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David Leary: [00:00:04] A 39 year old Connecticut OnlyFans creator, just pled guilty to tax evasion after earning over $3 million between 2019 and 2022 without paying a dime to the IRS. See more from Stanford. Didn't just forget to file. She actively tried to hide her income by opening 19 different bank accounts and shuffling money between them. Coming to you weekly from the OnPay Recording Studio.
Blake Oliver: [00:00:35] Hey everyone, and welcome back to the Accounting Podcast, your weekly roundup of news in the profession. I'm Blake Oliver.
David Leary: [00:00:41] I'm David Leary.
Blake Oliver: [00:00:43] David. Halloween's coming up just a little over a month away. You got your costume picked out yet?
David Leary: [00:00:49] Yeah. I was thinking about being the only accountant who lost their job due to AI. I'm like, I'll dress up as, like, a unemployed accountant and blame AI for it. That'll be the only one.
Blake Oliver: [00:01:01] Halloween spending is going to reach 13.5 billion this year. It's like $115 a person. So that's your budget. That's your budget for your Halloween costume, plus your candy. I wanted to. I'm trying to come up with some like good Halloween costume ideas. So I ran them through a clod and it connected to Canva and gave me some. And I was actually pretty impressed at what it came up with. Let me show you now and our listeners here as well. Um, can you guess what this one is? This is the ghost of the 150.
David Leary: [00:01:35] That's so awesome. That is so good. Like that is outstanding. Like that's so great.
Blake Oliver: [00:01:41] This is an easy one, right? So, uh, it's just a, uh, you know, white sheet, obviously with the holes cut out for your eyes and it says little, you know, I actually don't know what is what is on here.
David Leary: [00:01:53] It's like a tombstone.
Blake Oliver: [00:01:54] Um, well, there's, there's a sign that says the The 150 credit hour. And then the ghost is holding a Master of Accountancy diploma. And, uh, yeah, so there's that one. Um, we've also got, uh, this one here. This is the private equity, uh, CPA firm flipper. So, you know, you dress up in a construction outfit with the hard hat and the flannel shirt and some, some tools. Uh, interestingly, in this photo, I just noticed it. Now he's holding a, like a one of those construction hammers, but also a, uh, a spatula as a flip flipping.
David Leary: [00:02:34] He's flipping.
Blake Oliver: [00:02:34] Yeah. And he's got a sign on that says, uh, CPA firm sold, sold, sold now 14 times EBITDA. That's great. There's that one. Okay. And here's another one. Uh, this is the IRS skeleton crew. So skeleton outfit with an IRS, uh, I don't know, like name tag.
David Leary: [00:02:57] Name, badge.
Blake Oliver: [00:02:58] Name, badge, and holding like an inbox, like one of those metal wire inboxes that says almost done with a stack of papers in it. And then this is actually a great, uh, double costume, right? A couple's costume. Uh, the other costume is the revenue agent. It's a robot made out of cardboard boxes. It says revenue agent beta, and it's got like the, you know, um, old school, like 1950s, kind of like robot thing going on with the, I don't know how you describe it. Like the remember the Cylons from the original Battlestar Galactica?
David Leary: [00:03:32] It's it's, it's dryer tubing for the arms. Yeah, yeah.
Blake Oliver: [00:03:36] Yeah, yeah. So those are some, um, Halloween costume ideas for our listeners. Let me know if you come up with any good ones. I am looking for something to do at Intuit Connect coming up, which is always the week before Halloween. So it's there's always a costume party. It's fun to dress up. And if you're going to be at Intuit Connect, let us know as well. We'd love to meet up with you. Um, we will be there. All right. David. We need to get into the news this week. You've got a story about, like, the AI bubble.
David Leary: [00:04:08] I got a scary story. Yeah.
Blake Oliver: [00:04:10] And you've got some tips for rolling out AI in your firm. Practical tips are always helpful. Mercury has launched a GL and an OnlyFans model who didn't pay $1.1 million in taxes. That might be the largest I've ever seen in terms of a tax bill that somebody didn't pay. Like, just like a, an individual, right? Not a company.
David Leary: [00:04:34] Yeah. And the owner, like a billionaire, like this is not a billionaire.
Blake Oliver: [00:04:37] Yeah. This is just yeah. Um, well, she did make, what, 3 million, over $3 million. Um, I've got a story about a new EBITDA adjusted EBITDA metric. Uh, those are always fun. And Christina Ho, the Pcob board member who we have interviewed on the show about issues with audit and the Pcob. She's got a new A AI audit startup and just signed her first audit report. That's cool. And I don't know if we're going to get into any more of it, so I won't tease stuff that we can't get to. So before all of that, David, let's thank our first sponsor.
David Leary: [00:05:13] Yeah. So our sponsors today, we have digits Thomson Reuters on pay and cloud accountant staffing. Let's be honest, accounting software hasn't changed much in decades. The prices keep going up, but the software still expects you to do all the work. Digits is different. Digits is the world's first AI native general ledger with built in AI agents trained on your firm's standards across every client. In your book, they code transactions, prepare schedules, reconcile accounts, run quality checks, even chase clients for open items. So your team moves out of prep into reviews, advisory and the work that actually grows the firm. And because everything runs inside one platform, your ledger, reconciliation schedules, reporting bill pay, client collaboration. There's no more switching six tools to stitching, six tools together just to close one client's books. Firms on digits are reporting a 70% gain in workflow efficiency, shipping annual cleanups in days instead of weeks, and running monthly bookkeeping in 1 to 3 hours per client accounting software that actually works for your firm. To see why hundreds of firms are making the switch to digits, head over to The Accounting Podcast dot com slash digits. That is accounting podcast.com/digits.
Blake Oliver: [00:06:25] And please do use those links when you visit our sponsors websites. It helps them know that you found them by listening to the podcast, and we really appreciate that. All right, David, let's talk about the AI bubble two big to fail or no. Two interconnected to.
David Leary: [00:06:39] Interconnect to fail. And I saw that headline in my brain instantly went to too big to fail. And what was that from?
Blake Oliver: [00:06:46] That's from, uh, the Great Recession. The who could forget the mortgage crisis?
David Leary: [00:06:50] 27 2028. Right. And we've kind of talked about this before. We've made this comparison to the AI bubble and the interconnectedness of all these AI companies. Well, Sona Asset Management has just done a released a report and there's a slide we can share. It's it's a little dim, but I'm going to still share it anyways. And it really shows the circular. The circular. I want to say circularity, but I don't know if that's the correct word. And so you have these companies. You have the hyperscalers, the model developers, chip suppliers, the NIO clouds. And they're all selling to each other and to kind of. So what they did in this report, there's 255 public companies in the AI ecosystem now worth $50 trillion, combined with a $6 trillion in debt. And, you know, a lot of it is, uh, the revenues concentrated. So core we've got 67% of its revenue from Microsoft applied digital gets 56% of its revenue from Oracle and Core. We've. And so you start seeing this interconnectedness and we've been stacking this and talking about this over the last couple of weeks. Right. Microsoft has $80 billion in accounts receivable. So now the real numbers are coming out. But when I saw the headline, it really set in about 2007, 2008, the mortgage crisis. So I kind of went back to get a feel on the scale. So there were about 1 trillion subprime mortgages, mortgage mortgages. Oh my goodness. One more try. 1 trillion in subprime mortgages of the 12 trillion US mortgages at the time. So 1 trillion of 12 trillion. So now you have AI company debt is 6 trillion, and half of that debt is circular, 3.6 trillion is interconnected.
Blake Oliver: [00:08:38] 3.6 over half of all that debt. So it's about what half. You said it was 12 trillion in mortgage.
David Leary: [00:08:46] Yeah. So so that was about just under 10% was in subprime mortgages.
Blake Oliver: [00:08:52] Okay. So one you said one out of 12 in this. Okay. Just under 10%. And in this case, we now have it's like half the total value. But more than half of that is interconnected.
David Leary: [00:09:05] Interconnected.
Blake Oliver: [00:09:07] Oh, wow. This could be worse than I thought.
David Leary: [00:09:08] Yeah. So if you think about how a trillion took out Lehman just a trillion and that required government intervention, caused recession. Right. And I see this article and it makes me start thinking like, are we being primed and trained for a government bailout here? And like, let's step back and let's just let's pretend they don't all collapse. We don't have the worst case scenario, right? Let's say all they do is pull back on data center construction. So they pull back on data center construction, or maybe worse than that, they don't pay construction companies or contractors.
Blake Oliver: [00:09:43] Okay.
David Leary: [00:09:45] This is going to quickly spread across construction firms, Electricians, Hvac, q Hvac equipment suppliers, truckers. Right. They're going to be stuck with unpaid bills. Construction companies. And that's essentially what happened with 2008. Construction companies took it first, and then it rippled through the economy. Now we have a very specific example tied to data centers, though. Boop. Are you familiar with Boot Barn? There's got to be some in Phoenix, right?
Blake Oliver: [00:10:10] I, I don't I've never worn anything other than hiking boots. Okay. I've never gone to boot barn.
David Leary: [00:10:16] So boot bar has cowboy boots, but they also have construction boots and they have a commercial construction division for construction clothes. They are tracking data center builds around the country and changing their inventory selection based on in the stores, based on the ones located to where data centers are being built. And they said that their bulk orders are up from employers that are building data centers. So construction companies. Um, but now like think about this. So now if construction jobs go away, less boots get sold, all this expansion boot barn's doing. They're going to owe money that's going to collapse, but it's worse than that. So I went out to Boot Barn's website and I was looking at their construction shoes. A third to a half are made in the USA. So now boot barn money dries up from the construction companies paying boot barn boot barn's money dries up. They can't pay the manufacturers of these boots. U.s. manufacturing jobs basically boot manufacturing people are going to lose their jobs. Right? And it gets even worse than this. Um, as I saw another article that was in CPA Practice Advisor and get this headline, 40% of small businesses lack cash reserves to survive one month of client late payments. So imagine if they can't survive a month of late payments. Imagine when no payments come in. We're going to see this domino happen. So then I've been thinking like you were not an accountant in 2008, right? You just graduated.
Blake Oliver: [00:11:40] Yeah. I had just graduated from college. I couldn't get a job as a, uh, as a musician.
David Leary: [00:11:46] So I'm kind of thinking like, what does this mean for accountants? Like, I don't know, but I suspect accountants are kind of recession proof because as the economy goes bad, the value of an accountant increases, right?
Blake Oliver: [00:11:57] There's more need to more need to track your costs, you know, know your numbers, that sort of thing. Like, and that's one of the reasons I got into accounting was because it was a recession proof profession.
David Leary: [00:12:08] So so today, if you slide your firm, is there room for a product or service you could be selling your clients right now? That's like get recession prep prepared services where there's a suite of things you could be helping your clients with right now, today. So that way, hopefully you prevent them from going under when, if this does pop, because when this pops, you can go all. If it pops, it's going to affect construction. And construction affects everything else in the economy. There's no doubt that this is happening.
Blake Oliver: [00:12:35] I hadn't thought about this from the construction standpoint because like I was thinking about this in terms of the Great Recession, given the size of it and the mortgage crisis. Great recession that impacted people because what, uh, interest rates spiked, people couldn't afford. Now the adjustable rate loans that they had, the payments. And so then they had to default on their homes and home prices dropped and people felt poor. And, um, they lost all the equity in their homes and all that stuff. Right. So that really affected the broad economy. It wasn't just like a financial crisis. It became a broad job. It wasn't just the banks.
David Leary: [00:13:14] It just wasn't the banks. And it's not just going to be the AI companies. It's going to ripple through. And then the other crazy thing, I don't know if you saw mortgage rates are like all time highs, 18 year highs right now. So people who are recently buying a house if they lose their job. So so some towns building a data center, construction people move there, they buy houses, they lose their jobs. They don't get paid. These mortgages don't be paid like we are. It's, it's very, very slippery. The track we're on here. But I think accountants need to figure out how do you capitalize on this? Because you're going to be more valuable.
Blake Oliver: [00:13:47] I like that. Um, recession proof your business package of advisory and consulting services. David, you should be in marketing at an accounting firm like you should be. You'd be crushing it.
David Leary: [00:13:58] There's opportunities everywhere. You just have to stop and like, look at these. I think it's but yeah, really like what went off for me is when I went to Boot Barn's website and I saw all the boots that were made in the United States. I was like, this is not good. This is this is a real dilemma.
Blake Oliver: [00:14:15] Well, you know, one of the ways to spot a bubble coming or a bubble popping, that's a, a coming bubble pop. One way to spot that is when companies start reporting, uh, adjusted earnings numbers, non-GAAP metrics related to whatever it is. And we just got a new one. It's an adjustment to EBITDA for AI savings from a French property company. They added €20 million to EBITDA for AI savings that haven't materialized yet. The company is called Amiria SASU, and they booked an estimated efficiency gains from an agentic AI rollout expected over the next two years, and they counted them in their last 12 month earnings. And of course, anyone who saw this, the investors who are knowledgeable thought like this was ridiculous. Bloomberg wrote a story about it. Why does this matter? Because Amiria is sitting on roughly €3.5 billion of debt, with maturities coming due. Its leverage is about 8.44 times. And if you strip out the AI adjustment and a few other items worth about €40 million, their leverage is like closer to 9.3. And I'm curious if we're going to see more of this, more companies that are trying to strip out their AI investment from earnings using adjusted metrics or add back to earnings, right? Using adjusted metrics so that they can they can look better on paper.
David Leary: [00:15:58] I thought I saw an article fly by through LinkedIn that OpenAI is pulling something like this. They've reinvented, uh, EBITDA some to kind of their own version, like the, the, the AI companies are reinventing accounting, if that makes any sense. They're making their own rules.
Blake Oliver: [00:16:15] During Covid, we had a trend like this. It was called EBITDA, right? Ebitda with a C at the end. And that was adding back earnings supposedly lost due to Covid.
David Leary: [00:16:24] Oh yeah. That's right. I forgot about that.
Blake Oliver: [00:16:28] Uh, so anyway, you know, what do you think about that? Uh, I'll, we'll let our listeners decide. I'll go ahead and think our next sponsor, David. And you can get ready with your next story. If your tax workflow still feels. No, wait, that's the wrong one, isn't it? No it is. If your tax workflow still feels like a grind every busy season, you're not alone. We hear from firm owners every week who are buried under disconnected systems. Manual data entry and staff stretched way past their limits. But it doesn't have to be that way. Thomson Reuters built the tax automation suite to solve exactly this headache. It connects safe, send Sure Prep and Ultra tax CS into a single ecosystem that covers every step with true end to end automation, from gathering a client's documents to final delivery. We're talking up to 65% fewer clicks per return. That is going to really help your finger out. Ai powered data extraction that saves 90 minutes per return. A 58% increase in capacity with current headcount and a 55% improvement in profitability. Because those time savings go straight to your bottom line. This isn't some patchwork of tools bolted together. It's a purpose built suite where data flows automatically between every stage. That means no rekeying, no bottlenecks, and no back and forth with clients. Firms using it aren't having to bring on additional staff during peak season while still growing revenue. That's the power of real automation. To see why tax professionals across the country are making the switch to Thomson Reuters. Head over to The Accounting Podcast dot promo slash automation. The Accounting Podcast dot promo forward slash automation.
David Leary: [00:18:09] So, Blake, before my career, when I was at Intuit those last six years or so, I. We ran hackathons. Are you familiar with what a hackathon is?
Blake Oliver: [00:18:18] Yeah, a bunch of developers get into a room together and lock the doors and bring in lots of snacks and try to build something in like a weekend.
David Leary: [00:18:27] And yeah, exactly. So, and I've been on all parts of this, running them and seeing them competing in them. And I love it because you really get to go heads down and just build something. And you don't have email, you're not, you know, meetings, you're not building slide decks, you're just building something.
Blake Oliver: [00:18:41] And then you present it right to the group at the end. And there's like a vote as to like who wins. And yeah, they're kind of a competition.
David Leary: [00:18:47] Yeah. Um, so I saw an article in, uh, accounting web where a firm basically did this. They called it an SOP marathon. So they shut down their firm for only a half a day. But then every department did nothing that day, that half a day, but document their processes. And they did it in a structured format instead of just like, here's an empty document and just start filling it in. So they there was a little bit of a plan, but I love the idea of that because we've talked about this, when you want to roll out AI, you have to document. Then you kind of start to embed the documentation into the systems, and then you automate, then you apply AI. You can't just start applying AI. You love this idea of, well, if you're going to automate bad processes or are undocumented processes, which is even worse.
Blake Oliver: [00:19:37] Oh yeah. Then the AI makes up the process doesn't always do the best job.
David Leary: [00:19:40] But now this article is a little bit of a it might be a sponsored post that was an accounting web, but there's a company called the Profit Pro and they, um, they look like they're an accounting firm, coaching company of some type. But if you go out to the article, it's in the show notes, they have a link to, um, a document that helps you structure this activity. And you could do this at your own firm. So I think it's just a really good, um, a good way to jump start the documentation process before you try to do AI in your firm. And like you've said, this is the problem all most firms have, they haven't documented any processes. None of them are documented. And then I saw another article that was in accounting today. That is the three phase roadmap for every accounting firm that you need. And so it should have phase zero, which is do the documentation stuff, have your have your SOP a thon, but phase one, you want to focus on quick, quick wins. Can you automate an invoice? Can you, um, create timesheet suggestions for fixes like do small fast wins and then worry about your data that fundamental foundation. Make sure your data is correct. So it's not garbage in, garbage out. You're moving data through your firm and then take a step back and then look at with those wins. Now you can help figure out like, what is your capabilities and can you do predictive type services once you start, once your other all these layers are in. But I think ultimately the combination of these two articles do the, the ESOP a thon. And I would argue like after you do an SOP a thon two weeks later, a month later, do the hack a thon where people build AI in your firm or, you know, start doing automations.
Blake Oliver: [00:21:19] Oh, and I've got a, I've got a tip just from our experience on how to do this SOP thing. Uh, it's, it's incredible. So it is, you don't even have to do a hackathon. You just need to like schedule an hour a day and all you do is you invite your team that's involved in a particular process, like pick a process that you want to like create the SOP for or create the standard process for write invite anyone involved in that to a meeting, record it. Uh, teams, Zoom, Google meet, whatever, record it and turn on the transcription feature. So you've got both the video and the transcript. Transcript going. And then just ask the team to walk you through in detail exactly how they currently do the process. And you're recording that, you're transcribing it. Uh, you can take that transcript and you can drop that into like cloud Co-work and it will create the SOP as your team presented it. And then you can simply ask, how can we improve this? How can we streamline this process? And opus, you know, 5.5, that's what we got right now. It just came out like a couple days ago. It will do an incredible job. And then you can ask it to actually build the documentation as it should be. And then you can even ask it to build a workflow in whatever software that you're using, if it connects to cloud. So here's the example that we did. So our producer Zach, he creates short clips from each of our episodes that go out on TikTok and Instagram. If you follow us there, you may have seen them. It's these vertical clips that are like a minute long. And creating those by hand manually in a human way has taken a long time. And it's a lot of steps. And we never really had a documented process for doing this. So it was hard because we had to teach somebody, you know, and we had to hire like contractors to do this. And the quality was always different and whatnot. And there's a lot of different moving pieces because.
David Leary: [00:23:25] Our process before just had create the clips and it was like a one step process. And that's.
Blake Oliver: [00:23:29] Exactly.
David Leary: [00:23:30] And it never the tax return.
Blake Oliver: [00:23:32] Yeah. It never got documented because it's like such an art to do the clips. And there's so many steps, right. So we just never did it. And so I felt like we could do this now. So we basically just got together and we worked through it. And then we use Process Street for our standard repeatable workflows. And so what I did is I, I connected clod to process street. There's now an MCP connector. So clod can actually work in Process Street directly, not through Chrome as if it's a human like me. It can do everything and it can create workflow templates. It can update them, it can modify them, it can do all that stuff. And basically, it took our old workflow and based on what we discussed, it built out the standardized process. And it can also connect AI tools into Process Street to automate stuff that we want to automate that a human is doing pieces of the workflow. So even if the whole workflow can't be automated, you can start automating little bits of it.
David Leary: [00:24:33] And that's the piece I think firms miss. I think everybody tries to like they look at this big thing and it's too much to handle. Like, how do I automate all this? Just document and automate one sentence, like one step, just one.
Blake Oliver: [00:24:45] Checkbox, right? One checkbox, one task in the whole list. And, and just start doing it more and more and more. And this was always like so hard, you had to have somebody in your firm that specialized in this. And that was me. That was my why I say this is the number one reason why I was able to grow a successful accounting firm with zero experience is because I was just really good at technology and defining processes. And I've got that like mindset, like I run my life off of checklists because I can't remember anything. So, you know, like in my firm, I had to do it too because I just couldn't remember how to do stuff. So anyway, that is like so easy now. Um, and that was that. Anyway, that's just my tip for how I would do.
David Leary: [00:25:26] It because It's a lot of these tools like that, these process tools, these checklist tools, there's just a lot of clicking to set it up and add logic. And if this happens, show this step. If this doesn't happen, hide these six steps. And that's a lot of clicking and mistake prone.
Blake Oliver: [00:25:40] And adding in all the documentation for actually how you do the thing is really tedious. But like Claude, it went into Process Street and it added in all the steps, like the, the, what you need to do for the human part. So the human can go and read it and fill out all the forms and do everything. It just builds it and it builds it in a fraction of the time. So, uh, give it a shot and you don't have to use something like Process Street. I know that's unusual. You could use any of these like, um, project management tools that connect to cloud or ChatGPT. I would just make sure that they have an MCP server. And if they do, and it's robust and it's got access to everything. I mean, basically cloud can be like your COO, it can be like your accounting firms, like CTO, COO role, which is so critical now, and it's really hard to find anybody who can do that. But you can do it. So. Where do we go from here? That was your tips to roll out AI in your firm. David, let's talk about Christina Ho and her next act. Okay. This kind of ties in, right? Because Christina Ho is the PCAOB board member who was actually the most critical board member. I think she was the only one, actually, who ever dissented at the Pcob. And she left recently and joined a startup called Oath Verified.
Blake Oliver: [00:27:04] It's a software platform and a licensed CPA firm, and she is helping them build its technology and underlying audit methodology. This startup is going to do AI powered audits and sign off on them as a CPA firm. And Christina Ho just signed her first report. Um, she plans to sign an audit opinion and later this month and is going to serve clients. Um, you know, during this audit season. So they have actually rolled it out. They're doing it and they are redefining the audit model. Traditional audits, they'll test a small sample once a year. Ho says that oath connects directly to client systems and can test 100% of the data and verify records alongside the monthly close. So it can be a continuous audit that happens every month, not just once a year, which makes a ton of sense, because what's the big problem with audit from a business standpoint? It's that all this work has to happen in just a few months, or sometimes even a few weeks every year. And it's the workload compression that makes the job painful of an auditor. But if you can spread that out over the whole year and use tech to do the sampling and auditing, I mean, it kind of sounds like a dream. I mean, I might want to start an audit firm. I could just be me. You know, me and, like, a bunch of AI bots.
David Leary: [00:28:31] But the real money is in those fake audits, you know? That's where the real money is.
Blake Oliver: [00:28:35] Well, no. I mean, then you can do real audits, but like with the team of a fake auditor, right? You can be a bf borgers but actually do a real audit. Real audit. It's a very profitable fake. Audits are very profitable. Ai powered audits may be a little less profitable, but hey, you know, you're not going to get your license. You're not going to go to jail. Get your. Well, none of them go to jail. That's the sad part. They all just get slaps on the wrist. But anyway, I digress. Um, so yes, audit firms, watch out, you are in trouble if you don't modernize because the AI powered audit startups, they're coming for financial audits. And I think it's going to be huge. And I've got a little follow up story about that or a related story. I spotted this in Financial Times and the headline is AI Sounds the Death knell for audit fee inflation. So audit have typically risen 4 to 5% annually. They slowed down last year and increased by less than 2%, roughly matching inflation for years prior to this. We've had steep increases due to tighter regulation firms passing along the cost of repairing quality controls after audit scandals.
David Leary: [00:29:55] Well, its margin, right? It's just, hey, raise the price every year and keep your margins increasing every year and beat the last year. And that's that's an easy way to do it. Keep raising the price.
Blake Oliver: [00:30:03] Yeah. And they could justify it right. Because there's more regulation, more to deal with. Um the economy's growing. You can outpace inflation and also not enough CPAs. There's no competition. Not enough competition. Right. Here's an example of that. This is a Financial Times article. So they're talking about London and UK companies here. Fees paid by top 100 London listed companies rose 75% in the five years through 2023, 75% in five years. It stacked.
David Leary: [00:30:38] Up loosely. It's it's double. I mean, that's just say double it. Basically they've doubled the um well.
Blake Oliver: [00:30:45] A little short of that, but yeah, 75% more, right. 1.75 x right. Um and that is slowing down now. And why is that going to happen? I think it's going to happen because of startups or CPA firms, modern audit firms like what Christina Ho is working on because most of audit work where the bulk of the hours go, it has nothing to do with judgment and everything to do with following routine processes. David, just like the processes you were just talking about the ones that are done basically the same every time, but there's a little tiny bit of judgment, and that's why you couldn't automate it with like software that was based on rules. But AI can handle those low judgment items and it can sample all the transactions. And so you combine that ability for it to analyze everything in a company, not just a tiny fraction that overcomes the probabilistic nature of the AI, because even though it's less reliable in theory than a human, it's sampling all the transactions. And so the ultimate end result is actually a higher quality audit. As long as there is a human in the loop watching it and signing off.
David Leary: [00:32:07] And so for firms that were hooked on those margins, your motivation now is to figure out how to decrease your cost by using technology and being more efficient and having better processes if you want to keep those, because the option of raising prices is not there anymore. It's no longer on the table.
Blake Oliver: [00:32:21] So I think it's going to be an audit. The same thing that happened in, uh, client accounting services when I entered the market with my firm. You know what, 15 years ago or something. It's that you had these traditional firms that were doing it with human bookkeepers, like manually entering transactions. I was able to cut the labor costs by a factor of five. So I had, you know, uh, I was able to take it down 20%. And that's where most of your, uh, margin gets eaten up, right? In accounting firm, it's labor. And so if you can cut your labor cost the time, do more with fewer people, you can lower your prices significantly and you can still make more money. And so those audit firms that embrace the tech and do more audits for less money with fewer people, just like I did with the accounting we were doing. You're going to be able to take significant market share from traditional firms, and it's going to put price pressure on those traditional firms. And I think that it will enable regional firms to compete with the big four for the first time, for real. And I think that it will enable small firms to compete with the regional firms, and I think it will enable individual CPAs to actually run audit practices that compete with small firms. So it's going to push everyone to do better. And actually, the solo CPA audit firm, that could be extremely, extremely lucrative.
David Leary: [00:33:52] That's that's really an interesting concept.
Blake Oliver: [00:33:57] Because I'm thinking to myself, I could basically build an audit team that's a bunch of subagents that each has a particular role. I've got them plugged into some, some software that has a rigorous, you know, methodology. I take the audit methodology and I build it all out into a checklist. And the agents are all plugged in like they are actual users in the software, and they are working together to do the audit. And they all have different roles. You just basically build that human team, but as AI agents, and then I'm overseeing them. They're asking me questions. I'm the partner on the engagement. And I, my gut tells me that based on where we are now with like opus 5.5 or whatever the, uh, ChatGPT one is Tara soul. I forget what it is. We're at the point now where it's good enough, where you could do that. And I could be like signing an audit opinion like every week and be doing a very little work, like just checking in, you know, an hour or two a day or something like that.
David Leary: [00:35:03] Like, like a partner, I don't know, to send your emails, but yeah.
Blake Oliver: [00:35:08] Well, you know, it's like I could work as much as I want and sign as many audit opinions as I want. And if I got enough insurance and I was confident enough in the system that I'm overseeing. I mean, you know, that could be that could be generating basically the same amount of revenue as like a small audit firm. So it could be.
David Leary: [00:35:26] Like.
Blake Oliver: [00:35:26] Millions.
David Leary: [00:35:27] Like the big, the big four partners, the big four, because they're, they're going to lose business and then that's going to affect them. Like who? Well, or is there because obviously you're just redistributing the pie of what's spent on audit across different sized firms.
Blake Oliver: [00:35:43] So there's going to be more demand potentially, because when you lower the cost, there's more demand at the lower end. Right. So I, I wait, hold on.
David Leary: [00:35:52] You gotta explain to me because maybe I just don't understand audit works. I thought audit like it's just you have to do it. It's not. I don't have the option not to do it. Like it's.
Blake Oliver: [00:36:00] Well, at the low.
David Leary: [00:36:01] End is the same, right?
Blake Oliver: [00:36:02] What the low end. It's like, um a lot of companies won't get a won't get an audit because like it would help if they did. Right to get financing to get.
David Leary: [00:36:12] Oh, okay. Gotcha. Gotcha. Okay.
Blake Oliver: [00:36:13] You know, and then they do like a compilation instead or whatever. They do whatever they have to do either to it's for investors, right? It's either because you want to raise money and you need to get investors and you try, you know, a bank is not going to give you money without some sort of like audit related thing, right? Like compilation and audit, whatever. Or maybe, um, it's because, oh, you have investors now and you have to do the audit. Um, but let's set that aside. Right. Let's just say the market is fixed. The big four. They are so big because these, you know, multi global companies are so large and have so many entities. It just takes a massive workforce to do those audits. That probably won't change. They've got that wrapped up. Right. Um, that's still going to be a people problem. And it's also a relationship thing. The regional firms are the ones that are, you know, auditing midsize businesses, you know, maybe like a business with like, I don't know, a thousand employees or something like that, you know, a few thousand, um, a few hundred to few thousand. Those audits, I think could then be done by a smaller firm leveraging tech. So that's going to put pressure on those firms. And then same thing with the small firms. You know, a few dozen see, you know, a few, a handful of partners, you know, a few dozen employees, that sort of thing. I think a much smaller firm or an individual CPA could take audit work from them, potentially that they couldn't do before. I mean, I don't know if there are any, you know, I don't know how many audit firms there are where it's just like one CPA, but that's where I think the growth opportunity would be because previously doing that, you were very limited in what you could do because you had to do all of the field, work yourself, all the sampling yourself, right?
David Leary: [00:38:02] You need a team of employees. You had no choice.
Blake Oliver: [00:38:04] Employees to do it. And now you potentially don't need that. Or maybe you just need some administrative staff that can like help the bots do the human stuff that the bots can't do. Like I really, this is not just hype. I really believe that this could be done. I mean, I guess Christina Ho kind of is proving it right. Like she's doing it. She's an expert. So basically it's the same thing. The same thing that happened in client accounting services is going to happen in audit. When it comes to the financial impact of tech, it just never happened before because the tech that helped turbocharge client accounting services didn't really apply to audit. And now it does actually even more because it's funny how everyone's saying like, AI does not replace professional judgment, but it kind of does. Yeah. I mean, that's really what it does, right? Ai is actually really good at making judgments. As long as all the criteria and the process is laid out for how to do it.
David Leary: [00:39:05] And it makes sense because like cloud accounting really made Cass. Cass bookkeeping 90% more efficient than it used to be. So AI is only going to make a teeny bump on Cass at this point. But audit, which basically has had no innovation for God knows when the benefit. It's just going to be such a. It's going to basically feel like what happened to cloud accounting? Yeah, it's going to feel the same way.
Blake Oliver: [00:39:31] And that was what an enormous opportunity that was. Right. We have friends that over the last, you know, ten, 20 years grew practices from essentially zero to valued at $100 million or more. That has happened that you could do that. Like if you started now, you could build that $100 million exit and you could do it in like ten, 20 years.
David Leary: [00:39:58] All the cloud accountants.
Blake Oliver: [00:39:59] As an audit firm.
David Leary: [00:40:01] All you needed was an internet connection and a Starbucks and a laptop. Yeah. And you could start a Cass practice, but now you're saying you could do the same for an audit practice now.
Blake Oliver: [00:40:10] And I think you could get to 1,000,000 in 5 years. And I think you could potentially get to 10 million in between 5 and 15. Imagine that. Right. Like those are those are like the type of exits that you would not normally get from starting an accounting firm. It would be way slower. Okay. I've talked enough about this.
David Leary: [00:40:30] I encourage our listeners to do it. I do not encourage you to do it.
Blake Oliver: [00:40:33] Big David, I really want you.
David Leary: [00:40:36] To leave me and start an audit firm. Do you want to read the next ad? Actually, well, back to back them. If you read the on page ad, I'll read the next ad. After that.
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Blake Oliver: [00:43:05] A Tennessee farmer got a $20,000 refund from the IRS by mistake way back in 2022. He knew it wasn't his money, so he's an honest guy. He worked with his accountant and tried to give it back. And years later, he is still fighting the IRS over it. His name is Wilson Perry Kirby, 76 years old. And after he returned the money, it did not end. Instead, the IRS sent him notices and hit him with interest charges. They withheld his 2025 refund. In July, he got another notice demanding thousands in interest and warning about collections actions. He didn't make the mistake. His accountant didn't make the mistake. The IRS accidentally mailed him a $20,000 check. He contacted government officials. He met with the IRS Taxpayer Advocate Service in Nashville. Still no fix. All he wants is one person assigned to the case who can actually end this. This was in CPA practice advisor. And I'm trying to figure out like how this happened. I guess what they did is they like sent him the $20,000. He tried to return it. They didn't credit his account properly. And now they're charging him interest on the $20,000.
David Leary: [00:44:17] They think they paid him 20 grand. They have no record of him getting it back.
Blake Oliver: [00:44:23] Just a amazing example of, you know, when you try to do a good deed.
David Leary: [00:44:30] Yeah. Just cash the check and move on. Just keep the money. I have an IRS story, so a 39 year old Connecticut OnlyFans creator just pled guilty to tax evasion after earning over $3 million between 2019 and 2022 without paying a dime to the IRS. See three more from Stamford. Didn't just forget to file. She actively tried to hide her income by opening 19 different bank accounts and shuffling money between them. So she had 11 business accounts and eight personal and just kept moving the money around to obscure the income. And during that time, you know, she she got spent too much on rent, luxury vehicles, $110,000 in jewelry. Like, I actually believe that the IRS is probably auditing luxury vehicle resellers and jewelry stores and working backwards on who they should audit from those types of purchases.
Blake Oliver: [00:45:23] Oh, no. There's an even faster way to do it. They just monitor TikTok and Instagram.
David Leary: [00:45:28] Oh, didn't work from that direction. Okay. That's true.
Blake Oliver: [00:45:30] Right? People go.
David Leary: [00:45:31] Out, brag about it, they brag about.
Blake Oliver: [00:45:32] It, they buy these things, and then you just trace them back to, you know, oh, this person didn't file a tax return. I don't understand why people think that they can, like, get away with this by just opening up multiple bank accounts. It's just so stupid.
David Leary: [00:45:44] So, so 1.1 million is owed to the IRS, and she must pay $476,000 in restitution. And with the final amount determined, it's sentencing. So she she pled guilty. But the thing about this is this this is going to get the headlines and the attention. Right. And people should be like, hey, I got to pay taxes. But but the real people that are owing the IRS tens of millions were those news articles. I've always felt like this with banks, right? If some schmuck walks into a bank with a gun and steals $2,200 at gunpoint, that's going to be all over the news. But if some hackers backdoor into a bank through a security gap, security gap, and hack in online and steal $10 million, that will not be on the news because people will be deathly scared, right? It's like, so this, this, this girl is being made an example of. Yes, you need to pay your taxes. This is crap that went on. But like, how about this getting the people that oh, 10 million, $100 million tax frauds. Where are they pleading guilty? Right. Where are those articles? Where's that coverage?
Blake Oliver: [00:46:51] So I've been watching Narcos, David for the first time. I never watched that show when it came out. Oh my God, it's so good. You ever see it?
David Leary: [00:46:58] I've not watched it, but it's Pablo.
Blake Oliver: [00:47:00] It starts out the first two seasons are about Pablo Escobar and the hunt for him. And it's like, you know, him and the DEA and Colombian military and the politicians, the whole story. It's incredible. And then the third season is about the Cali cartel. And, um, you know, just watching this, right? I'm like thinking about, uh, especially in the third season, I'm thinking about like the Cali cartel, you know, because one thing that made them different than Pablo Escobar is, you know, he was a narco terrorist and a monster. And like, he was a really, you know, he bombed his own, he bombed the people of Colombia because when he didn't get what he wanted and stuff like that Cali cartel, they were businessmen, you know, they were like respected in the community. As long as you didn't cross him, they weren't going to, you know, they weren't going to hurt you. Right? Like they were, uh, they were basically business people running an illegal business, but still operating like responsible business people. That's the closest, you know, compared to Pablo Escobar. Let's just say. Right. And, uh, I was thinking about this like, okay, you know, if you are. Involved in that kind of crime, like, you know, uh, you know, cocaine cartel or whatever. And you get caught, right? You're going to go to jail for, you know, decades, decades. And if you are a financial fraudster and you're making similar kind of money, let's say. Right. I mean, those guys are making billions. But let's say, you know, let's even it out, right? Let's say you take a drug dealer who is, uh, you know, making the same amount from their criminal activity as a financial fraudster who is making the same amount. We punish that fraudster way, way less than the drug dealer. But if you think about it, it makes no sense because the fraudster is a thief, the fraudster is stealing money out of people's pockets. They are not contributing anything to the economy.
David Leary: [00:48:59] Yeah, you could argue that.
Blake Oliver: [00:49:01] They're not making jobs.
David Leary: [00:49:02] Are meeting a demand that's in the marketplace.
Blake Oliver: [00:49:05] They're entrepreneurs. They happen to be running a legal businesses, but they're creating a product. They're selling it. People are buying it willingly. They're making jobs. And so like, arguably, like, you know, if, if accountants, accountants, you know, we're, we're business owners ourselves, we are the agents of business owners. We support the economy, right? We underpin it all. You know, we should argue that basically we should be punishing the. My argument is we should be punishing financial crime more than we punish drug crime.
David Leary: [00:49:41] You have a Ted talk. I'd say work with ChatGPT. Write this up. You have a Ted talk right here. This is yes, I, I could see this being a Ted talk. And people will clap for you and people in the audience who are probably doing financial crimes will pay thousands of dollars to see you speak at this ticket. Yeah. Uh, should we jump into apnews?
Blake Oliver: [00:50:01] Um, real quick. We got a few minutes left. Uh, let's talk about mercury in this new gel. I really want to hear about that.
David Leary: [00:50:08] Yeah. So Mercury launched. What they're calling is Mercury Books. And then, you know, everybody claims their first. It's the first AI powered accounting software built directly into a banking platform. And so looking at their FAQs on this. Well, first I googled it. And obviously I might be the first person that googled it because nobody at Mercury googled it. If you Google Mercury Books, you know Google Maps gives you like a hit on the side of a map of a business. Mercury books is the adult entertainment store in San Diego, California. Did nobody like nobody googled this first before they named their product? So get over that. But I was looking at the FAQs. Um, what is Mercury Books? Mercury books is a full double entry accounting software built directly into Mercury account. It automatically captures your banking card, invoicing and bill pay activity, categorizes it, and reconciles it in real time, gives you an always current view of where your business stands. No imports, exports, or manual entry. Does Mercury Books replace QuickBooks? Yes, Mercury Books is a complete accounting system, not an add on or integration layer for another platform. If you currently are using QuickBooks or another accounting tool, books is built to replace it, not sync with it. Do I need a Mercury account to use books? Yes. Mercury Books is only available to Mercury account holders. If you don't have an account, you can apply here, blah blah blah. How much does it cost for the rest of 2026? It's free. That is not the Mercury books, Blake.
Blake Oliver: [00:51:36] Oh yeah. I've got Mercury Books up here on the screen. Uh, in San Diego, they've got 3.9 stars with 16 reviews. Oh, but. Oh, yeah, that's the wrong one. Sorry, David.
David Leary: [00:51:47] That's the wrong one.
Blake Oliver: [00:51:47] I meant to put up this one here, this tab instead. There we go.
David Leary: [00:51:50] And then it's going to be available for $35 a month. Apparently, you can invite your bookkeeper accountant into this. Um. Now. Hey, first off, my $0.02. We kind of predicted this when they hired Ian Crosby, formerly of bench. The bench founder got hired at Mercury, what, 18 months ago? I don't even know if he's still there or not. But you knew that this was probably in their plans to build a GL. Yep. So I'm not I'm not surprised by this, but I'm not sure it's going to make a dent on anything. But let's just say Chase or Bank of America decide, hey, we want to buy Mercury. Now look at Chase or American Express Bank of America chase. Then Intuit has a real problem on its hands because now you have somebody, this massive company with massive reach pushing a GL.
Blake Oliver: [00:52:43] I don't understand why those big banks have not built some sort of general ledger product already. Well, it makes no sense. They should totally do it.
David Leary: [00:52:52] So I've been to, um, uh, it was called Vincent. I've been to, uh, financial conferences for banks back in the day when I was at Intuit and people have been building stuff like this, these products for personal finances and business finances for banks to, um, embed and run on their own bank's website for decades. But I just don't think the banks get traction on this. And I think the main reason why and this happened because their websites suck. It's because some of it's their website suck. But then also, if you really think about these, these traditional banks, they are, they're set up for consumer. They really are, they're not set up for business. And if you think and we ran into this problem, remember I was at Intuit, they were going to have payroll be sold through Bank of America. And it just wouldn't get the legs. It looked good on slide decks, but it never got the legs. Because if you think about a Bank of America physical branch.
Blake Oliver: [00:53:44] Yeah.
David Leary: [00:53:45] You go in there and there's somebody kind of at that front front counter at the time, 45 people in a row are going to come in with problems and questions about their personal banking. Maybe one business owner might come in. So if you're the if you're the employees of Bank of America, you're not going to pay attention to what business services you offer. And that's the ultimate problem with these. They their focus is on consumers so much that obviously, this is why Mercury and relay these companies exist because the big. The big banks don't focus on business at all. But but but but American Express is interesting. If they gobble them up, I could see American Express who has a decent small business focus, you know, wanting to offer a GL. That's where this guy kind of gets really, really interesting.
Blake Oliver: [00:54:28] So $35 a month with unlimited accountant users flat. I mean, that's.
David Leary: [00:54:33] I watched, I watched the video and I'm not super impressed. And what I mean by that, I think we're kind of at the point now with like Claude or Claude Cowork, I could just be like, access my bank account through the browser and go make me a P and L from last month's data. That's essentially what it's doing, but it's built into Mercury. But I feel like AI out of the box could just do this now. It's my gut.
Blake Oliver: [00:54:59] Well, you could build you can build a GL kind of like app pretty easily. Now, I think the issue is just like all this stuff that you need to do with like, so a lot of people like, why do people buy QuickBooks? Like, what do they do with it? What does that business owner actually doing with it on a day to day basis? They are invoicing clients, invoicing, getting paid. And then all the other stuff is the reporting, you know, that happens around that and the tracking, you know, that's not the you.
David Leary: [00:55:31] Still have the Mercury website open.
Blake Oliver: [00:55:33] Um, I can get.
David Leary: [00:55:36] Mercury.
Blake Oliver: [00:55:36] Books, Mercury, Mercury books. Okay. Uh, opening it up. What do you have to say about that?
David Leary: [00:55:43] But if you, but if you look at Mercury's targeting, they're targeting startups, biotech companies, people that just have lots of cash and just spending. Right. And I was thinking about this. I was like, do they do invoicing? And I clicked around. Yeah, they do invoicing and things like that. But a real business. And when I say a real business, a plumber, a plumber that's going to install a toilet and that's like a build or an assembly, you need the toilet, you need the, the, the valve you're going to put in the wall, the, the pipe that goes from the wall to the toilet. You need the wax ring you have to put on the ground before you mount the toilet. And you would, and you'd just have an item in QuickBooks or whatever called toilet install toilet. And all the parts and labor would be rolled up into that. I don't that's, that's real business stuff. I don't think these, these companies can handle that kind of stuff. Like it's, it's again, it's startup bookkeeping, bookkeeping. I have no income. I just have cash that I'm spending. And you're tracking the spend.
Blake Oliver: [00:56:37] David, you still haven't figured out your notifications.
David Leary: [00:56:40] On that note, we ran late. That was the problem here. We ran late, which is.
Blake Oliver: [00:56:43] All right. Well that's good. That's our sign that we need to wrap it up. Thank you. Everyone who joined us live today. Follow the accounting podcast on YouTube. Subscribe, I should say, and hit that notification bell icon to get notified when we go live. You can then join us live, earn free CPE for listening to this episode and our whole almost our whole back catalog, including many other fine accounting and tax podcasts. Listen to an episode. Take a quick quiz. Get your CPE. You can do that@earmark.app, earmark.app in your web browser, or get the free earmark CPE app on the App Store. Create a free account, earn one CPE for free per week, and upgrade to unlimited for the low price of 199.99 annually and do all your CPE listening to podcasts. David, I will see you around here back on Friday doing a double episode week to catch up. Thanks everyone. Bye.
