI. So if you just search earmark practical AI, you'll find it.

David Leary: [00:33:05] And I maybe even.

Blake Oliver: [00:33:06] Something like that. And then you can go get CPE on the earmark app for watching it on demand. So if that's something that's interesting to you, I, you know, like I say, I say this a lot. Uh, but I'll keep saying it. The productivity gains from generative AI, it's going to be the same as cloud accounting for bookkeeping. So 80% reduction in time to do the same task five times productivity bump 5 to 10 times productivity bump on a lot of stuff. It's like you cannot miss out on this as an accountant. You will be. The dinosaur that's still, you know, using the ten key calculator to do your work instead of a spreadsheet, right? That's, that's that's where we're at.

David Leary: [00:33:52] It's it's that massive, right? It's like a calculator.

Blake Oliver: [00:33:54] This is this is the next generation. This is as big as the electronic spreadsheet.

David Leary: [00:34:01] So I have a negative I story about how companies are using, uh, AI to monitor their employee messages. So and these are big companies Walmart, Delta, Chevron, um, T-Mobile, Starbucks, uh, in the EU, Nestle and uh, AstraZeneca. So they basically are getting a, you know, obviously it's being spun up as a way to like get your employees sentiment in real time. So maybe you rolled out, you had a, a new product offering. You could get the employee sentiment by monitoring all their chats. But we all know it's really to just spy on your, your your employees. Well, the employees, how.

Blake Oliver: [00:34:38] Are they using it is the question I guess like what are they using it for.

David Leary: [00:34:41] And this is the crazy thing. So the the one of the companies that's doing this, it's called aware. Their revenue has jumped 150% per year on average the last five years. And the typical customer has about 30,000 employees. So these are massive fortune 500 companies that are rolling out this to their employees. And then I start to think how many? It's really yucky. But I guarantee you there's accounting firms that are doing this. There's no way they're not.

Blake Oliver: [00:35:08] Oh well, every employee should know that when you type something into slack and it's owned by your company or Microsoft Teams or whatever it is like, that is in the record that is being preserved. Unless you're in a really tiny firm that doesn't do this. If you're in any firm of any size that's being preserved, for the record. And while people haven't really looked at messages in the past, I firm owners. Do. You have to? You have to keep an eye on what your people are doing, and there's an argument to be made that this is important because of fraud. You could actually use these tools to detect and prevent internal fraud, right? Which is usually people colluding within your organization to circumvent controls. But I think it will also be used by managers who just want to, uh, you know, uh, what's the word like? Micromanage employees or spy on employees who like, like think about an employee who's thinking about leaving, right? You know, maybe you lay off that person first. And this AI tool gives you sentiment analysis that tells you who is happy, who is not. But it could also be used in a good way. Perhaps. Maybe. To determine who isn't happy and hopefully fix the situation because they're an important contributor. It's like, I could see this going both ways, and.

David Leary: [00:36:26] I feel like like you bring up fraud. I feel like four years ago, five years ago or so on the show we covered, there were some pretty big fraud or something that happened, but they, uh, everybody involved took the conversations outside of the chat tools to like a WhatsApp or they basically bypassed the corporate messaging. I just don't have any details. If any listeners remember that story, please tell us who that was.

Blake Oliver: [00:36:46] And I think if you use these AI tools in a way that employees perceive as being unfair, that's what they'll do. Yeah, they'll take their conversations out of the tool and then you'll lose the benefit. Potentially, which, you know, is what, uh, politicians do, right? They don't use email. They don't even text. If they're smart, they have other people do it for them.

David Leary: [00:37:06] It's all backchannel.

Blake Oliver: [00:37:07] All backchannel. Yeah. I've got a story about the 150 hour rule. So, um, trigger warning for our listeners who are, uh, tired of the issues facing our profession, uh, we're going to talk a little bit about it, but not too long. I just want to highlight a video from the New York, not New York, I apologize, new Jersey CPA society, uh, they did a survey, and then they put together a video on their YouTube channel talking about it. So I'm going to see if I can share this and play this, and I apologize. I've forgotten. Uh, I don't have the names handy of all three people in this video, but I think, uh, this gentleman here introduces himself at the beginning.

Don Meyer: [00:37:54] Hi, I'm Don Meyer, chief marketing officer at the new Jersey society of CPAs, and welcome to the Issues Watch podcast. For the past two decades, prospective CPAs in new Jersey have had to undertake 150 hours of education before becoming licensed. But a declining CPA pipeline has accountants. Asking, is the 150 now a barrier to becoming a CPA? The additional 30 hours don't have to be specific to accounting or related disciplines, and some believe that the additional year of education and associated costs are discouraging potential accounting students in those who may sit for the CPA exam. Is it time to reimagine how we prepare CPAs for an increasingly evolving profession? We recently asked NJ CPA members to weigh in on the 150 hour requirement. Here with me to discuss the reactions is NJ CPA CEO and Executive Director AJ Johnson. Welcome, AJ.

AJ Johnson: [00:38:46] Thanks. Glad to be here.

Don Meyer: [00:38:47] And Vice President of Government Relations Jeff Kasman. Welcome, Jeff.

Jeff Kaszerman: [00:38:51] Great to be here, Don.

Don Meyer: [00:38:52] All right. So, Jeff, I know you're all right.

Blake Oliver: [00:38:55] So I'm going to skip ahead here to the results. They put them on the screen which is very helpful.

David Leary: [00:39:01] Yeah. This just as you're scrolling through this for our audio listeners the video feels like it's from like 1994. Like there's just something about the style of the stage setup in the way they're sitting. Yeah, yeah.

Blake Oliver: [00:39:12] The resolution could be improved, I think. But let's not let that distract us. Um, so here is, here is, uh, one of the slides about the six minute mark. More than 40% of the 1060 members surveyed say that new hires working in accounting related roles and without 150 hours of education, rarely or never pursue the CPA certification. So, in other words, if you don't have the 150 hours of education already and you go to work, you are. Extremely unlikely to pursue the CPA. Now. Next survey data point, 62% of survey respondents see no noticeable difference in preparedness of staff who have accounting degrees with 120 credit hours versus those who have 150 credit hours, so no noticeable difference in the quality of these staff. Extra year of education makes no difference.

David Leary: [00:40:14] And this is interesting because I feel like I've seen professors argue that there is. But of course this is firm owners. Right. You're paying employees. You're going to know who's worth the money and not worth the money, but.

Blake Oliver: [00:40:27] You're going to know better than an accounting professor, I'll tell you that.

David Leary: [00:40:29] Exactly. Yeah.

Blake Oliver: [00:40:30] Now, here's the big 180%. Nearly 80% of survey respondents believe it would be beneficial to the profession to provide alternative pathways to certification, where 150 hours is one option but not the only option. So just as we've seen in Arizona. What was the other state that did a survey? I forgot Minnesota did one. There was another one that came out recently. All the surveys have agreed it's like 80% or near near 80%.

David Leary: [00:40:58] And you were saying it the industry is probably 80% even before these surveys came out. So yeah, kudos to you being you know.

Blake Oliver: [00:41:04] Well, some of our listeners, some of our listeners gave me Intel on this and said, hey, uh, one of our listeners was at a BDO Alliance meeting of managing partners and said the same thing. It was like 80%. Now. Jeff Kaiserman. Um, he gave some insight in the episode into like, what's going on at AICPA and Nasba, and I believe it's around the 17 minute mark. I'm going to try to find this.

David Leary: [00:41:28] So what you're finding that I'm thinking about the pipeline report, because that's coming out here in May, right from the AICPA, from the AICPA Pipeline report. If they don't come out and show data that 8% of the members think this, they're going to probably lose a lot of credibility because now all the states are beating them to the data point to some extent. So if they don't have data that's close to that, you'd have to question the whole report.

Blake Oliver: [00:41:51] Yeah. Or I'd wonder about maybe AICPA members are different than state society members, because we know that it's actually not a majority of CPAs are not members of the AICPA anymore. It's like a third or less so. It's a smaller group and I wonder if they're out of touch. We'll find out.

Jeff Kaszerman: [00:42:13] Because in New Jersey's program, you don't have to take any coursework. Right. So nobody really saw that as a as, as a solution. But I will say the good news is from the last that I've heard, there seems to be some agreement or acceptance by Nasba and AICPA that there's got to be another option for the the 150 and from what I've heard latest that they're coalescing around is a concept where, okay, you get your 120 credits and then you need to get two years of experience. But that experience has to fit some sort of measurable program. Right? Right. That would be administered, let's say, I don't know if it would be the AICPA or who who would say, well, what you need to have two years of experience, you get paid for it. And we're not necessarily going to call it credits, but you have to learn this, learn that, do this. We're you know, yeah.

AJ Johnson: [00:43:15] Well, it's all part of a concept that they're looking at now. So I'm sure that more information will come out as to what that really looks like. But I think the point is at least they're having the conversation. Yeah.

Blake Oliver: [00:43:30] So this concerns me. This worries me because because.

David Leary: [00:43:34] I was smiling a little bit, I was like, oh, it's finally happening. But no.

Blake Oliver: [00:43:37] Well it's good. Like I think this indicates that in May we're going to see a report that says we need an alternative pathway. My concern is that as they tend to do with everything, they're going to overcomplicate it. So now we're going to have more red tape around getting the right amount of experience, which is going to turn a lot of people off. If the current experience requirement is acceptable, why would you make the alternative experience requirement different? We all agree, and I would actually love to see this in surveys. We all agree that. And a year of experience is more valuable than a year of education. Like an extra year of experience is more valuable than a year of education to a CPA. The current one year of experience is more valuable than education. Like, we certainly wouldn't say, hey, let's get rid of the one year experience requirement and add another year to education. So now it's six years of education. That's better. No, nobody would agree with that. Right. And many people agree that if we swap the current extra year of education and go back to having two years of experience, that would be better. So why the need to create? A more onerous experience requirement. There is not. It's already better.

David Leary: [00:44:54] Well, that's the job of governing bodies, right? That's what keeps them, uh, valuable quote unquote. And by having rules and enforcements and hoops to jump through. But you're right, I think if, if, if it's done, not the right way.

Speaker6: [00:45:08] If there's just.

David Leary: [00:45:09] As many hoops to jump through, or people see it as stupid hoops to jump through, that's going to be a turn off and it's not going to actually move the needle.

Blake Oliver: [00:45:15] And the current experience requirement is already onerous. It's already very difficult for people working in industry who don't work in public accounting to get the experience, because it has to be under the direct supervision of a CPA in many states. And they can't because their manager doesn't happen to be a CPA. So I would be very disappointed if Nasbe and AICPA come back with a plan to, to to do this, which is good, but then do it in a way that is adds complexity and cost that doesn't need to be there, like the current experience requirement, if that is good enough. And it was good enough for all the CPAs out there who got licensed under 120 plus two years of experience. Leave it be. We don't need your help. You know, accounting firm owners. We train our staff. We don't need you poking in to our businesses telling us how to train our staff, especially when you are professional association managers who have never run an accounting firm in your life and, you know, have no idea how to even run a business because you've only ever worked in nonprofits. These people do not. They should not be telling us how to run our businesses, how to run our firms. They have no clue.

Speaker6: [00:46:33] Yeah. I that that thought.

David Leary: [00:46:36] Process was going through my head. Um, you know, we've talked about in the past how chartered accountants of accountant, Chartered Professional Accountants of Canada is splitting. Right. Quebec and Ontario are splitting in. The root cause was those two provinces have the most paying members. So they wanted the budget accordingly shifted over to them. And there's big debate. They had layoffs. But before they had their layoffs, the Chartered Professional Accountants of Canada has 400 employees before the cuts. And I was just like, if they have 400, how much does AICPA have? And like, what are these people doing? It just feels like that's a lot. That's a big organization. That's just a lot of employees. Like it's just like, what's everybody doing?

Blake Oliver: [00:47:17] That's a good question, David.

David Leary: [00:47:18] And so then like, what is the number for AICPA.

Blake Oliver: [00:47:20] 2041 employees.

David Leary: [00:47:23] 2000 employees. That's massive.

Blake Oliver: [00:47:27] I know they're huge. And yet it would be too difficult. It would take 20 years to go back to 120 hours, plus two years of education. Even with 2000 employees working on it.

David Leary: [00:47:43] Well, the more employees doesn't actually make this going to be faster. If you want to have less work on it, that's things done.

Blake Oliver: [00:47:49] We got to talk about the IRS collecting half a trillion more in taxes before we go. David, I have exactly five minutes before I have to jump.

David Leary: [00:47:57] I have you got we got five minutes.

Blake Oliver: [00:47:59] To talk about it. How is the IRS going to plug the tax gap.

David Leary: [00:48:03] So remember they got their $80 billion right was approved for the IRS. Hey there's $80 billion in funding. Well it chipped away. And maybe now it's like maybe 40 million by the time it's been all, you know, negotiated away as that's been happening. But a part of that was, remember, they were going to only target people with incomes over 400,000 for audits. They were really trying to increase what they're going after. And, you know, up to the up to this time now, they've targeted 1600 millionaires that owed 250,000 or more in back taxes, and they have collected about a half $1 billion so far. But their efforts overall, they're expecting to collect 561 billion more from these new efforts in the technology, basically, so that $80 billion investment, assuming they got the full $80 billion, is going to result in a half $1 trillion in revenue. These extra efforts that they're doing, but it still is a long ways to go. For example, if you look at tax year 2021, the difference between the taxes owed and the taxes paid, just that one year is 688 billion. So they've got a long ways to go because it's almost it's basically almost a half a trillion every year. They got to go and chase. Wow. So but overall these new efforts. So half $1 trillion on an $80 billion investment. That's a pretty good deal. Like like who wouldn't make that investment right.

Speaker6: [00:49:27] Well.

Blake Oliver: [00:49:29] It's a good question, David. We don't have time to answer that today. No. Uh, thank you. Everyone who joined us live. We appreciate you. Uh, you can follow us on YouTube, subscribe to our channel and get notified when we go live and chat with us. Uh. You can also take our listener survey. Let us know what you think. Let us know what topics are important to you. Go to Accounting Today slash survey. Over 100 of you have taken the time to do this survey and that's really awesome. We appreciate it. We'd love to get that up to like 200. And, um, we'll share the results. I think soon enough when we feel like we've got a, you know, representative sample, the the numbers kind of keep changing a little bit. And I'm not I'm hesitant to like, report on anything when, when another, you know, 30 results might change the results significantly. So let's get some more. Go to Accounting Today slash survey. Anything else we need to remind our listeners of David before we go.

David Leary: [00:50:28] They should, uh, write reviews on Apple Podcasts or Spotify or on Podchaser write reviews. We got one. Uh, follow us on social media, install the earmark app. We could go on for another hour. Of all the things we need our listeners to do.

Blake Oliver: [00:50:41] We got a new review and I'm going to read it. And if you leave us a review, I will read it. Appreciate appreciate the strong points of view. Five stars. This is from Brown four on Apple Podcasts. I'm so glad I found this podcast. After ten years as a small business controller, I am getting into consultancy and trying to catch up on all the news I missed. I love that viewpoints are stated with integrity and with conviction. Thank you. Thank you Brown for for listening. We appreciate you. We appreciate all our listeners. And don't forget you can earn free CPE with the earmark app. And big news, there's a new version of the earmark app coming in March. And it is new and improved. And it's glorious and it is smooth scrolling. It's my favorite part. I know it's so stupid, but it just it's just buttery smooth when it scrolls. And I'm I'm really looking forward to releasing that. We we rewrote the whole app from scratch, from scratch to eliminate all of our technical debt. So our, our, our IT systems have zero debt on the balance sheet. And we can scale and grow, uh, from here to, with, with all the new features. Yeah. It's going to enable us to add all those features that you've all been asking for. So very excited. All right, I gotta jump. David, great chatting with you. Uh, see you next week.

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David Leary
David Leary
President and Founder, Sombrero Apps Company
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