The Accounting Podcast

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Blake Oliver: [00:00:04] They pitted OpenAI's one model against hundreds of real physicians across six different medical reasoning tests, and AI basically won all of them.

David Leary: [00:00:16] Coming to you weekly from the OnPay Recording Studio.

Blake Oliver: [00:00:21] Hello and welcome back to the Accounting Podcast, your weekly roundup of news in the profession. I'm Blake Oliver.

David Leary: [00:00:27] And I'm David Leary. I'm gonna put my light on. Apparently the sun went behind a cloud and now it's dark in my studio.

Blake Oliver: [00:00:33] We've got a lot to talk about this week, David. The true cost of the Iran war. The Trump administration said 25 billion. We covered that on a previous episode, but it might actually be hundreds of billions or trillions, depending on how you count it. That's an accounting question. We'll dig into that. Also, the SEC and FASB are preparing for semiannual reporting. This is something that's going to happen. This was a Trump idea that got floated. A lot of ideas from Trump don't happen. This one is looking like it's going to. Companies will be able to report twice a year instead of quarterly. I can't wait to hear your thoughts on that. You've got a story here about OpenAI going to compete with the big four in consulting, in AI consulting. And we had some unfortunate news from Xero founder Rod Drury. He has been caught up in a scandal. Uh, and we will dig into that as well. He had to give up his award for New Zealander of the year. So we'll talk about that and more. But first, David, let's thank our sponsors, our sponsors.

David Leary: [00:01:38] This week we have Cloud Accountant Staffing on page CNR consulting Group and fishbowl.

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David Leary: [00:02:57] Yes, this was an idea in other regions of the world. Do this twice a year. Reporting, semiannual reporting. But for us, it's always been quarterly. And so I've always wondered like, what's the impact of this? But now it's really going to be here.

Blake Oliver: [00:03:12] And it really does sound that way. According to reporting from Accounting Today, featuring or covering the remarks of SEC and FASB officials at Baruch College's Financial Reporting Conference in New York. The biggest development is that they are saying they are actively preparing for an optional semiannual reporting regime, which would report which would let public companies report twice a year instead of quarterly if they choose. The officials are framing the proposal as a way to reduce disclosure overload, cut compliance costs and give companies flexibility while still preserving investor relevant information. Companies will be able to elect the option by checking a box on form 10-K for the following fiscal year. New registrants will have a similar election on the registration statements, and the SEC would create a new form ten S for semiannual reports, replacing the usual quarterly form 10-q. Cadence for issuers that opt in. Important to note this rule is voluntary, meaning companies that prefer quarterly reporting wouldn't need to change anything. And one of the reasons for this, one of the arguments in favor of this is that quarterly reporting doesn't necessarily give us any more information than would be helpful under like a semiannual reporting regime. And FASB Chair Richard Jones reinforced the point by saying that one of the key principles of accounting is this idea that immaterial information doesn't need to be disclosed. So if it doesn't really matter to investors. There's no need to disclose it. And why do we do quarterly reporting? All this extra work if we don't have to? And, David, you have made an argument in the past about this regarding it creates.

David Leary: [00:05:05] Pressure on the street, right? The street creates pressure. And I'm not saying that it causes fraud, but I think there's this pressure to perform the previous quarter, outperform the previous quarter, outperform the previous quarter. And so instead of having your business models, which sometimes can't pivot and change and improve in 12 weeks, right. Or ideas that the company you're incubating maybe don't show results every 12 weeks. People play games with the numbers, right? And so, so maybe we'll get less manipulation with numbers because people can then instead spend six months focusing on actual transformational business changes in their business model that would change their Semiyearly month, its Semiyearly reporting.

Blake Oliver: [00:05:49] Semi semiannual.

David Leary: [00:05:51] Semiannual reporting numbers. I mean that's my thing. But now we have a whole industry built around this though right? We do quarterly reports and we do.

Blake Oliver: [00:06:00] But like this is a good thing if you think about it. Right. If it creates less work for accountants, if we don't have to report quarterly, we can do it semiannual. Like that frees up some time from tasks we're already doing. So in a world in which we don't have enough accountants, this could be a welcome respite, and it would create fewer deadlines too, which would help accountants, auditors at the big four, at firms that have to audit these companies, these public companies, and for their internal teams and their CFOs and controllers. So, you know, I want to hear more about whether or not this would really reduce like the usefulness of the information to investors. And if it doesn't, I say, why not? Why not remove complexity? Now, if only we could also do this for the tax code. All right, David, I want to hear about your one of your top stories this week, which is open AI is going to be doing consulting that could impact some of our listeners at the Big Four.

David Leary: [00:06:56] Yeah. So this just broke, I think this morning. So open AI is launching a new enterprise focused venture called open AI Deployment Company. So it's a whole new business venture. They've raised $4 billion in its initial funding. And the business, they're going to help businesses, probably fortune 500, right, to implement and scale AI inside their organizations. The company plans to embed AI deployment engineers directly into client companies to identify high impact use cases and accelerate adoption. And a part of this launch, they also acquired a AI consulting company called tomorrow, TOMORO, and that adds them instantly. They gain 150 bodies to do this, this rollout. Um, and the companies that invested in this, you're looking at Bain Capital, Brookfield. Um, here are some of the other ones. Uh, SoftBank, McKinsey Sachs, Goldman Sachs. So it's kind of the typical players, the big money, who've already probably invested lots in AI and they need to see results. So now they're going to pay, they're going to push this out. Now let me read a quote from a website, leverage engineering led design, deep industry knowledge and AI and data driven insights to transform the technology platforms at the core of your business. Working alongside your team, we empower your organization and drive mission critical solutions. Whether you need to modernize existing systems or implement two new technology products and platforms. Through innovation, we can help you improve financial performance, accelerate new digital businesses and fuel growth. Kind of interesting, right? That's Deloitte's AI website. Like essentially, they're they're building the all the big four spent billions of dollars right to spin up these AI consulting branches of their firms, and now OpenAI is going to roll out a competing product.

Blake Oliver: [00:08:51] I wonder if this means OpenAI is worried, because why would they be investing in consulting services if their product is so great? And maybe they're worried about Claude because anthropic has if you look at the charts, the adoption of Claude in enterprise and big businesses has just skyrocketed up while ChatGPT, OpenAI, they've kind of stayed steady.

David Leary: [00:09:14] Well, this ensures if if if I'm Deloitte and I'm. My AI team is working with a fortune 1000 company to roll out AI, there's a chance I might present that company with 2 or 3 different tools. Yeah. I guarantee you the what's it called again? The OpenAI deployment company will only recommend open ChatGPT. They're not going to recommend anybody's tools. So you're right. It could be a hedge to make sure they're getting their foot in the door. But this is essentially a brand new business model the big four is creating for themselves, and it's going to be eight and alive by a competitor that didn't even exist 48 hours ago. Right? This competitor did not even exist. And now they have a well funded billion dollar venture. That's a $4 billion venture. They're going to have to go up against capitalize.

Blake Oliver: [00:09:59] Let's talk about the cost of the Iraq war. Now we talked about how it was 25 billion. That's the estimate that Defense Secretary Pete Hegseth put out there. And I spotted this op ed in The New York Times by an economist, Justin Wolfers, arguing that that's way, way low because that only captures immediate Pentagon expenditures and vastly underestimates the war's true cost. So that $25 billion figure, according to this opinion piece, is only direct battlefield and equipment costs tied to Operation Epic Fury.

David Leary: [00:10:37] So that's bullets, bombs, planes and people to missiles.

Blake Oliver: [00:10:41] We fired aircraft. We flew or lost military gear already consumed. And Wolfers says that this is cash flow accounting. It's not a true measure of the war's burden, which will be borne not directly by the Pentagon, but perhaps by our economy, by taxpayers and future costs, future obligations, that sort of thing. Um, and we can see that already in the disruption in the energy market, right? The high cost of gas, right? That is going directly to pocketbooks of Americans. And, uh, you know, everyone else in the world that's paying higher energy costs as a result. And that's not factored in their geopolitical risk, employment loss losses. Um, the Federal Reserve economists at the Federal Reserve, Dario Caldara and Matteo Iacoviello, um, I'm saying that wrong. I coviello they say that the war driven spike in geopolitical risk could cost roughly 200 billion and leave about 1 million fewer Americans employed within a year. The drag on our economy, based on the Fed's own economic models, could be about $2 billion. Stocks are estimated at being around 5% lower than they would otherwise be. That's 3 trillion in lost market value, according to Goldman Sachs economists. U.s. economic growth will be 0.5 percentage points lower, half a percent lower this year because of the war. And if that persists for years, that could be 400 billion in lost income there. Obviously these are big numbers. But you add this up even if you reduce some of those, even if you discount some of that and you're talking hundreds of billions of dollars, um, if Iran continues to manage to keep the Strait of Hormuz for oil shipping, like constrained, that's going to have a long term impact and future military budgets. Right. This is going to cost a lot more in the future if it continues. The white House said it might need another 200 billion for the war, and later requested a 1.5 trillion defense budget for fiscal 2027 1.5 trillion. That's a 40% increase, 600 billion more than the current year. And that increase alone could be $4,000 per household just for 2027.

David Leary: [00:13:09] And that's just the direct cost of the military. Like we're starting to see real numbers happen to companies. I think Spirit Spirit Airlines went under last week or last weekend, right. But Procter and Gamble just P&G, right, just announced that they're going to probably take $150 million after tax hit come June 30th at the end of their fiscal year, because basically everything they make is oil based, right? A lot of consumer goods, right. And so that's more expensive. So you're going to see it. It's not just going to hit us on what we pay in taxes for this war. It's starting to hit companies. And that's just like the tariffs eventually trickle to the consumer. These costs are going to trickle to the consumer. When you try to buy tide and it's twice as much money.

Blake Oliver: [00:13:52] And not surprisingly, accountant confidence in the economy is sharply negative in Q1 of 2026. That's according to a quarterly survey from the Association of Chartered Certified Accountants and the Institute of Management Accountants. It is at its third lowest point since 2021. The only two worst quarters were the first half of 2020, when Covid shut everything down. Welcome to our live stream, viewers. Great to see you boring accountant and Joffrey and Tino. Awesome. Thanks for joining us today. Let's go ahead and thank our next sponsor of this episode. And that is on pay. Are you tired of payroll headaches getting in the way of the client experience? You want to deliver manual workflows, creating bottlenecks, compliance, nightmares, and endless support calls that go nowhere. There's a better way for your team and your clients on pay. Is the payroll partner that accountants and bookkeepers actually love? Why? Because it's easy to use, packed with value, and backed by support that actually supports you. Their team gets rave reviews for being fast, expert, and actually reachable when you need them, and handles the heavy lifting. You get a dedicated onboarding coordinator who sets up worker profiles and transfers year to date data from previous providers, all at no extra cost. Their seamless QuickBooks and Xero integrations eliminate manual journal entries, and they support any type of businesses you serve farms, restaurants, nonprofits, you name it. Amp can handle unique requirements without adding complexity. Amp keeps pricing simple to everything your clients expect, from multi-state filing to off cycle pay runs. It's included no hidden fees and no surprises. To book a demo, head over to The Accounting Podcast dot com slash on pay. That's The Accounting Podcast dot promo forward slash. Onpay. David, do you have a story about the founder of zero? Rod Drury? One of the most well-known people in New Zealand and well known to accountants here in the US who embraced cloud based accounting years ago.

David Leary: [00:15:53] Huge impact right? I mean, Intuit probably would not have pivoted and put so much money into making QuickBooks online better if it wasn't for Xero coming to the States and creating that that pressure market competition. So a few weeks ago, Rod Drury, founder of zero. He got the an award called the New Zealander of the year award. And this week he gave he returned the award. And the reason why is there's been allegations of sexual misconduct made by three of former employees. Two employees I think were for zero. And then one might have been his personal chef. Um this was reported by New Zealand news outlet stuff. Stuff is essentially Think USA Today and Yahoo news super mainstream, high volume news, news agency. It's not like, you know, TMZ gossipy. It's like real, real news, right? That reported on these. Um Drury has denied the allegations but said the reason he gave back the award is because he didn't want to have the I don't know if it's a company. I don't know who government who whoever bestowed this award upon him. He didn't want to have them face the pressure of you need to pull the award back. So he just gave up the award. Um, he also stated that he completely rejects the allegations and wanted to avoid placing pressure on the awards organization during the ongoing investigations. It's really not a good story here. Um, obviously we can only report what is out there right now. And right now the only facts is he got an award. He returned it. There's allegations. The allegations stem um, there's been.

Blake Oliver: [00:17:25] Uh, I mean, some of them are detailed in this article.

David Leary: [00:17:28] Yeah.

Blake Oliver: [00:17:28] Ali Naylor, a former Junior Zero employee said the jury invited her to his apartment multiple times and what she understood to be work related contacts, and she alleged repeated unwanted advances, including kissing and touching. She said she filed a whistleblower complaint with 0 in 2017. On her last day at the company, another employee identified only as Amy because she feared career consequences, said she went to Drury's apartment expecting a job discussion, and the alleged meeting turned into unwanted physical contact when she tried to leave. Uh. The third woman making allegations is Megan Ruddle, who worked for Drury as a chef on his catamaran and at his Queenstown meeting house. And she also alleged repeated unwanted kissing and inappropriate comments.

David Leary: [00:18:16] And there's also another tech founder CEO type that met with him, and he made inappropriate comments to her on their first meeting. And she wrote a whole medium blog about it. So that's out there. It's the stories are starting. You're probably going to see more. Like a lot of times this happens with these stories, right? More people start, oh yeah, me. You know, that's the me too situation.

Blake Oliver: [00:18:34] Well, and the reason that they that I think the additional women came out, they said is because he got this award and they couldn't stand it.

David Leary: [00:18:41] Yeah.

Blake Oliver: [00:18:42] Um, all right. Let's pivot to Trump's tariffs, which are also not having a very good time. So after the last round of tariffs was ruled unconstitutional, Trump imposed new 10% tariffs under a different rule, section 122 of the Trade Act of 1974. And that had never been used before. And the Federal Trade Court making this ruling, said that the administration had not properly shown the kind of balance of payments deficits required by the statute and instead relied on broader, trade and current account deficits. And um, now this doesn't affect every business. It's limited to the two businesses that were plaintiffs and Washington State. So if you are in Washington state as a business, you don't have to pay the 10% tariffs, but doesn't apply nationwide at this point. The judges said that the other states lacked standing because they were not direct importers and were instead claiming harm through higher downstream prices. So that rule section 122122 that that Trump used for these 10% tariffs, it allows temporary tariffs of up to 15% for 150 days when the US faces a serious international payments problems. Um but the judges did not agree with or at least the majority on the court. Two out of three did not agree that the administration had used that because it's not really a balance of payments problem.

David Leary: [00:20:24] And the first time. The argument using the other law was it was like national security. Wasn't that the argument?

Blake Oliver: [00:20:30] Yeah, exactly.

David Leary: [00:20:32] Yeah.

Blake Oliver: [00:20:32] It's basically, you know, the problem is like you try to do this stuff and you, you, you know, you stretch the, the rules and then what happens is, right, you risk, you stretch the law and the court comes back and rules it all unconstitutional. Now there's an accounting story.

David Leary: [00:20:50] Three branches of government, right? Like you could push it, the courts could strike it down. And then eventually we could get the legislator legislature to pass a law, new tax laws.

Blake Oliver: [00:21:00] Yes. I mean, really the best thing would be if Congress actually did this, not the administration stretching the rules. So there's an accounting story here about tariffs this week. This was in Bloomberg tax. And the headline is refunds on Trump. Tariffs pose accounting dilemmas for companies. And so this challenge is not about whether they're going to get the money back, but it's when and how they can record those potential refunds in financial statements. And it's starting to become an issue for accountants, because U.S. Customs and Border Protection has opened a portal for the refund claims and investors and analysts and boards, they want to know how the refunds are going to affect margins, inventory costs and earnings going into quarterly earnings season. So this this is the you know this is going to affect things right. Because those tariffs were significant huge costs for some U.S. companies. And if they get them back the question is when are they going to Walmart.

David Leary: [00:22:01] It's $150 million or it's a few billion. It's a ridiculous number that's going to impact their future earnings. Where I had that article last week, I thought I talked about it.

Blake Oliver: [00:22:12] Yeah. So companies are differing on how they're going to handle this because well who knows what's going to happen. Right. Like, like it's really uncertain. And so here's an example. Nike. They had paid $1 billion in the International Emergency Economic Powers Act tariffs. Those tariffs. And they consider recovery highly uncertain. And so they said that the timing uncertainty means recovery is not probable. So it sounds like they're not going to book it. Levi Strauss, on the other hand told investors they're going to recognize a refund tied to 80 million in those tariffs when the accounting rules for contingencies are satisfied and branch out, food is treating a potential refund of more than 300,000 as a gain contingency. So it's not recognizing the amount in their 2025 financial statements yet. So so there's basically two accounting approaches for this right. There's the we're going to get into some accounting theory on the show David. Yeah. So there's two approaches. There's the loss recovery approach where a company can record an asset for a refund claim when receiving the money is considered probable. More likely than not. That can allow earlier recognition, but it requires a judgment about whether the refund is sufficiently likely. And then there's two. Method two is the gain contingency approach. And so a company waits until the refund is realized or realizable before recording it. And that could mean waiting until the cash is received or that customs affirmatively agrees to the refund amount. That's the more conservative and simpler approach.

David Leary: [00:23:52] Because you don't want to you don't want to book it and report on it and then reverse it. Reverse the court decision. Yeah.

Blake Oliver: [00:24:00] Um, so, you know, faster recognition that could help companies improve their future margins, but only if they're comfortable defending the judgments behind that treatment.

David Leary: [00:24:14] In my prediction is Trump's going to win because of this. He's gonna win. He's gonna win either way. He's either going to win because they're going to reverse it. And the government's going to keep this money. And you know, Trump's helping the deficit. He's going to be able to play that card. Or companies like Walmart and Nike are going to have these massive great numbers in. The stock market's going to go up because they're all hitting their street numbers. And he's going to. Either way, he's going to benefit from this. It's it's an interesting play, like kind of destroy things that way. They only have one place to go and that's up.

Blake Oliver: [00:24:49] What do you want to talk about next, David. Um, you've got this WNBA millionaire tax story in California. Yeah, I, I thought that was interesting when you when you told me about it before the show.

David Leary: [00:25:02] Yeah. Uh, WNBA star Kelsey Plum so all the WNBA players are getting new contracts. They had a big TV deal go through. They're all signing these new contracts. And she chose to have her contract at $999 or, I'm sorry, $999,000. 999. So basically $1 below a million. And she was on a YouTube video that's kind of gone viral on an interview. And she said that she saved $13,000 by being under $1 million. And people kind of mocked her right for not having tax knowledge and not understanding marginal tax rates. But the interesting thing is the people that were criticizing her are misunderstood the law as well. So essentially, the way the California's Mental Health Services Act, aka the millionaire tax works. It's you only get charged that additional tax on the dollar. So 1 million would have been okay, $1,000,001. She would have paid the 13% on the $1 over the million. Right. And so the market, the market itself doesn't understand how marginal tax rates.

Blake Oliver: [00:26:07] So this this tax is just a marginal tax. So marginal tax everything above $1 million.

David Leary: [00:26:11] Everybody above. Yes. So. So 1,000,001. So she could have signed $1 million contract still. But it's the dollar above. And what's.

Blake Oliver: [00:26:19] The rate? Do you know the rate offhand on the.

David Leary: [00:26:20] 13.3.

Blake Oliver: [00:26:23] In additional 13.

David Leary: [00:26:24] Yeah. 13.3%.

Blake Oliver: [00:26:25] Oh wow.

David Leary: [00:26:26] Including the millionaire surcharge. Um now the author of this article kind of points out like this is the bigger issue of this, the country's misunderstanding of taxes, right. And marginal tax rates. And this is what drives politics, is what drives voting right and creates voters, because people will see that like, oh, yeah, California is going to just she couldn't take one more dollar, or else she would have had to pay $13,000 in taxes because people don't understand. Just like she didn't understand that it was only going to be $0.13 more if it was $1 over right. Or $13. Sorry.

Blake Oliver: [00:27:04] I mean, this makes sense, right? Like try. Yeah. Explaining marginal tax rates to clients is probably one of every tax pros. Like least favorite things to do.

David Leary: [00:27:15] But did she get like, help to sign this contract from her accountant or agent? And I'm sure the agent would have a team of accountants and tax professionals to seek any advice on before she signed this, or should she just do this on her own?

Blake Oliver: [00:27:28] Well, the question is what? How much more money could she have gotten? Right? It's like it doesn't it doesn't make sense. Like, even if you have to pay this higher tax rate on the income over $1 million, like wouldn't you still want to make?

David Leary: [00:27:41] I think.

Blake Oliver: [00:27:42] It's.

David Leary: [00:27:43] There's like, there's some sort of cap, like 1.4, 1.6 million, the biggest contracts that you could get. But she must have been right around that perfect million dollar range. But, but she was misinformed. But then it's like, who misinformed her? Did she do this research on her own? And then a whole bunch of people got online and, you know, put comments and they didn't understand how it worked. And they're saying that she's the dumb one for not knowing tax law, but like she's a WNBA player. Like, let me go ask some accountants about some rules of basketball, like the skill sets, are different. You shouldn't expect. I would not expect her to have the knowledge of this. Correct.

Blake Oliver: [00:28:18] Well, let's talk about, uh, another tax issue that's causing problems because lawmakers and the public struggle to understand the complexity of taxation. And that's this proposed PA deter. Am I saying that right, PA? Deter p pa. You know what I'm talking about. It's like pa de TurboTax. Okay. So this is second homes. It's like a PA is like a second home that you keep just to like go to. You don't live in it normally, right? It's just like you have that in New York and you go visit and you stay there. It's not your not your main home. And um, so like the background is that New York Governor Kathy Hochul, um, has agreed to do this, like tax on second homes valued at $5 million or more. But the problem is that officials can't figure out how to actually implement it. It's targeting nonresident owners of luxury second homes, and the issue is as many issues with this. So, um, property valuation is a major obstacle because the tax is going to be on properties over $5 million. But how do you value them? New York City property tax assessments do not reflect actual market values. Single family homes are assessed differently from condos and co-ops. Condos and co-ops may be valued based on hypothetical rental income rather than sale prices. Some properties worth hundreds of millions of dollars can carry assessed values in the single digit millions. Ken Griffin's apartment is an example. Uh, he. It was purchased for $238 million, but its current assessed value is 6.7 million, according to city tax records. So that's the first problem is how do you tax these homes when you don't actually know the market value of them? Because the assessed value is, you know, way lower. Um.

David Leary: [00:30:19] Which is essentially what Trump kind of got in trouble with, with the fraud he was when he went, went to get a loan. He wanted the properties be to be worth this much to secure the higher loan. But you're right, like nobody knows what the.

Blake Oliver: [00:30:32] Value of.

David Leary: [00:30:33] Lower, lower, but nobody knew the value of the property.

Blake Oliver: [00:30:37] Other issues. How will the state and city determine whether a property is a primary residence or a second home? How will you identify beneficial owners when properties are held through LLCs? Will taxpayers appeal or contest the surcharge, and what final tax base and rate structure would be used? So it's just an example of how a tax that is politically popular can be difficult to establish into a workable law, just like basically any wealth tax. Those are always really difficult to implement. And the simplest kind of taxes are the ones where it's just like on a transaction because the transaction is a transaction. It's there in an accounting system somewhere. You can audit it, you can tax it.

David Leary: [00:31:27] Except for the super rich can figure out how to buy things. They can travel and buy it in the, you know, offshore duty free stores, etc..

Blake Oliver: [00:31:35] Yeah, I think my takeaway is just like trying to plug budget holes with taxes on the super wealthy is really difficult. David, let's talk about the Department of Education versus the.

David Leary: [00:31:46] News this week.

Blake Oliver: [00:31:47] Bad news. Know what's going on.

David Leary: [00:31:49] So do you remember the Department of Education had a proposed list of professional degree programs. They finally finalized the list. And now basically it's done. 11 professional degree programs have been established. Pharmacy dentistry are recognized pharmacy, dentistry, veterinary medicine, chiropractic law, medicine, optometry, osteopathic medicine, podiatry, theology, and clinical psychology. What's missing from this list of professional degrees is accounting. Accounting did not make the cut, so they're going to put some limits on how much a graduate student can get in a loan.

Blake Oliver: [00:32:28] Now, this is only for graduate programs. And the amounts might not make this a big deal because in those 11 designated professions, students can borrow up to $200,000 in federally guaranteed loans, and it's 100,000. If you're not in one of those programs. So I'm trying to think like, are there really many accounting master's programs that are going to cost more than $100,000? I would hope not. That's that would be a lot of money.

David Leary: [00:32:57] Well, yeah, hopefully this puts pressure. If they are above that, it brings it down. But it also feels like there's a window here now, right? Like colleges can be like, hey, we can raise our price a little bit. We have, we have, we have a maybe, maybe if the program's 30 grand, they have 70 grand margin now they can play with to get close to that 100 grand. Um, so this goes into effect on July 1st, 2026. The thing that's interesting about this, it maybe it's kind of good as well, because I think they're trying to figure out the, uh, they don't want to give people loans that they don't think they can make that income back. Right. So this could actually, if, if wages for accountants go up and they cap the loans, this might put everybody in a better situation.

Blake Oliver: [00:33:42] But let's think our next sponsor. And that is C and R consulting Group. If you're running a mid-market accounting firm you know the struggle a shrinking talent pool, rising labor costs and your best people buried in routine work instead of high margin advisory services. It's a production bottleneck that's costing you growth. That's where C and R consulting Group comes in. For over 15 years, C and R has been the go to outsourcing partner for accounting firms across the US, Canada and the UK. Long before offshoring became a buzzword. Founded and managed by professional accountants with four decades of domain expertise, CNR isn't a generic outsourcing shop. They customize an engagement model for your firm, whether that's tax prep, bookkeeping, CAS or CFO services, so you get a plug and play extension of your team. Not a one size fits all headache. Their client list includes top ten CPA firms and boutique practices alike, and every engagement is backed by the same enterprise level infrastructure the biggest firms use in their captive offices. To see why mid-market accounting firms choose CNR consulting Group as their outsourcing partner, head over to The Accounting Podcast dot ProAdvisor C Nr The Accounting Podcast dot promo forward slash CNR.

David Leary: [00:34:59] I don't know if you're watching the chat come through. It looks like people are sharing a prompt to do something with a GPT tool. I'm trying to follow it, uh, or a sample prompt, and it's in a bunch of chats. Are you able to make heads and tails of this?

Blake Oliver: [00:35:15] It looks like, uh, something to do with, uh, partnership taxation.

David Leary: [00:35:20] Somebody wants to share their prompt.

Blake Oliver: [00:35:22] Oh, yes. Well, um, it's a little hard to read here. Uh, Jeffrey, but thank you for doing that. Um, maybe we could have a prompt sharing session at some point on one of our shows.

David Leary: [00:35:36] Yeah. So somebody could do is they could go to the YouTube, go to the comments and copy all this out into one notepad and then paste it into your GPT, because I don't think you can paste the whole prompt at once into the comments.

Blake Oliver: [00:35:48] Megan says, starting my master's degree in cyber accounting on Wednesday at umbC and it's been a nightmare with financial aid getting my graduate loan to pay for school plus books. I'm sorry to hear that, but congrats on starting your master's.

David Leary: [00:36:02] What is cyber accounting? That's new. I've never heard of that.

Blake Oliver: [00:36:06] Cyber accounting. Do you want to tell us more. Let us know in the in the chat or send us the link there to that program. Cyber accounting. I'm curious um, while we wait for that, let's move on to some recent auditor lawsuits. Pwc audited corporate travel management for 14 years, and apparently they missed a 128 million pound overcharging scandal the whole time. And then when the new auditor came in, they raised concerns about it. Almost immediately, an accounting professor from Unsw put it plainly perhaps PwC had become a little bit too familiar with the client and too complacent and accepting. So this is a company in the UK Corporate Travel Management. A forensic review found that it may have overcharged the British government and other UK customers by as much as 128 million pounds. And the question is whether PwC showed enough professional skepticism while auditing CTM from 2010 until last financial year. Here's an interesting story from the case. So there was an overcharge of 54.6 million pounds in 2022, and it was not like announced at that time. And apparently the board. This is according to the company. The board withheld that information and consulted in consultation with PwC. Based on a conclusion that the British government would not recover the full amount. Ctm also said documentation tied to that decision, quote, may not in fact be authentic, unquote. Intensifying concerns about governance, audit evidence and disclosure controls. Deloitte took over as the auditor after PwC, and then quickly questioned whether CTM had enough evidence to support accounting for its major UK customer contracts. And then they brought in KPMG to review it.

David Leary: [00:38:06] And so they're suing PwC because they just assumed they.

Blake Oliver: [00:38:13] Well, they like ignored it. Right.

David Leary: [00:38:14] They weren't doing a good job. Yeah.

Blake Oliver: [00:38:17] All right. Here's another one. We may have talked about this before. First brands. So it's this company, First Brands Corp., an auto parts supplier and several funds managed by Black Diamond Capital Management, have sued BDO USA after losses tied to the collapse of First Brands. The suit argues that Bdo's audits failed to identify warning signs that could have alerted lenders. Before Black Diamond bought roughly 70 million of senior debt. Black diamond affiliates are claiming that those audits did not meet generally accepted auditing standards. According to the complaint, BDO missed multiple red flags, including first Brands heavy use of factoring hundreds of millions of dollars allegedly transferred to founder Patrick James personal trust. That sounds like a red flag right there. Um. Black Diamond says it relied on Bdo's audit opinions when purchasing first brand's debt and now expects losses in bankruptcy. The suit includes claims for negligence, negligent misrepresentation, fraudulent misrepresentation, tort, tort, tortious interference with contract. Um funds are seeking damages equal to the principal and interest on the debt. They still hold and denies wrongdoing, and says the lawsuit is baseless.

David Leary: [00:39:37] And is driven because, remember correctly, first brands Apollo, who's the company that invested in BDO right, had a short position on this company.

Blake Oliver: [00:39:48] I recall that, yeah. I don't remember exactly the details. Yeah. And that's what, uh, caused some chatter in the online investor community there, right?

David Leary: [00:39:57] Yeah.

Blake Oliver: [00:39:57] And we talked about this on the show because.

David Leary: [00:39:59] Well, you said it, the you have to have the appearance of independence. It's just not independence isn't good enough. You have to have the appearance of independence.

Blake Oliver: [00:40:10] Um, going back to the chat here, we asked Megha about this cyber accounting degree and she says, uh, it's the practice of applying traditional accounting and auditing principles to digital technology driven financial systems, focusing on securing, analyzing, and verifying electronic financial data. It blends forensic accounting, data analytics, and cyber security to protect assets from cyber threats with practitioners identifying vulnerabilities and ensuring compliance with info security standards. Yeah, that sounds really fascinating.

David Leary: [00:40:43] What's what campuses did she say where she's pursuing that at? Um.

Blake Oliver: [00:40:47] I don't know. You have to go back up through the chat.

David Leary: [00:40:49] Yeah. I don't.

Blake Oliver: [00:40:49] Know. Um, so since we're talking about these lawsuits against auditors, one of them in the US, I thought I would bring up this story that I've had in the queue since April. This is about the PCAOB, new rules that could make it easier to sue auditors, not harder. This is QC 1000. And this rule would require audit firms to document their quality control systems, certify annual reports and bring in outside reviewers to assess whether their internal processes are working. If a firm fails to. If a firm identifies a risk in their own documentation and then fails to fix it before the audit goes wrong, plaintiffs lawyers can point directly to those internal records and say the firm knew about the problem. The rule is scheduled to take effect December 15th of 2026, but the Big Four pushing back hard and the PCB's budget was cut for 2026. So we will see if this becomes a real rule. I don't know about this. I'm always skeptical of this kind of regulation because here we are telling auditors, you have to build this system of quality control, internal control. And then what happens is the firms will do this. They'll build this whole system. Right. But like, does that actually create any incentive?

David Leary: [00:42:25] Yeah, the incentive is not there and it's there meeting check boxes, right? It's like I got, I did exactly what you told me. And if it'll probably still happen because the true incentive is out there, which going back to maybe company, maybe firms should be allowed to short companies like have financial gains on some insider training or prediction markets. That would be it would align the motivation to dig in and do good versus. Which actually ties back to the reason Apollo was shorting the first brands companies is because they lost money loaning to that founder money before because he had questionable bookkeeping. And that's why they were kind of shorting and took a short position on his new companies, because they didn't trust the guy and they probably were right.

Blake Oliver: [00:43:13] Let's think our last sponsor of this episode and that is fishbowl. Are your clients still trying to manage inventory and production and spreadsheets alongside QuickBooks? As they grow, those manual processes become a nightmare, leading to inventory errors, production delays, and missed opportunities. That's where fishbowl comes in. Fishbowl is the AI powered inventory and manufacturing solution designed specifically for growing product based businesses. It integrates with QuickBooks so you can keep your trusted accounting system while adding powerful operational capabilities. Manage inventory. Bill of materials and manufacturing workflows. All in one centralized system. What makes fishbowl stand out is its AI assistant, Juno. Juno is built right into your workflows, helping you spot trends, improve forecasting, and make smarter decisions with your data. Plus, fishbowl connects with tools like Avalara for automated sales tax. Fishbowl creates a complete operational stack without the complexity and cost of traditional ERPs. Companies using fishbowl report incredible results like an 18% reduction in inventory costs, 50% less scheduling time and 99% on time delivery rates. To see why growing businesses are making the switch to fishbowl, head over to The Accounting Podcast dot com slash fishbowl. That's The Accounting Podcast dot co forward slash FISHBOWL.

David Leary: [00:44:35] So I think we talked about whoever's making cuts or layoffs last week, one of the big four and one of the reasonings they said was because there's a decreased demand for advisory and audit services. Well, RSM just did layoffs this week. They cut about 300 jobs in the US to about 2% of its workforce. And they're quoting the same reason demand for advisory and audit services. You know, the market demand and the market conditions don't justify for.

Blake Oliver: [00:45:01] Advisory or for audit or for both.

David Leary: [00:45:03] Uh, let me read the quote the right way here because I.

Blake Oliver: [00:45:06] Yeah. Go ahead.

David Leary: [00:45:07] Um, we continue, we continually assess our business to ensure alignment with market demand and evolving client needs. As part of this process, we have made the difficult decision to reduce reduce certain roles in our assurance practice and several corporate functions. So they're they're really calling out their assurance or audit services. So it's interesting because like, how are their number of audits and being need to be done decreasing? I don't get it. They're seeing a lot of companies essentially that existed just a week ago or a month ago. Um, um, and then they're also part of this and that's what I think is I think that's the line they're giving, but maybe it's because they're automating junior level work. Uh, most of the employees that were affected were junior staff and audit and insurance. So it's junior employees. So this starts to feel like it's just cost cutting. Well.

Blake Oliver: [00:45:57] I mean, yeah, cost cutting. I mean, there's also just like, like, what did we just talk about the cost of the war? Like the Iran war is having real world economic consequences around the globe and slowing things down. And so we're going to see layoffs. And at the same time, we've got these AI companies building these incredible tools. And so you can it's it's sort of like a cover, right? You can whether or not your business is being harmed and you have fewer clients, you can use that as a, as an explanation for why you are were laying people off and maybe it's maybe it's AI, maybe it's not. Maybe you're just.

David Leary: [00:46:41] You can't shift talent from your audit division to your AI division because all of a sudden there's this new competitor here that you're going to have to compete with. You just can't stack money into that. Your AI consulting division. Mm.

Blake Oliver: [00:46:53] Um, all right. I want to shift to AI and talk about this study that I spotted last week. That is kind of mind blowing. Okay. So this is a study that was in science and researchers.

David Leary: [00:47:11] It was in science.

Blake Oliver: [00:47:13] Science.org.

David Leary: [00:47:14] Okay. Science.org.

Blake Oliver: [00:47:15] So so what they what they did, what the researchers did is they took open, open AI's zero one model. So this is a model from like the end of 2024. It was like the best model at the time. Right? Remember oh one it was kind of groundbreaking at reasoning. Yeah. And they pitted OpenAI's oh one model against hundreds of real physicians across six different medical reasoning tests and AI basically one, all of them. And the most striking result came from real emergency room cases at a major Boston hospital. Doctors judging the results couldn't even tell which answers came from AI versus humans. 83 to 94% of the time. And at initial triage in the emergency room, when information is the most limited and decisions are most urgent, the AI correctly identified the ER diagnosis 67% of the time. So two thirds of the time it got the right answer. The two attending physicians it was compared against got 55% and 50%. So this is a model that's over a year old.

David Leary: [00:48:28] Outperforming.

Blake Oliver: [00:48:29] Performed ER doctors meaningfully on initial triage. So I want I want my doctor using this to diagnose me, right? Like this is not to me. This is not about replacing those doctors, but it's I want them putting all my symptoms into AI.

David Leary: [00:48:50] Yeah. Because you've eliminated all the stress of the E.R., right? The you you've the it's in theory, the AI can look at you, Blake, when you come into the E.R. and there's no baggage of the last patient I saw or the stress or the gunshot wound that came in. I just get to focus on you and AI can do that in theory, in silos. They shouldn't be cross-contaminating. It's emotions from the previous thing you've asked it to the last patient. I have an AI story. Um, have you heard of Chegg? Chegg yes, I.

Blake Oliver: [00:49:24] Know, very, very popular when I was in school.

David Leary: [00:49:27] Oh, so you you used it when you were in school?

Blake Oliver: [00:49:28] I didn't use it because I was, I was, I was, but I studied, I didn't really I didn't use chug, but it was like it was a way to get like, um, answers as a student.

David Leary: [00:49:38] It's like an online tutoring model website. You could hope to get help on your homework. Yeah, I've never used it. It's kind of I'm too old for that. And then my kids, I don't think, use it at all or know it exists. And the reason why is basically its core functionality that the AI models are doing for free. So Chegg, you know, they used to charge 15 bucks a month for a subscription service for this. So their stock peaked in 2021 at $108 a share, with a market cap around 14 billion in April of this year. In April of 2025, it hit $0.48. It's slightly recovered around $1.20 now, but essentially their entire business model of the services they offered is just done for free in the GPT models. I think you could study quiz me on this. I have this math program. This math equation, I can't understand. Explain it to me. Teach it to me like you like to always say. Teach to me like a fifth grader and you can go back and forth. You don't need these services. I mean, a whole, basically a whole entire tutoring service has just been eliminated. And probably human tutors too.

Blake Oliver: [00:50:44] I imagine you can learn almost anything now with a combination of YouTube and AI chatbots. Like there's no reason that you can't learn anything. Um, and especially if you have like the PDF version of a textbook and you want to just like learn exactly that. I mean, drop it in, ask questions, tell it to be your tutor, teach you the material.

David Leary: [00:51:09] That's assuming it hasn't already been loaded in there to its memory to begin with. Yeah.

Blake Oliver: [00:51:13] I mean, I really wonder what this is going to do to the whole traditional model of education. We have had this model where you go sit in a classroom, and there's one professor at the front of the classroom disseminating information. After you've read the textbook, you hear it again. And that's how we learn, right? That's how we get knowledge. And we do some Q and A and homeworks and quizzes and tests and that's it. But I was an academic tutor when I, before I became an accountant, that was one of my jobs is I was teaching kids how to do the s t and helping them through, you know, their coursework, high school kids and what you learn doing that is just that one on one tutoring is so much more efficient. Some of my students, they were wealthy kids. I was living in Florida at the time, and they would come down for the equestrian season. So they rode horses right at boarding schools, and they would come down during the winter and they would ride horses, and we would tutor them at our company like one on one to help them get through their coursework. And we could do in a couple hours after they were training, what would take a whole day in a classroom because we're doing it one on one so we can find out what they know and fill in the gaps without them having to, like, learn everything. If you already know something, just skip past it. And that's one of those things that like AI can do. So this whole idea of like sitting in classrooms for hours in order to get a degree. I mean, I don't know if it'll exist the way it does now. I mean, it should be rethought. Like, why do we have to spend four years in college to get a bachelor's degree? If you can demonstrate the knowledge that you need? I mean, there's arguments for that, right? It's like you learn socialization or whatever and, and that sort of thing, but just the actual academics. I mean, it should be skills based.

David Leary: [00:52:58] Well, like you said, just the, the learning's getting too mixed up in the dogma of just show up. Did you have attendance in the class? Here's your degree. Did you did you take enough classes to get the degree versus. Are you learning something? Yeah. Like learning's really gotten muddled up in the last 50 years.

Blake Oliver: [00:53:17] Um, I want to take us out with a video that I spotted and, uh, watch it to the end with me because there is an accounting tie in. This is Anthropic's. Boris Cherny. He runs cloud code at anthropic, which is like huge cloud code. Like is one of their products that just took off. Helps developers write code. And he runs that product and he did a Q&A recently and this popped into my Instagram feed. And he talks about accounting.

Speaker 3: [00:53:50] I think in tech history, there's one thing which I think to me is the clearest parallel for what's happening right now. And this is in the 1400s, the printing press in Europe. And what happened was before the printing press, essentially 10% of the European population was literate. They knew how to read and write. They were often employed by like kings and lords that were not literate. And their job was to, you know, their job was to read and write. And this is not something that everyone knew how to do. The printing press was invented. Then there were two more presses. And in the 50 years after the first printing press, there was more literature published in Europe than in the thousand years before. And over the same period, the cost of literature, the cost of a book went down like 100 x. And then it took a couple hundred years, because learning to read and write is hard. You need education systems and government, and everyone can't be working on farms and so on. But over the next few hundred years, literacy globally went up to like 70%. And so now we can all read and write. And you don't need a degree in reading and writing to know how to read and write. Although still there are professional writers and that is the thing that you can do. So I think the thing that's about to happen, and it's going to be much faster than 50 years, is software will be a thing that is fully democratized that anyone can do. And, you know, there's a lot of corollaries to this. So for example, let's say you're writing accounting software, the best person to write accounting software, I think maybe even today is not an engineer. It's a really good accountant because they know the domain really well. And coding is the easy part. It's knowing the domain. That's the hard part. And I think this is just obviously the future.

Blake Oliver: [00:55:23] So I like that. What do you think, David?

David Leary: [00:55:26] This is what I. I was at Grocon last week and I was on an AI panel on the stage and talking about opportunities for accountants and helping write code is arguably a good business opportunity for accountants instead of building a. Like I think I said on the show last week to. Instead of building that app stack. At the end of the day, accountants are engineers. Like when you create an Excel spreadsheet and you connect a bunch of formulas and numbers go in in this cell and different numbers pop out in this cell, you essentially are programing. You have an engineer's brain, but you only know Excel formulas. You don't know all the context and what vibe coding and what like he's talking about. Ai is going to let you do the coding is going to get very, very easy. So you as an accountant can use that brain of yours, that engineering brain that you have to create apps. And I think there's going to be a huge opportunity to help companies create small custom apps that they probably would have had to pay 200 or $300,000 for in the past that maybe you could help them do for ten grand. You could help them build apps. They need specific apps for their business.

Blake Oliver: [00:56:27] And it doesn't even have to be like something complicated. Like an app can literally be just like a really, uh, sophisticated Excel workbook.

David Leary: [00:56:37] And exactly. It doesn't have to be. Yeah, you could, you could have it AI putting data back and forth into cells in Excel or Google Sheet.

Blake Oliver: [00:56:44] And like, here's a great example. And accountants are using cloud to create spreadsheets, workbooks that can do a lot of like really important work. And like, I just want to point out something that I tried the other day because people have been talking about building like accounting systems with cloud Cowork. We talked about this on the show and I thought like, well, wouldn't it be neat? Like if I could just use Cowork to create like a simple cash basis accounting system for a client? And so I, I asked it with just a very simple prompt to create a cash basis accounting system in Excel for a property owner who owns like six properties. And what you can see here on the screen is a quick start guide. I didn't do any of this. Coworker did all of this. That tells you what to do. So you know there's a property sheet. You have to open that and enter a nickname for each rental that links to the transactions tab. So it'll give you the dropdowns to choose from the properties. There's a, a, a, a bunch of different tabs. Let's go through it. So here we have the properties right. And we can see here we've got the six or I guess it's five different properties, right. And you can put in the nicknames. I'll say this is like, uh, you know, we got property one two information and then we've got our list of accounts. We've basically got a chart of accounts tab here, right? We can add to this or subtract from this. And then here's a transactions tab. And this is just basically a listing of transactions right. You could import your bank statement into Claude Cowork and have it just like populate this list of transactions. So you could do that. You could do that for like the whole year, bring in all the bank statements and pull them into this tab and then, you know, go like code them and there's a category option, right? And there's all this, like you can put the type, looks like the dropdown doesn't work for the category.

David Leary: [00:58:40] But that's easy. You go back to the prompt, you.

Blake Oliver: [00:58:41] Go back and map.

David Leary: [00:58:42] It cell D 25 the dropdowns not working.

Blake Oliver: [00:58:46] And then look it'll create a PNL by property. So we've got columns for each property for the year. And this is just an annual PNL right. But we can have it do something more sophisticated. So we got the income and the expenses. And then it can even do it monthly. So for all the properties, or you can filter it for just like one property, one versus all properties. It did all these formulas like these are crazy complicated formulas. And then we've got like an annual summary for the six properties or five properties. And then we get a little dashboard here. Essentially.

David Leary: [00:59:19] This is a project you would do over the whole semester in accounting 102, right? Learning to create these different tables, connecting formulas and building this out. You are able to just to prompt it.

Blake Oliver: [00:59:29] It was, it was like, I cannot tell you how easy it is. And like, I mean, what did I say? I said, let's create a cash business. Let's create a cash basis accounting system for a small business that uses Excel as the database. Is that doable? And then it asks me like three questions. And then it, it made the spreadsheet. So like, if I wanted this to be more sophisticated, it would be like so simple to create that for a client. And I actually also did another one where I asked it to make a double entry accounting system, um, that I could use instead of QuickBooks online where Claude becomes the chat interface. And I couldn't actually validate this because I didn't have time, but it made, um, an accounting system using an SQ lite database. And now I can chat with it and it will enter transactions and like create invoices and export reports and all that stuff. But you know, I would need to be able to like audit that and make sure it actually works.

David Leary: [01:00:31] And this is where I think one of the problems I have with AI in general, and why I don't think it's going to be great for data entry, is like agents you have for accounting, you need to be the same every single day. You can't you don't want that variance in there, right? You want it to be perfect every day. And the best way to get there is to vibe code a solution. Because once you write it as code, the code runs the same every day, forever consistent. And I think that's where there's an opportunity for accountants. I think accountants should start experimenting with vibe coding. I think you'll really like it because you're honest. I've always believed this. Your brain, your brain is there. You already understand programing. You understand like that guy just said in the video, you have the domain knowledge. It's just previous coding, even for me personally. Like I'd mess it up because I didn't put a bracket over here or the syntax, and then I just stuck in a loop. Like programing is like I couldn't make it work as fast as my brain could work. But vibe coding really is a good balance back and forth people, accountants should really try and do coding and solve problems that way. It might be actually easier than working with agents, honestly. I mean, you're working with a specific agent to write the code versus trying to tell an agent, do this job and then do it the same tomorrow, and then do it the same tomorrow. Just write the code that just does the job once.

Blake Oliver: [01:01:44] David, always great to talk to you. Thanks to everyone who joined us live. You can follow us on YouTube. Search for The Accounting Podcast. Subscribe. Hit that notification bell icon. You'll get notified when we go live and you can chat with us as we live stream. Also, you can earn free continuing professional education credit for listening to this episode and all of our past episodes. Get the free earmark app, go to earmark.app and your web browser, or search for it on the App Store. It's free to create an account for free to earn one CPE every week. And I looked this up, I think last year we did 83,000 course completions last year, and I can't wait to see what we're up to this year. If you want to support our work, subscribe for the low price of $170 per year. That price is going to be going up in the next few months, so lock it in now while you can.

David Leary: [01:02:39] And welcome to. We had our largest, highest week ever of new users last week. So welcome new listeners, new users of the earmark app. Welcome to the it was like family.

Blake Oliver: [01:02:50] 350 something new users.

David Leary: [01:02:53] Almost for just under 400 new users.

Blake Oliver: [01:02:55] Last week. That's amazing. Welcome. Uh, hope you like it. We want your feedback. Uh, if you have feedback for me and David, send your emails to the accounting podcast@earmark.me. That's the accounting podcast@earmark.me. And David, I don't know what our schedule is like, uh.

David Leary: [01:03:15] This coming week to conference and travel season. It's going to be crazy. I don't know if we're going to record next. We have to figure.

Blake Oliver: [01:03:19] We are going to be probably again on Monday. So, uh, see you here. Uh, most likely on Monday. But if we'll figure it out.

David Leary: [01:03:27] I'm gonna have to record from a hotel.

Blake Oliver: [01:03:28] I'm going to be going to the, uh, the wave conference in Seattle. That's where I'll be at. So.

David Leary: [01:03:35] And I'll.

Blake Oliver: [01:03:35] Be.

David Leary: [01:03:35] In Palm Springs at the, uh, Association of Accounting Marketers conference. So we'll both be from a hotel.

Blake Oliver: [01:03:41] Nice. By the.

David Leary: [01:03:42] Way, to record.

Blake Oliver: [01:03:43] Wave is the, um, that's a, it's a micro conference for women in accounting. It's a one day conference. So, um, I will be back from there after next week and I'll, uh, I'll have a report. All right. David, see you around here. Thanks, everyone. Have a great week. Bye.