The Accounting Podcast

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Blake Oliver: [00:00:04] The firm cut partners by 35% and staffed by nearly 40% since 2023. That's crazy. 35% and 40% since 2023. And they said that productivity improved 10 to 20% thanks to AI tools. Ceo Kevin Burrows put it bluntly the future is fewer people doing the same amount or fewer people doing more.

David Leary: [00:00:25] Coming to you weekly from the OnPay Recording Studio.

Blake Oliver: [00:00:30] Welcome back to the Accounting Podcast, your weekly roundup of news in the profession. I'm Blake Oliver.

David Leary: [00:00:36] I'm David Leary. Like, I'm dried out, man. I'm dried out.

Blake Oliver: [00:00:41] From what?

David Leary: [00:00:41] You know, yesterday in Phoenix.

Blake Oliver: [00:00:44] A reggae fest.

David Leary: [00:00:45] It's dusty and hot, and I'm a little sunburned, but we're showing up. We're still doing the show today. We're good.

Blake Oliver: [00:00:51] And we're done with tax season. We're through it. We're going to talk about the IRS CEOs, uh, recap to Congress. He says it went really well. Even though the IRS has 25% fewer employees than it did previously. But first, David, let's thank our sponsors.

David Leary: [00:01:07] Yeah, our sponsors this week, we have Digits Cloud Accountant staffing on pay and worthy.

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David Leary: [00:02:25] You're back the whole time you're reading the ad, you're froze. Oh, but you're back. I'm glad I was going.

Blake Oliver: [00:02:31] That doesn't keep happening.

David Leary: [00:02:32] I was going to ask the live stream viewers if Blake was froze for them, but you came back the second you stop reading the ad. Maybe it's when you brought something else up on your screen.

Blake Oliver: [00:02:39] I don't know, I'm having some video issues, but thankfully we're a podcast, so you don't really need to see me. Anyway, let's talk about the IRS tax season. Irs CEO Frank Bisignano busy, busy. I can never say that, right? Bisignano told the Senate Finance Committee that the 2020 filing season was the most successful filing season in IRS history, unquote, despite the agency having lost about 25% of its staff. He said that the performance was due to technology upgrades and implementation of new tax breaks under the One Big Beautiful Bill act, which, um, is, uh, well, let's look at the numbers. Let's, let's see how how the IRS did. Bisignano said the IRS received more than 104 134 million individual returns, with over 98% filed electronically. The agency issued more than 80 million refunds, with 98% sent by direct deposit. And according to him, over 90% of filers got refunds in under 21 days. The average refund was up from last year, 11% up to over $3,400, and total refunds surpassed $280 billion, which is up 16% year over year. More than 53 million Americans were said to have benefited from provisions covering tips, overtime, car loan interest and seniors. The senior deduction was claimed over 30 million times, averaging more than $7,500. Treasury said the average tax cut for benefiting filers was over 800. That Tips deduction. More than 6 million filers claimed that the overtime deduction, over 25 million claimed that, and the car loan interest deduction over a million claimed that new one. 34 million families claim the expanded child tax credit, and over 105 million filers used the enlarged standard deduction. And like you said, David, that Trump account is very popular. Families enrolled more than 5 million children in that, including 1.2 million covered by elections for the $1,000 pilot contribution.

David Leary: [00:04:56] So kind of.

David Leary: [00:04:58] Make sure I'm not crazy, right? We still do not have an IRS commissioner. It's currently vacant, right?

Blake Oliver: [00:05:04] Uh, correct. He's doing the job.

David Leary: [00:05:07] They appointed him just to do it as CEO. Bypassed the congressional approval, but now he's reporting to Congress. Yeah, I'm surprised anybody from Congress is like, this is not your job. Who are you? And like, there's no fight against this. They're just accept the fact that there is no IRS commissioner now. And everybody's just moving on with life.

Blake Oliver: [00:05:29] I guess so it didn't come up in this Accounting Today article that covered the hearing. Um, maybe there was just there was too much debate about other things the Democrats were going after, uh, Bisignano for the IRS cutting direct file and the delays that issue with people unable to get their refunds because they only can take paper checks. Democrats are saying service actually deteriorated. Republicans are saying it got better.

David Leary: [00:06:03] We will never stop this. Like there's just black and white views of the world. We can't agree on anything.

Blake Oliver: [00:06:09] Uh, yeah, I guess we'll have to wait for the Treasury Inspector General report to find out what actually happened. Here's an interesting bit about enforcement. Bisignano said that they're using technology to offset the reduced staffing in enforcement. They used AI and data analytics to identify underreporting and sent 500,000 letters that prompted corrections. And he said that those efforts generated $250 million in additional collections, and that enforcement revenue was up 12%. He also said that amended return processing had improved from six weeks to three days, and just five noncompliance cases brought in $2 billion. Just five cases.

David Leary: [00:06:53] Wow.

Blake Oliver: [00:06:54] Which indicates just how there are some real whales out there when it comes to not paying your taxes. Five cases and $2 billion. So of course, like I said, Democrats criticized the Trump administration ending the Direct file program. Bisignano defended the move, saying free file and other private sector free filing options are sufficient. 2 million taxpayers use free file this season. Uh, and he repeated that claim that direct file cost $72 million to build and operate with a per return cost of more than $242. So he said that it was more expensive to the government than just having free file. So that's the update on tax season from the CEO of the IRS. David.

David Leary: [00:07:45] Maybe in the chat, anybody at the live chat who's now done with tax season. You want to give us a thumbs up. Did you make it. How'd it go. Little thumbs up or thumbs down emoji would be great.

Blake Oliver: [00:07:54] All right let's talk about tariffs.

David Leary: [00:07:58] Yes. So today apparently is happy tariff refund portal day. So the portal has opened. The system is called Cape CAPE. Um and apparently as of April 9th some people could start the process but it wasn't fully rolled out entirely then. But about 56,000 importers have completed the process. Um and they're requesting about $127 billion in potential recoveries. So this is like one of the biggest refund initiatives the government has done and some sort of organized way. Now, I'm going to go back to, I don't know, four months ago when you said you should help your clients get these refunds because I wanted to just like poke around and just go look at the website and I can't find the website I'm into like PDFs of PDFs with a PDF with four QR codes. I don't know how to get to the website, so.

Blake Oliver: [00:08:51] And if you can't figure it out. David, as a very tech savvy person.

David Leary: [00:08:55] Like a ton of effort because I have no skin in the game. I don't know if I, if I was trying to get money back, I'd probably put more work in, but it's only for importers. So any consumers that this cost has been passed on to you, you're not going to get any refunds back. Um, Thomson Reuters has a good blog post out. It's this huge blog post that helps you kind of navigate the system a little bit, but it makes sense because Thomson Reuters apparently also has like this tariff importer software as well. So it makes sense they're driving people to their website.

Blake Oliver: [00:09:23] But what's the title of that post so that people can find it?

David Leary: [00:09:26] Um, the Cape Tariff Refund system is here.

Blake Oliver: [00:09:29] By Thomson Reuters.

David Leary: [00:09:30] Global trade team is ready. So it's kind of a big long post, but all right. Yeah. So help your clients get through it. Um, I think it's.

Blake Oliver: [00:09:39] A great option, a great service. It's a great if you are an accounting firm, you have clients, some of them probably paid tariffs. You can message them and find out who. Figure out who it is and help them out. Great great service offering. David you had a story here about IRS criminal investigations refocusing their efforts. Do you want to talk about that since we were talking about the IRS?

David Leary: [00:10:03] This caught my eye. So this is from Kelly Phillips Herb's column in Forbes. And her article really was about how the IRS criminal investigation chief Guy Fico is stepping down and there's a successor, Jared Koopmans, coming on. Blah, blah, blah. But there were some numbers she had in the article that really caught my eye and a lot. So remember we talked about how there was budget cuts from the IRS. They pulled back the budget and that those funds were shifted into Ice. But it's actually worse than that. So the Criminal Investigation Unit, um, early on in June of 2025, about 250 criminal investigations, IRS, CI employees have were shifted over to help out with Ice enforcement, and then three months later, it grew to 1700. So we had our. So not only did we cut the budget, we took what was left of those employees that were still employees of the IRS and made them work on ice cases. And just finally now it's starting to revert back. So I and I'll read the quote here. See, I is pulling back agents from immigration activities and getting them back to sea ice core mission following the money and tax and other fraud cases. So, you know, IRS agents are going to actually work on IRS cases again and not be sucked into a other government enforcement and removal operations. And to put it in perspective, if you think about 1700 agents were assigned to the ICE's enforcement removal operations activity, there's only 2200 agents.

Blake Oliver: [00:11:37] Only 2200 CIA agents, CIA agents.

David Leary: [00:11:39] That's to have 1700 of them pushed into another government organization and do work for them. It's a significant amount.

Blake Oliver: [00:11:46] That's a lot. Well good news. Well, since tax season is over, at least the first part of it, I'm sure many firm owners and operators are now thinking about what are they going to do to improve. What are they going to work on now for the rest of the year? And I have a suggestion. It's my favorite service line. It's the one that my firm was built on and that is CAS Client Accounting services. And why should you focus on this? Well, because as reported in accounting today, CAS remains the top 100 firms dominant growth engine for the third year in a row. So the biggest firms in the country, the top 100 biggest firms, client accounting services was the top growth area. 85% of 88 responding firms reported growth in CAS. That's up five percentage points from the prior year. What is driving demand in client accounting services? Labor shortages in accounting. Your clients don't have people in-house to do this work anymore. Rising compensation and clients. Increasing appetite for real time insight and advisory led support. Not just bookkeeping. Client accounting services beat a test as the growth driver that was second on the list then was estate slash trust slash gift tax planning. And then fourth was a tie between nonprofits and state and local taxes. And then M&A was fifth.

David Leary: [00:13:20] And this has been for.

David Leary: [00:13:21] A while now. I kind of feel like when we first started the podcast, we were talking to somebody at a firm. It might have been armandino at the time, but it was somebody who was like, yeah, I'm leading the fastest growing division at Armandino at one of the fastest growing firms right now. And it was cast. They were leading the cast division. So I think this has been a trend for a while.

David Leary: [00:13:38] At first.

Blake Oliver: [00:13:39] Oh, yeah. Starting 20 years ago, it was the small firms first like mine and then the big firms, midsize big firms caught on to it. And now it's really driving growth there. And it's not just bookkeeping and accounting anymore. It is the broader strategic finance function. So we are talking cash flow forecasting budgeting decision support. And these firms are providing clients with a team based approach. It's tax advisory wealth operations. All of that stuff together is client accounting services. Um SaaS advisory Group was cited in this article as acting like a financial quarterback. So organizing all the accounting and finance for a client and getting it to the right expert to do the work, whether that's your firm or someone else's, somebody has to organize all that stuff. Um, cash flow forecasting and budgeting. Grassi was cited as as doing a lot of that in their firm. Warren Averett is doing, uh, risk management as part of Cass.

David Leary: [00:14:52] So who was in Phoenix?

David Leary: [00:14:54] Was it? Kpmg was going to do legal services as well. So it's it's a one stop shop now as a business owner.

David Leary: [00:14:59] Is it?

Blake Oliver: [00:14:59] Yeah. In in Arizona, a lot of firms are getting into this now because you can do legal services and accounting in the same firm. That's unique I think to our state. Maybe maybe there's one other that's doing that now. So client accounting services continues to grow. I also saw a related piece in accounting today. This is a, um, an opinion piece by Douglas Slaybaugh Slaybaugh Slaybaugh. Douglas Slaybaugh. And I like this one because he argues that um accounting firms have to move beyond traditional performance metrics built for the hourly billing era. And this was something that SaaS practices have learned to do. Many of them are doing it because hourly billing just doesn't work very well when you're doing that kind of ongoing work. Um, and, and so I wanted to highlight this for you. So what is the title of this article? Let me find it real quick so everyone can look it up. It's called accounting firms need new metrics for an old model. And it's funny because actually I would retitle that. It's it's accounting firms need new metrics for the new model because the old model is going away and we know it's going away because AI is such a productivity booster, just like cloud accounting was for CAS that if you bill hourly for your work, you're going to see your billings go way down when you cut the work in half using tech. So you're going to have to figure out how to price this charge for this in some other way. And it doesn't make sense to use ours. And if you're not using ours to bill, but you're using ours to track time for your employees, um, like all those performance metrics based on ours, like need to change. And this is the thing that I think is really hard about changing a firm is that these, these performance measurement tools, these metrics are so baked in to the psychology of managing.

David Leary: [00:17:04] Culture of the firm, the.

Blake Oliver: [00:17:05] Culture of the firm. What are those? Well, of course, we have an acronym that reminds us what they are. It's called lumbar. So it's L for leverage, U for utilization, M for margin, B for billing rate, and R for realization. And, uh, Slaybaugh argues that those metrics worked great in the past, but they no longer capture how firms create value in a market shaped by AI and automation. And he suggests that we should track different, uh, categories. We need a new scorecard, new metrics, not time and labor. So what are those number one value creation firms should ask whether they're producing meaningful client value, not just completing work efficiently, efficiently. What could those measures be? Here's a few. He suggests advisory revenue as a share of total revenue. Revenue captured relative to value delivered value per full time employee value per engagement. So you're focusing on the value that you're delivering to the client, not necessarily on, you know, the hours and the billing rates and all that. Number two is automation. Measures include automation rates, AI adoption by service line, manual hours per engagement, or hours saved per engagement. Number three is leverage redefined. So leverage means how many staff do you have per partner? Okay. So you could have like a 10 to 110 staff to one partner.

Blake Oliver: [00:18:47] Maybe in a small firm you have something less than that. Maybe it could be 5 to 1. In a big firm, it might be close to 20 to 1. He suggests measures such as revenue growth relative to headcount growth, revenue per full time employee profit per full time employee partner involvement in delivery, and clients per manager. I always thought that just like the number of clients per employee or manager was like a much better way to manage capacity than ours. Um, number four is organizational strength. So this is firm health. This is how you track firm health. It's a leading indicator of future performance and Suggested measures include regrettable turnover. I thought that was an interesting term. Regrettable turnover like the turnover. You don't want the people you lose that you wanted to keep, uh, successor development, burnout risk and manager retention. And then lastly, the last category is client relationships. So as, as compliance work becomes more automated, he's saying that relationships are going to become a competitive differentiator even more than they are now. And he suggests that we track measures such as client retention, revenue per client meeting frequency, and cross-sell and advisory penetration.

David Leary: [00:20:05] But is there like.

David Leary: [00:20:07] Is this.

David Leary: [00:20:07] Like.

David Leary: [00:20:08] A personality of accountants and accounting firms? It's like, why do you need all these metrics? Why do you have to track all this? It goes back to that, like Apple, right? When Steve Jobs first took over and everybody was doing the everybody was in these little silos and there was nobody working on the iPhone together all at once. Right. And people worried about the cost to manufacture something over here, and it was hindering, you know, or the App Store. You brought this to the show before, right?

Blake Oliver: [00:20:32] So just to summarize that recap, that is like when, when Steve got jobs got kicked out of Apple, the managers there.

David Leary: [00:20:40] The bean counters.

Blake Oliver: [00:20:41] Yeah, the bean counters, uh, created a bunch of like panels by service line and Apple was like optimizing all their separate products and lost sight of the whole company mission and profitability. And Steve Jobs came back and said, this is silly. Apple is an ecosystem. You can't just optimize the PNL of one product and do that across all the products and expect things to be great, so you got rid of that, he said. We have one PNL. We're just going to look at what our bottom line is across the whole company, and we're not going to worry about like, is the App Store profitable? Is the iPhone profitable? Because those two things are linked inextricably. You can't look at them separately. Yeah.

David Leary: [00:21:25] And I just because I hear when you talk about all these metrics to track these things per employee, per partner, per this, do this, divide it by this. It feels like that's probably the way you shouldn't be running your firm. Well, focus on the big picture of your firm.

Blake Oliver: [00:21:40] Right. And you need metrics. You need metrics to track what matters. Yeah. And my criticism of all of those traditional metrics is that you get this strange imaginary world of job profitability in a firm, but like, it doesn't tie to cash. So like. Right. So like, you don't actually, if you go over or under on a job based on a job profitability calculation, which is based on hours, it doesn't actually change anything in the firm because your staff costs are fixed, right? All your people are on salaries generally. And if you've switched your clients like fixed fees and whatnot, then there's no relationship anymore. And so here we are trying to manage the hours. We work on different projects. And it literally makes no difference to our true like.

David Leary: [00:22:35] Yeah, because maybe you took a loss that quarter with that client, but it made the relationship better. And they're going to be a client of yours for 20 years now, right?

Blake Oliver: [00:22:41] But there was no loss. There wasn't even a loss that is imaginary. You didn't lose any money. Yeah. Um, and so it's, it's sort of like getting too detailed. So that's the problem, I think with accountants and accounting firms is that we love to get super, super detailed and we get so in the weeds, uh, what's the saying we lose the forest for the trees. We're looking at individual trees and we're not looking at the forest.

David Leary: [00:23:07] Ai did to tell you what to think.

Blake Oliver: [00:23:08] But that's why I always said it's like, you know, you want to, you want to like manage, um, you want to manage a client accounting services practice better. It's like, okay, look at how much revenue you can attribute to each of your teams or each individual staff member. Like why? Why do you care how many hours it's taking people to do the work if you're not billing by time, if you're billing a fixed monthly fee, allocate the revenue and then incentivize your staff based on how much revenue they are servicing because the hours are irrelevant. The hours you need to know for tracking, like, um, you know, to make sure that people aren't overworked and stuff like that, your.

David Leary: [00:23:47] Own internal processes and efficiencies and gains.

Blake Oliver: [00:23:50] But it's because we're all, we're built in this cost accounting, hourly billing mindset. And it's the, the metrics, the way we manage the firm still hasn't caught up. And that's what's going to really screw up tax and audit over the next few years.

David Leary: [00:24:02] And it's not just accounting firms that struggle with metrics and measuring. Right. Um, I saw a survey from Thomson Reuters that's all professional services. They, uh, they had 1500 respondents between October and November of 2025. Uh, participants were located about 27 different countries. And it was really specifically about AI spend, right. Tracking the ROI of AI. And only 18% of the organizations track A's ROI, 42% don't measure at all, and 40% weren't sure if they do. So they have no idea. Right? Right. Pretty much 80% aren't tracking the return on their on their AI spend.

Blake Oliver: [00:24:44] And they're probably if they are tracking it, they're probably doing it the wrong way. Like we talked about.

David Leary: [00:24:48] Last episode.

Blake Oliver: [00:24:49] In last episode, I think it was last episode, we talked about how they're using cost accounting, but they should be using throughput accounting.

David Leary: [00:24:55] Yeah. And so that was when it said so of the most common metrics they are tracking is cost savings. So 77% are trying to track the cost savings, 64% are trying to track employee usage, 42% are tracking employee satisfaction, but very few track business outcomes. So if you think about 26% tracked client satisfaction, right. Or new business, right. Only 17% track that revenue growth 23%. So they're not they're not it's not an accounting firm problem. This is professional services. They're not tracking the correct metrics in their firms.

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David Leary: [00:27:54] So I have an article that's not fully metric related, but I think it goes in the spirit of what you're talking about. Um, this is a Bloomberg tax article from a friend of the show. I'm gonna say his last name wrong. Jack. Carson. Carson.

Blake Oliver: [00:28:07] Carson. Carson.

David Leary: [00:28:09] Carson. He's. He's a professor of accounting at Hofstra, Hofstra University. And his argument in this article is that the current CPA licensing laws of like, you have to be an accountant, you have to get your CPA is constraining firms in this new AI era we're in and there's two paragraphs I can really, uh, he really states it really well in these two sentences, and I'll just read them straight up. We took away the 150 hour moat around the profession, but ultimately built a wall higher for non-accounting majors seeking to become CPAs. This leaves firms in the U.S. with only one track for upskilling their accounting teams. Hire an accounting graduate or CPA and train them in AI. Those accounting staff will benefit from the training and should welcome the opportunity. But in the profession will be worse off in the long run. And this is versus hiring AI people or engineers and training them to do accounting work. Right. Uh, the other quote that I thought was really good, the way he said it is the US licensure model almost forces us to start with accountants and teach them AI skills. It's good to have accountants who are well versed in AI, but would be better to also have AI experts trained in accounting. We should create space for both. And this is that big dilemma. Do you. If you're building an accounting firm, you're going to hire these accountants and you've got to teach them to become AI experts. They just spent their whole career learning to become accountants. Right? It's it's actually a weird mindset, right? We should be what's easier to teach people, accountants to become AI experts or teach AI people to learn some enough accounting, right. But it hurts the profession overall.

Blake Oliver: [00:29:45] Yeah. And this is this is the problem that Jack points out is that there are all these specific requirements for courses. If you want to become a CPA, you have to take a bunch of business and accounting courses as defined by the State Board of Accountancy. And sometimes there's very specific requirements for exactly what that curriculum has to be depending on the state. And so if you are not an accounting major, to become a CPA later is a ton of work. You have to go back and get all that coursework done that you didn't do. And I don't understand why we make future CPAs go do all that specific, specific coursework. If you can learn accounting theory on your own and pass the CPA exam, why do we require you to go take all these courses? It doesn't make sense to me. I mean, the CPA exam is supposed to test the knowledge. And if you got the knowledge in another way, why do we care? As long as you have a bachelor's degree, and if you have a bachelor's degree in something like computer science, we know you're going to be smart enough to become an accountant. So I hope that boards of accountancy and CPA societies can see that this is an issue and loosen up those requirements to like, just have a requirement for a bachelor's degree and don't require specific courses. And if the CPA exam is truly as impressive as we all say it is, then why, why, why do I have to go get an accounting degree to be a CPA?

David Leary: [00:31:27] So that's the next step then is like, we just got passed 150 hour rule, right? And it's like, we're going to be on this debate and treadmill now for the next five years on how to like.

Blake Oliver: [00:31:37] It's just going to slow. Yeah, that's.

David Leary: [00:31:40] The.

Blake Oliver: [00:31:40] Problem. And so, um, I agree with Jack on that. Um, in related news, we had some more states adopt the alternative pathway to CPA, which is good news. Maryland. In Maryland. Now, CPAs can get licensed with a bachelor's degree, two years of experience and passing the CPA exam. No more 150 hour requirement. The existing pathways stay the same. Nevada also did this starting, um, it says starting February 27th, February 27th, 2026. Uh, so I guess this is already possible. Now candidates can qualify with the same requirements bachelor's degree, two years of experience and passing the CPA exam. Um, so there we go. Two more. That's at least 30 states now adopting similar.

David Leary: [00:32:37] Changes, pushing 32 or 33, I think Arizona, we didn't talk about on the news, but I think Arizona as well in the last week, week and a half or two weeks.

Blake Oliver: [00:32:47] I saw something about legislation, but I haven't seen an article come out yet, and I haven't been I haven't I haven't been tracking it.

David Leary: [00:32:52] That you think you would get an email about this from the state of Arizona?

Blake Oliver: [00:32:56] You would, but, uh, I have not. Um, welcome to our live stream viewers, by the way, Ben Dre, the dream, Heather Smith. Uh, Jeffrey. Jeffrey. Great to see you. Togrul. Hi. How are you doing? Thanks. Everyone joined us live. Um, Dre says 100% for me. My bachelor's was business management with a minor in accounting that covered basics into intermediate accounting. But Arizona requires certain experience requirements. My experience was mainly in the military, so I won't have a CPA to sign off on my certificate of experience, and that's another problem. Getting your experience can be a real drag depending on the state. It can be really hard. Some states require a CPA to sign off and some states don't. Funny enough, I was able to sign off on someone's work experience when I had my firm and I wasn't a CPA yet because they were in Illinois and Illinois didn't require it. Um, let's talk about a story in our title of this episode. And that's about how accountants are worried about the war in Iran. A new survey. You hope so?

David Leary: [00:34:13] Well, yeah, you're humans, right? I hope you're a little worried about a war.

Blake Oliver: [00:34:19] So this is from the quarterly Global Economic Confidence Survey that is put together by the Association of Chartered Certified Accountants and the Institute of Management Accountants. As reported in Accounting Today, the survey found that accountants are increasingly worried about the economic fallout from the war in Iran and nearby countries in their Q1 2020 survey. Geopolitical risk ranked as the top concern, overtaking economic risk, which has led the rankings since the global risk section was added in 2023. So geopolitical risk overtook economic risk since they started tracking it for the first time in three years after geopolitical risk was with cyber risk, and then economic risk fell to third. Respondents said that operating costs are rising at the fastest pace since Q3 2022, which was shortly after Russia's invasion of Ukraine. The survey links those pressures to higher energy and commodity prices and supply chain strain. Okay, next, can I talk about Deloitte? Deloitte is being investigated for fake AI. This is actually not entirely new news. So the chartered professional accountants Newfoundland and Labrador has opened a formal investigation into Deloitte over AI generated fake citations in a 1.6 million healthcare staffing report prepared for the government of Newfoundland and Labrador. This inquiry follows a complaint from resident Chris Bruce. One guy figured out that they were using AI, and they had fake citations in this expensive report and reported them.

Blake Oliver: [00:36:12] And now the, uh, now, now the regulators are investigating. It was a 526 page health human resources plan for the province. That was part of efforts to address health care staffing shortages. And The independent investigated this and found that the news site, The Independent, investigated this and found that the report included references to research articles that did not exist and were likely generated by AI. And then after that, Deloitte acknowledged in an emailed statement that AI had been used to support a small number of research citations, and said it was revising the report to correct those citations. And they also maintained that the errors did not change the report's findings or recommendations. Uh, the C panel, I guess that's what they call the chartered professional accountants of Newfoundland and Labrador. Cpanel is a. Or. Cpanel is investigating Deloitte after reviewing Bruce's complaint. They have the authority under provincial law to investigate accounting firms and individuals offering accounting services for possible professional misconduct or professional incompetence, and if they find reasonable grounds for Sanctionable conduct, they can suspend or restrict Deloitte's license or certificate, refer the matter to a disciplinary panel or issue counseling or a caution.

David Leary: [00:37:37] So I'm trying to get these stories mixed up in my brain a little bit, but I feel like three of the big four now have had some incident like this.

Blake Oliver: [00:37:45] Um, yeah, there's one in Australia too.

David Leary: [00:37:48] Um, yeah. Was it KPMG? Maybe with some report. But it's happened. And what happened.

Blake Oliver: [00:37:54] In Australia with Deloitte.

David Leary: [00:37:55] And what I'm going with this again Deloitte's website right here. Right. They All of them are selling. We are the AI experts. They're selling AI consulting services, right? How this has to be like, who's going to hire them? Because you're risking your own company, right? If you take advice from Deloitte on how they've used AI and gave bad made up citations, then you do it. You're subjecting yourself to a lawsuit as a as a fortune 500 company that hired Deloitte or one of the big four. Like they're, they're, they're building these whole consulting businesses. And then they're proving they can't do it themselves.

Blake Oliver: [00:38:38] Ultimately, the irony there is, is intense. Um, here's some more Big Four news. Pwc in Australia, they reported that partner income has risen to $814,000 despite their profit declining. Why? Ai and a much smaller workforce. The firm cut partners by 35% and staff by nearly 40% since 2023. That's crazy. 35% and 40% since 2023. And they said that productivity improved 10 to 20% thanks to AI tools. Ceo Kevin Burrows put it bluntly the future is fewer people doing the same amount or fewer people doing more. So their profit went down firm wide by 2% in Australia, and revenue declined 3%, but partner income was up 6%.

David Leary: [00:39:37] Yeah, there's interesting cuts. I don't know if you saw that Deloitte's cutting employee benefits.

Blake Oliver: [00:39:43] Yes they're doing it for the non client facing staff.

David Leary: [00:39:48] Yeah. So they they restructured and they put employees into four groups like Center Core project and domain center would be roles like it and admin. And that's where a lot of cuts are. But they've cut PTO, they've cut, they've halved parental leave, they've eliminated IVF treatments and gotten rid of adoption support. So they're just just cutting and cutting and cutting. And I don't I get that the pendulum post COVID is swaying back towards employers a little bit. Like I get that, but my.

Blake Oliver: [00:40:15] Way, way, way in favor of employers.

David Leary: [00:40:18] But like, what if in theory, you truly believe you're going to replacing all this staff with AI anyways? Like why do you, why do you even have to make these cuts? If you truly believe you're not going to be even employing these people 16, 18 months down the road.

Blake Oliver: [00:40:33] Well, maybe they just want them to leave so they don't have to lay them.

David Leary: [00:40:36] On that. Actually, I was thinking that too. Like, what if this is just a way to like get people to quit so you don't have to lay them off from AI later on.

Blake Oliver: [00:40:43] And this is specifically Deloitte US and to put some numbers around it, they cut the parental leave from 16 weeks to eight. This is for non client facing US staff. Cut it from 16 weeks to eight. Pto drops by five days to ten days for many employees, and they eliminated the $50,000 adoption and surrogacy benefit. What else did they do? They're ending pension accruals. Additional pension accruals after this year. Yeah, I, I think this just it makes sense. Um the power is back in the hands of employers and they can do this and people will leave and they'll be fine. They'll be happy with it. They want people to leave because they're going to automate their jobs anyway.

David Leary: [00:41:35] Yeah. They said to the statistic, um, 51% of people in 2025, they said they would quit their job over a return to office. And that number now is only like 7% in 2026. We quit their job. Like people are just really scared of the economy. Yeah. They don't.

Blake Oliver: [00:41:52] All right. Let's thank our last sponsor and that is worthy. Right now, delivering advisory services at your firm can take your team members 3 to 5 hours per client, pulling data, building spreadsheets, stitching together slide decks. That means your best people max out at ten, maybe 15 advisory clients before the whole thing breaks. Introducing worthy. Worthy takes you from completed books to branded client deliverables in just 60s, allowing you to turn every client into an advisory client without you building anything, hiring anyone, or changing how you work today. What used to take your team hours now takes any team member 30 minutes or less. Imagine giving your team ten times the advisory capacity. Worthy connects directly to your client's QuickBooks and Xero files, and over 3000 other apps to generate insights across revenue, profitability, and cash flow using real numbers without hallucinations. Were these AI assistant Wes surveys surfaces the insights to you first and never directly to your clients. The deliverables carry your firm's brand, not theirs. Your clients see a smarter, faster firm. You stay. The hero worthy is offering listeners of this podcast a full three months of access to the platform, including the ability to add unlimited clients. This is a great way for you to see how worthy can work for your firm and your clients. To claim your three months of unlimited access, head over to The Accounting Podcast dot promo slash worthy. That's accounting podcast dot promo forward slash WURTHY. Let's talk about the problem with R annual recurring revenue, which you don't hear a lot about in accounting circles. I've never understood that because it's basically one of the most important metrics in the world, given how the subscription economy has taken over. Given the importance.

David Leary: [00:43:46] Your accounting firm, hopefully you have returning customers, You should be measuring this.

Blake Oliver: [00:43:51] Well they don't most of them don't have a concept of annual recurring revenue, although they should. Right. You're just billing hours, right? You're measuring everything in terms of hours. You should be tracking what is the annual recurring revenue of our clients and getting them on to subscription contracts for client accounting services, for tax work, for audits. I mean, if you think about it, an audit is just an annual recurring revenue engagement. So why am I bringing this up? Because I spotted a story in accounting today about it. The headline is Silicon Valley's hottest AI financial metric is also its least trusted. And the argument in this story is that annual recurring revenue. This, by the way, came from Bloomberg News. And it was a syndicated in accounting today by Annie Bang and The author argues that annual recurring revenue, or IRR, has become a headline growth metric for AI startups, but it's also one of the least reliable and a controversy involving a startup CEO who made up an IRR number is kind of what led to this. Remember that.

David Leary: [00:45:07] Article? I knew it was something happened recently. Yeah.

Blake Oliver: [00:45:10] And basically like, this is nothing new. We've known this for a while that IRR is loosely defined and easily manipulated. And it's the most important metric a startup tracks most of the time. Um, but there is no accounting definition for IRR. It does not exist in the literature generally except management report.

David Leary: [00:45:38] Ultimately it's managerial accounting. It's not.

Blake Oliver: [00:45:41] Well that's a choice.

David Leary: [00:45:42] It's not GAAP right.

Blake Oliver: [00:45:44] It's not part of GAAP.

David Leary: [00:45:45] Yeah.

Blake Oliver: [00:45:46] Um, there is no R definition. There's no accounting textbook definition of annual recurring revenue. And my question is why. Why don't we have that. Why don't we track that when it's one of the most important metrics to investors, both private and public.

David Leary: [00:46:06] Companies in the show, all the all the GAAP standards, everything set up for building railroads and things.

Blake Oliver: [00:46:13] Cost accounting.

David Leary: [00:46:14] That's right. Yeah.

Blake Oliver: [00:46:15] Yeah. Um, so because there's no definition, because faseb the SEC, nobody has ever made this a mission to define all these like startup SaaS metrics, that sort of thing. There isn't one. And companies can do whatever they want. Founders can define the number in any way they like. Um, and here's why IRR can be misleading. So it's supposed to annualize recurring contract revenue from a current monthly base. So you take all of your customers and how much they pay you on a monthly basis, which is typically how most companies bill these days, right? Monthly subscriptions, that sort of thing. And you annualize it, right? You take that number that the customer pays you this month, you multiply it by 12.

David Leary: [00:47:03] 12.

Blake Oliver: [00:47:04] And then that's your IRR for that customer. And you aggregate it all up. You add it all up. But the problem is that, and this is especially true with all these AI startups, customers often test products and then cancel. So if your IRR calculation is based on a customer that's, you know, canceling, that's inflated, if they do one month and then they cancel, um, trial activity can look recurring in the short term, but fail to renew. And like the customer behavior can change quickly. So if you just are looking at the recent month, you can overstate your revenue usage based pricing also distorts the metric. A lot of AI apps charge based on usage, and they convert that into like an AR type metric. But it's not always easy to extrapolate. Like what if your usage goes up? What if it goes down? Your clients or your customers aren't on a fixed monthly fee. They're doing it based on usage, right? So that's another problem. So yeah, the, the main issue is that we don't have a definition, we don't have guidance. And basically any startup can do whatever it wants when it comes to IRR. And if I was in charge of accounting standards, that's the first project I would have FASB do SaaS metrics. Like why wait? They're spending all this time on all these little nitty gritty projects and they've never defined SaaS metrics. Why not do it? It'd be the best thing we could do for tech companies.

David Leary: [00:48:38] Well, it's going to be even harder to manage now. I saw an article this week about how, um, there's this big shift to B2B software sales shifting into small short term contracts. And so as you know, all the AI's happening, people, things are changing so much and so quickly. Nobody wants to commit to any anything they buy for more than a year. And you're starting to see in the contract. So, uh.

Blake Oliver: [00:49:05] What do you mean.

David Leary: [00:49:06] Sub sub one year deals. So deals that are less than 12 months grew 4% in 2023. And now it's 13% in 2026. And long term deals, which are three year longer contracts, they've moved from 28% to 23%. So people are just avoiding a long term contract because you just you can't bet on a single vendor right now because there's just so much flux and there's so many new companies and you don't know what AI is going to do. You don't want to be sitting with a three year contract with Oracle or something, right? Yeah. If you don't need to be. And so if people are going to do less than a year contract, six month contracts, four month contracts, how do you do your IRR then? It's not complicated.

Blake Oliver: [00:49:49] I've got one more story to take us out before we go. And it's about an accounting error. Our favorite, uh, I, I, I actually, I don't know if I'm saying her name right. Is it Ilhan Omar? U.s. Representative Ilhan Omar controversial.

David Leary: [00:50:08] She's the representative from Minnesota.

Blake Oliver: [00:50:10] Yes. Yes. So she got pulled into the news cycle for a really silly accounting error. She says she had to issue a statement saying that she's not a multimillionaire, despite a prior congressional disclosure that appeared to show she and her husband held 6 million to $30 million in assets. They amended a filing, and now they're saying that they're actually reported assets are listed at just 18,000 to $95,000. Apparently, Omar's team filled out a form wrong about her husband's business interests.

David Leary: [00:50:52] Yeah, because they're trying to figure out the net worth. And there you have to take the assets minus the liabilities, right?

Blake Oliver: [00:50:59] Right. And they didn't. They just did the assets. So her husband, Omar's husband, Tim Minnette, he has interests in a venture capital management firm in DC and a winery in Santa Rosa. And I guess they they just used the asset value of these businesses. And that's where they got the 6 million to $30 million number. But they amended the filing to show that there is no net value once the liabilities are included in this.

David Leary: [00:51:30] Obviously, it's very politically charged because, you know, she's Minnesota and, uh, I think she's Somalian as well. Right. And that's the big mag is all over it. And there's a lot of. But the real story of this whole thing is Americans do not understand net worth calculations, never mind the accounting firm that maybe made a mistake here. Like people think like, oh, there must be all this fraud happening because the number jumped so much. No, it's there's probably no fraud. It's just people don't understand net worth as their own personal finances.

Blake Oliver: [00:52:00] I have a proud dad story. Okay. Along those lines, David. So, uh, my son is really into this game called City Skylines, which is like SIM City, like a right.

David Leary: [00:52:11] Back in our day.

Blake Oliver: [00:52:12] Modern version of SIM City. Like it's incredibly complicated and sophisticated and you can control the budget for your city. And he was showing me his city that he'd been working on for days. And it's very, you know, it's a big city he's working on. He pulls up the budget tab and he's showing me how he can control the budget for like transit and trash and sewage and whatever, all this stuff. Right. And at the bottom he says, look, my city is making $35 million a year and spending 25 million. And I said, so what's your net profit? He said, ten, 10 million. I never taught him what net profit was.

David Leary: [00:52:53] That's good. Yeah. Yeah. Games like this are good simulations. But yeah, he's.

Blake Oliver: [00:52:59] Got the accounting gene.

David Leary: [00:53:01] Yeah. Bad bookkeeping does not necessarily mean fraud. No. And that's what people can't jump to that conclusion on a bookkeeping error, but also a lot of errors.

Blake Oliver: [00:53:10] I wonder if her team had put that through AI if it would have caught it. They forgot the liability.

David Leary: [00:53:15] Caused it to begin with.

Blake Oliver: [00:53:17] Yeah, maybe. All right. David, that's all the time we got for this week. Thanks everyone who joined us live. Hey, boring accountant. You made it. Uh, five coffee emojis. Great to see you as always. Our number one fan here. Um, thanks, everyone who joined us. Great to see you. Hope you are having.

David Leary: [00:53:32] Welcome back. Back.

Blake Oliver: [00:53:33] Well, not everyone does taxes, right? But if you do, congrats, you're probably on vacation is what you're doing. And, uh, we'll see you around next week, everyone. Thanks for tuning in. Don't forget you can get free CPE for listening. Get the earmark app, go to earmark.app and your web browser. Create your free account. Earn one free CPE per week for any of the episodes of The Accounting Podcast and many other fine tax, accounting, audit podcasts. All sorts of courses, thousands of courses to choose from. And you can get that app on iOS in the App Store or Android as well.

David Leary: [00:54:09] And if you're taking a break from work the next week or two weeks sitting by the pool, this is an easy way to get CPE. Just pull out your phone, put your headphones in, listen to a podcast, get your CPE. Knock, knock. Be productive on your downtime.

Blake Oliver: [00:54:20] Taking a road trip. All that good stuff. Yeah. All right, David, um, I'm gonna go get some sun.

David Leary: [00:54:26] Thank you. Bye bye, everybody.