Latest / The Accounting Podcast / SC Comptroller Steps Down After $3.5 Billion Error (Guest: Terrell Turner)

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SC Comptroller Steps Down After $3.5 Billion Error (Guest: Terrell Turner) · The Accounting Podcast

• Attention: This is a machine-generated transcript. As such, there may be spelling, grammar, and accuracy errors throughout. Thank you for your understanding! Terrell Turner: [00:00:04] I mean, and that becomes a real part of like, you know, your job as an accountant. Like when I moved from public accounting to working for like Fortune 500 companies, like some of the decisions we were trying to make is do we make decision A or decision B And you're doing a risk reward analysis. And I'm like, we have to be able to do this in our profession, but we don't seem to perform that same analysis on the profession itself or the process of trying to become part of the profession. And I think it's a huge gap to where it's like we're not eating our own dog food. David Leary: [00:00:41] Coming to you weekly from the OnPay Recording Studio, this is the Cloud Accounting Podcast. Blake Oliver: [00:00:49] Hello and welcome to The Cloud Accounting Podcast. I'm Blake Oliver. David Leary: [00:00:52] And I'm David Leary. Blake Oliver: [00:00:53] And our special guest this week is Terrell Turner. Cpe Welcome to the show, Terrell. Terrell Turner: [00:00:58] Hey, thanks for having me. Blake Oliver: [00:01:01] Yeah, great to have you on. Where are you located in the world? Terrell Turner: [00:01:06] I am just outside of Charlotte, North Carolina. Blake Oliver: [00:01:09] Okay. Okay. Well, then you are neighbors with the former comptroller of South Carolina who just resigned after a $3.5 billion accounting error. I can't wait to talk to you about that. But before we get into the news, I think our listeners would love to learn a little bit about you, what you're up to. Terrell I think the first time I ever encountered you was via your YouTube channel. You're a prolific YouTuber. What kind of videos are you making these days? Terrell Turner: [00:01:41] So these days we're trying to get creative with just taking current events and tying it back to the business lessons that you're finding in those. Plus, we run a podcast and we capture the video of that as well. So that's kind of where we're living at the moment. David Leary: [00:01:58] Awesome. And it's small business focused content mostly is what you're. Terrell Turner: [00:02:02] Yes. Yeah. So we're focused on small business owners. I mean, because we're just we're trying to take what we know in accounting and finance and make it relatable and practical for small business owners. David Leary: [00:02:15] And are you doing this as like, hey, this is just a way for us to get clients and this is our our our business card and this is going to help you get clients in order for, for my practice and engagements I take on or are you really like, hey, I'm building the YouTube channel and a YouTube following and I'm going to be a I'm going to be a content creator and like that's the kind of thing or is it a mix of both? Terrell Turner: [00:02:33] So it's a mix of both. I would say originally it just started off because when I was working in corporate, a bunch of friends would ask me questions and I'm like, I can't answer everybody's question. Let me just put the answer in a video and you can go watch the video on your own time. And that's kind of what it started off as. And then I just saw that, hey, there's some traction here. Then when we started the firm, it became a way of like, Hey, people were finding us that way. And then now it's like, you know, we get I get speaking engagements because people see it and stuff like that to where it's just continues to evolve and have so many different use cases. David Leary: [00:03:09] And you offer virtual CFO services. Is that kind of what your practice does? Do you do bookkeeping? Do you do tax? Do you anything else? Terrell Turner: [00:03:15] Yeah. So we focus more on bookkeeping and CFO services and we really focus in on law firms. Now, I always say if there's a non law firm that wants to work with us, like it has to really make sense for me to say yes. Blake Oliver: [00:03:30] Why law firms? Why why focus on those guys? Because I've heard both pros and cons and a lot of cons to working with lawyers. I myself did a bit of legal bookkeeping and the trust accounting was quite intense and difficult because those attorneys never seem to want to actually follow the rules that I set for them. Speaker4: [00:03:49] You. Terrell Turner: [00:03:50] Know, and I think that was probably what made it a little bit attractive to me, is because there aren't that many people or accountants or bookkeepers really focusing on that area. And the more I kind of dug in because I started off doing consulting with a couple law firms and I realized, like, I understand your business model, like your business model is not that different from mine. So I understand the problems that you have. And the hurdle for me was finding a way to explain things in a way that they would take the action that they need to make the processes work. And once I figured out how to do that and I was like, plus, I mean, they make a lot of money so they can afford the service and they get it because they're hired to support their clients. I'm hired to support them. So it's like they see my service as a necessary for their business where I'm just like, This seems like a win win. So we figured out the processes and decided like, Hey, this is what we're going to focus. Blake Oliver: [00:04:49] Let's talk about the news, shall we? Let's talk about South Carolina's comptroller and the $3.5 billion error. Yes, you heard that correct? Not 3.5 million, 3.5 billion with a b. Richard Eckstrom CPE will resign effective April 30th. He has served as the state's comptroller general since 2002. And by the way, a comptroller, as I understand it, is just a fancy name for comptroller, according to Greg Kite, host of the Oh My Fraud podcast, who has given himself the job title of comptroller just to be pretentious. So here's the story. As reported in CPA Practice advisor. Apparently he. Inflated the state's cash balances for a decade. Eventually, it reached $3.5 billion. So we're not talking about some sort of like, complicated estimate that went wrong. We're talking about bank reconciliations being completely off. And the state thought that it had $3.5 billion more than it actually has. In his resignation letter, he wrote, Over the course of my time in public office, I have taken great pride in the responsibility trusted to me. I have been humble in my approach to the job, an attribute I hope our constituents have recognized and will remember. Terrell Turner: [00:06:12] That's not what they're going to remember about you. David Leary: [00:06:14] Now, bleak. This like this has been bubbling up in my newsfeed for the last two months. Probably a little versions of this. Yeah. And some of the they were going after him hard because he is a CPA, right? Blake Oliver: [00:06:27] I think so, yeah. David Leary: [00:06:28] They were like they were like, you're they're basically making fun of him being a CPA. Like they were coming after him that hard. Like you obviously, don't you have these credentials that you shouldn't have? They were kind of these other, you know, politicians can get. Yeah. And yeah, so this has been going on for a little bit, but like how what actually happened here? Blake Oliver: [00:06:49] What actually happened? Yeah. So the important thing to note is that this doesn't actually affect state spending because no actual dollars are missing. They just, I guess, thought they had $3.5 billion more than they have. It's going to affect the South Carolina bond rating potentially. So it could increase costs to taxpayers by increasing the interest rate that the state has to pay when it borrows money. Let's see if we can figure out what exactly happened here. Terrell Turner: [00:07:17] I saw some reports on this, and it was mentioning something about several years ago when they changed over to a new operating system. There was some stuff that didn't get mapped properly, so things just got double counted. And and it's just been a lingering issue for like ten years. It's kind of from some of the other reports that I saw to where I'm just like ten years this issue has been going on. Like, where were the auditors in this process for ten years? Blake Oliver: [00:07:48] Right? So they were double counting income, as I understand it, or double counting deposits. And yeah, it goes on for ten years. And there was some young accountant who came in that figured out the problem and solved it. As I understand, I don't know her name, but yeah, it's kind of amazing. Yeah. Where where were the auditors? This is a true. Where were the auditors moment? Right? Not not like Silicon Valley Bank, where there's sort of like a debate as to where where the auditors, you know, and we could say they did their job. I mean, in this case, I don't even know how this is possible. Terrell Turner: [00:08:20] Yeah, it was interesting because when I saw that, I was like, all right, let me go back and look at the last audit that they, you know, because they release it and they share it. And so I looked at the audit report and I read in there for the 2022 and 2021 that the financial statements are fairly you know, there are no no misstatements. And I'm just like no material misstatements. And I'm like, how are they going to explain this in the next, you know, audit report? Because I'm like 3.5 billion is material. I mean, when you look at their budget. David Leary: [00:08:53] Is this a case where, like, you know, like a fraud, like starts out teeny and then then they do another fraud to cover up? Not not saying this was a fraud, but it's kind of that same mindset of like, oh, that's kind of a bad mistake. I don't want to fix it and alert people that that happened. And then it just. Compounds, right? And then next, you know, it's $3.5 billion because you never nobody wanted to get fired when it was a $100,000 mistake. Right. Blake Oliver: [00:09:19] And this is the state this is the state version. When, you know, undeposited funds just keeps building up in your client's account for year after year after year. Right. Until it's a material amount. So that's got to be what it is. Well, we got to move on. We got too much news to cover. So, David, I want to talk about the bonus interview we've got for our listeners this week. We spoke to Linda Wedel of the Minnesota CPA Society or rather Minnesota Society of CPAs. And we had a great conversation with her about what Minnesota is doing to create an alternative pathway to CPA that involves four years of college instead of five. And they're replacing or they want to replace that extra fifth year of education with an optional extra year of work experience. So if you don't want to go get that master's of accountancy, if you don't want to do 30 credit hours that have nothing to do with accounting just to satisfy your requirement in Minnesota, you may soon be able to get through that way if the bill passes. And in a letter to the AICPA and Nasba, Minnesota said something that really resonated with me, they said they surveyed their members, which is something that AICPA and Nasba has never done about this issue. And 85% of CPA members in public accounting support additional pathways to the CPA. 85%. It's overwhelming. Incredible. And another. David Leary: [00:10:46] Go ahead, David. I was going to say, this ties back to even the previous story. That's a situation we're going to have where they can't get auditors, you can't get CPAs and then stay in because that's what they're starting to see. Nonprofits, municipalities, other businesses in Minnesota are struggling to get work done that's needed. And we're going to see more examples of this South Carolina thing. Not that I'm saying that was exactly the talent shortage, but I can't imagine that more of that not happening if we have a talent shortage. Blake Oliver: [00:11:13] Yeah, exactly. More of it will happen, right? That's the problem. They also reported a stat that CPA exam, first time applicants dropped 15 to 25% after the 150 hour rule went into effect. So that gives us an idea of what might be able to change if we get rid of the 150 or not get rid of it, but create an alternative pathway that's 120. Maybe we'll have more CPA exam candidates. More people would be willing to go and try to be a CPA. Terrell, what do you think? Terrell Turner: [00:11:45] You know, I listened to several of the episodes where you guys talked about this and even the interview that you guys did, I forget the gentleman's name, but one of the Ken Bishop. Yes. Yes. One of the obvious things that stood out to me is just this is it's less about like, hey, this practically makes sense. Like this rule is actually making people better, you know, CPAs, better accountants. It's it's more of we worked really, really hard to get this approved. And if we change this, we don't think that we're we're going to lose parity amongst all the states. And I think that it's a horrible way to look at it. I mean, I get it when, you know, your job is just to, you know, protect the profession or the license itself. But I do think to your point, I mean, you got to actually talk to the people in the field and not only talk to the people who are actually doing the job and doing the work or trying to become CPAs. But also you got to look at the demand because, I mean, if we're running into such an extreme shortage, maybe we need to change our strategy. And and I don't think there's any been anyone who's been able to provide a convincing story as to why 150 hours makes you a better CPA. I just never heard anybody explain that. Blake Oliver: [00:13:07] And the best argument, I think, in favor of 120 is that more and more states are moving to allow candidates to test at 120 hours. And if you can pass the exam at 120 hours, then why do you need to go and get another 30 semester hours of education? You've demonstrated your knowledge in accounting by passing the exam, right? So I think that is actually going to change a lot of opinion. It's going to it's going to make the 150 seem more and more pointless when we've got people who've already passed the exam and the only thing they're doing now is paying money to colleges to go get more education. David Leary: [00:13:42] Yeah, there is an article. Blake. I might get you the link here so you can pull it up. But this is on NASA's site, so this is a super long article on Nasba. This is written by his name is Richard. Blake Oliver: [00:13:55] They didn't sign the article though, so this is funny. I saw this blog post to David. I'm going to put this up on the screen here. So this was on here. This is a blog post that appeared on the National Association of State Boards of Accountancy website, but it doesn't have a date and it doesn't have a name. But you figured out who it is, right? Yeah. David Leary: [00:14:14] So his name is. He is Richard Resig. I can give you his link to his profile on Resig. Blake Oliver: [00:14:21] I think. David Leary: [00:14:22] He's the chair. Blake Oliver: [00:14:23] Sage. He's the chair of the board at Nasba. Right. David Leary: [00:14:25] He's the chairman and he's also on the committee for the pipeline as well. So regardless, he basically writes this long article. He's arguing for 150, but he ties it back to discussions in his notes that he had for meetings in the 90 seconds, in 1990. And a lot of it's the same stuff. The the profession is changing. It's expanding and it's becoming increasingly complex, declining enrollments in accounting programs. It's indicating that the profession is becoming less attractive. So these are the similar thoughts that were taking place in 1990 that are now. But he goes on to say, but that study at that time, the conclusion is that there should be more hours, more education. So so the same vibe that's kind of today was happening in 1990, but different conclusion on what should be done. Blake Oliver: [00:15:21] Well, my understanding is that like in 1990, we had a huge surplus of accountants, so they were looking for ways to reduce the number of people becoming CPAs and adding more. Education is always the easy way to do that, right? You create more barriers, but now we're in the opposite situation. David Leary: [00:15:35] And then the study also emphasized, which is interesting, that passing the CPA examination should not be the goal of accounting education. Instead, the education should be on developing analytical and conceptual thinking skills. Blake Oliver: [00:15:49] Well, see, that's the that's the strange thing, because you can develop analytical and critical thinking skills without studying accounting at all. Like me. Right? I went to a school and got a liberal arts education in music, and I learned how to think critically. I didn't have any of the accounting skills, so I had to go back and learn all that. But yeah, they're just mixing it all up. David Leary: [00:16:09] Yeah, And what's scary about this article is it goes deeper in he uses a sentence that says we need to protect mobility at all costs. And I feel like every time politician say things like that, this is like a decade hindering society issues. When people have their that creates blinders, right? They go down the wrong paths. It's really scary. That suggests that. And basically his argument, though, is about more education. And this is the craziest part of the whole thing. This argument is like, well, they need more education so that they're going to have the skills for tomorrow. We're arguing that the colleges are actually preparing people. Blake Oliver: [00:16:46] But we all know that's not the case. Cpas come out of school and they're totally unprepared to actually do real work in firms, Right, Cheryl? Like do you? Everyone I talk to says like, you don't know anything when you come out. Terrell Turner: [00:16:56] When I came when I came out of school, I mean, the first two years, you didn't know anything like you were it was like the first two years of working in public accounting was just like the real education. I needed to figure out how to put this stuff in practice. So, yeah, I don't think the school really prepares you to actually be ready to do the work. Blake Oliver: [00:17:16] So one of our listeners here, Monica, says, I don't agree with getting rid of the 150 rule, but it would be great if the last 30 hours could be in graduate level accounting courses. However, I think the bigger issue are the salaries, especially starting salaries in the field as well as the dreaded busy season time commitment expectations. I think that is where we should focus rather than lowering the education requirements. And I want to say, Monica, thank you. I agree with you that salaries. Ah, the bigger problem that if salaries were higher, people would be happy to go and do a master's in accounting. The problem is they aren't and we can't just magically make them go higher. And I think it's also important to recognize that accounting is an enormous field. There are millions of accountants in this country, and not everyone needs a master's of accountancy. Yes, maybe if you want to go Big Four and you want to go do really complicated stuff for multinational Fortune 500 companies, Yes, the Masters makes sense. But if you want to stay in your city and you want to work at your local city government and do accounting, something like that, where they're having massive shortages, it's not necessary. You don't need that to be a controller at a city. I mean, I doubt the extra fifth year of education would have helped South Carolina comptroller, you know, not make that $3.5 billion error. Right. That was a basic error. David Leary: [00:18:44] So I have a blog post or not a job posting for USA Wrestling. You know, the Olympic team like for controller and it says Masters and accountants or CPA, right? Like it shows like the market does not care like like there's there's. Blake Oliver: [00:19:01] Such a need, right? There's such a need for accountants at all levels that I think the problem is that we've raised the bar and I wouldn't even call it a bar. I'd say we've raised the difficulty level through the Masters and it's really designed for the Big Four, but it's not designed for every other firm. You do not need a master's in accountancy to be a good CPA for 80%, 90% of the businesses in this world. It's just not necessary. David Leary: [00:19:28] So I gave you a link. It's the Executive Financial Executive podcast. It's a two minute clip. They basically had an hour long podcast. They might have been a webinar about the pipeline problems in the Exodus. But but there's a professor and he has a story to tell and it's shocking what comes out of his mouth if you play that clip when it comes to salaries. Blake Oliver: [00:19:49] This is from the Financial Executive podcast. David Leary: [00:19:51] Yeah, it's the green one. Blake Oliver: [00:19:52] The bottom. Here we go. Webinar Clip: [00:19:54] The pass is the requirement for a job in accounting says that you have to have a degree in accounting. Many of the other, um, finance is definitely one of them is not necessarily looking for just finance majors to start in their finance career. They have a little bit more flexibility. So how this kind of translates for me is you would be surprised at the number of students that have at least two majors or a major and a minor. Versus when I went and got my undergraduate in accounting. And so I had a student that was an engineer. He was interested in fintech. Many engineers went into finance in the past, but he was at an inflection point between whether he should use his engineering degree to go into engineering or finance. And so he came back and said he landed on engineering. His initial pay salary was $72,000 with an undergraduate degree and a $10,000 bonus. I don't think that we should chase the salary, but I think that we should find the candidates who may have an interest, maybe they minor. We have lots of mis with accounting minors. They're not necessarily accounting majors. If they have the right skill set in terms of technical skills from some of their undergraduate coursework, we can then move them in the direction of picking up the 150 credits by getting a master's degree in accountancy. Their undergrad wasn't in accounting, but their master's degree is accounting, and now those students can now become CPAs. So I think at the point of the employers, maybe broadening who you're actually looking for may be helpful because you may be able to teach some of the transactional skills in the beginning. David Leary: [00:21:51] And that's Dr. Wayne Williams. He's an associate professor of accounting at Temple University. Blake Oliver: [00:21:58] So, David, explain to me what what the point is. David Leary: [00:22:00] Well, so like, if professors have this mindset that so this accounting student is going to go make more money doing something else, and this professor's basically saying like, we shouldn't chase salaries, we should not try to pay these people more. But at the same time, he's trying to say like, oh, find these people that have other skills and make get them to become accountants. But if they have these other skills, they're going to want to be paid more like. But but if professors don't have the mindset that their students should be making more in the accounting industry, if accounting professors don't believe this, how is this ever going to happen? Terrell Turner: [00:22:32] Yeah, and maybe what he's probably proposing is go find someone who has a major that pays less than an accountant and get them to become. David Leary: [00:22:41] Yeah, maybe he's saying maybe he's suggesting that. Yeah, maybe he's lowered the the salary bar. Maybe. I don't know. It's just the for me it was just frustrating listening to like the, the mindset of don't chase the salary. He gives an example of a very good possible accountant who chose not to be an accountant because of salary. Terrell Turner: [00:23:02] Mean it seems like this embarrassing thing because you know to be a CPA you have to you know, you have to pass the B.S. section, which is, you know, economics and the basics of economics is looking at supply and demand. I mean, that's something that all CPAs have to look at. But when it comes down to actually applying the concept of supply and demand to the accounting profession, it's like we drop the ball on it to where I'm like, Yeah, we're supposed to be good at this, but for some reason we can't figure it out. Blake Oliver: [00:23:32] Well, you know, economics was not part of the curriculum in accounting for me at my program. So maybe that's the problem is like the people teaching accounting don't understand basic economics, supply and demand. And what really frustrates me is people who say like the 150 hour rule has nothing to do with the the supply issue because we just need to increase salaries. And I say, well, cost and price are related. So if you want to increase the supply of accountants, reduce the cost to become an accountant and you will get more of them. Yeah, that's just basic economics, right? And master's programs can cost up to $100,000 for a year if you consider opportunity cost and the tuition cost. So you're talking about not a small amount of money, I mean at least 20% more for somebody to go get five years instead of four. And if the salary is the same or less than something they could do for four years, what are they going to do if they're smart and they're actually thinking about ROI, which they should be, if they're going to be an accountant, they're going to make the calculation that it makes sense to go do something else. And I don't understand why our leaders have such a hard time with this. Terrell Turner: [00:24:42] Yeah, I mean, and that becomes a real part of, like, you know, your job as an accountant. Like when I moved from public accounting to working for like Fortune 500 companies, like some of the decisions we were trying to make is do we make decision A or decision B And you're doing a risk reward analysis. And I'm like, we have. To be able to do this in our profession, but we don't seem to perform that same analysis on the profession itself or the process of trying to become part of the profession. And I think it's a huge gap to where it's like we're not eating our own dog food. Blake Oliver: [00:25:16] So well said. Terrell could not have said it better myself. So I want to move on, if that's all right with you guys. I just want to talk about Silicon Valley Bank briefly, because there's a point that has come up over and over again on Twitter and in the press that I think hasn't been analyzed properly. And that is this concept that the Silicon Valley balance sheet time bomb was sitting in plain sight, that this problem at Silicon Valley Bank, if you just read the financial statements, it would have been obvious to everybody. And so therefore, accounting standards and the auditors are not at fault here that they did their job. They showed the true market value of these bonds on the balance sheet. And it's just up to investors to have looked at that. Now, investors didn't, right? Nobody saw this coming except maybe a few guys on what's that site? Not Motley Fool, but Seeking Alpha. Right. Those guys who like dig in and find stuff and short companies. There were a few guys who saw this coming and one guy who started tweeting about it like in January. But other than that. But it's like the weather. David Leary: [00:26:20] Somebody's always going to have some prediction and somebody's always going to be somewhere. Somebody, somewhere will be right on a prediction somewhere. Right. So. Blake Oliver: [00:26:27] Right, right. It's true. But these guys actually saw it. And so I just want to like I want to answer that question like, well, was it really in plain sight, Right. When when we talk about this? And so let's actually go to the SEC website. I searched for Silicon Valley Bank 10-K, right? This is the form that you file with the SEC. So if you ever want to look at financial statements for a company, you want to go directly to those financial statements. You can just search for their 10-K and find it on the SEC website. And this is the 10-K for Silicon Valley Bank for I hope I got the time period right, December 31st. Yes, 2022. So this is where the bank balance sheet was as of December 31st, 2022. Now the issue around Silicon Valley Bank, for our listeners who have not been following it is basically very simple. They had bonds that they had classified as hold to maturity, massive, massive amounts of Treasury bonds, like tens of billions of dollars of Treasury bonds or mortgage backed securities, actually mainly mortgage backed securities. And in a world of rising interest rates, the value of those investments were declining over all of last year. But because bank management is allowed to classify some of those assets, some of those investments as available for sale and some as hold to maturity, they don't have to recognize the losses on the hold to maturity bonds until they sell them. So all you have to do as a bank manager is say, actually, I don't intend to sell that, so I don't have to recognize the loss. Blake Oliver: [00:28:05] And this is why it was a surprise to all the investors, because when liquidity became tight for SVB, because of all these deposits out flowing, they had to sell the bonds and they suddenly had to they suddenly had to recognize all those losses. And that is what sparked the bank run is close to, I think it was $1.8 billion in losses that they recognized they'd already economically incurred it. They just hadn't said that they'd incurred it yet. It hadn't shown up on the PNL. So let's go see where that information was. Okay. In this filing, I'm just going to start scrolling. And, you know, there's 181 pages in this set of financial statements and there's just, wow, look at all those footnotes. We're not even to a PNL or a balance sheet yet. Page 19 2123. Here we go. Keep going. Keep going. I see it. Well, you know, I've set aside my whole morning as a financial analyst to look, Oh, what's this we've got now? Okay. Management. Oh, no, we're still on MDNA. So this is still discussion. Still still notes. Okay, here we go. Wait, what is this? This is a summary of performance. Okay, there's the securities. Oh. Nope. Still at cost. Okay. Still not. Still not seeing the fair market value. Let's just keep going. Is this a balance sheet? No, this is something else. This is analysis of net interest income changes due to volume and rate. Okay. We'll find it eventually. Terrell Turner: [00:29:29] I laugh when you said that because like one of one of the roles that I have as an investor relations for a company and I used to have to go through this with the Wall Street analysts. So like they were pretty much going through this. And I was like, you know what? The average person who doesn't have experience going through these ten KS, you're not going to find information in there unless you already know where to look for it, because the average person would never go through this much detail like most accountants have never actually read a 10-K before. I know. Blake Oliver: [00:29:58] Right? Unless your job is creating them, you've never even seen one. And to be honest, I've never really even dug into them before because I don't work with public companies, right? So I'm just saying, okay, as an investor, I want to go find it. We're still going, right? So here's HCM Securities, but these are all at net carry value on the investment securities footnote. So here's available for sale. That's not what we're looking for. And for those. David Leary: [00:30:21] Of you not on the live stream, Blake is only at page 67 of his scrolling if you're listening in your. Blake Oliver: [00:30:26] Car. Yeah. And I know I actually went and I found it before but I forgot what page it's on. So this is really sort of like if you're an investor and you're trying to figure out what's going on, where is even the balance sheet? We don't even get to the balance sheet until like. I might just have to, like, control this thing because I'm not. We're still going. What page are we on? David Leary: [00:30:46] I still can't figure out if you're just doing this to be sarcastic or if you're really trying to show us something in this. Blake Oliver: [00:30:51] Okay, here we go. Okay. Item eight Consolidated Financial Statements and Supplementary Data. We are on page 91 and we finally got into an actual financial statement. Terrell Turner: [00:30:59] Okay, well, you're not there yet. Blake Oliver: [00:31:01] So here's the consolidated balance sheet. Okay. Okay. Consolidated balance sheet asset held to market. Okay, here we are. Here we are. Line three under assets, it says held to maturity securities at amortized cost and net of allowance for credit losses. Now, in the column for 2022, it says $91 billion. In the title of that line. It says in parentheses fair value of 76 billion, $169 million. So so if you if you read that little item in parentheses, you would know that actually those bonds aren't worth 91 billion. They're worth like 15 billion less. Oh, by the way, that 15 billion unrecognized loss is greater than the equity of the bank. So the bank is underwater. The bank is insolvent at December 31st, but nobody realized it because of the accounting treatment. And you'd have to actually like look at this footnote on page 95. And now, granted, if you go down to page 125, you will see a schedule. And the schedule shows. Let's see this. The schedule shows. Okay, here's the schedule of the securities. And you can actually see now on a on a chart, you can see, I think the. Is this. Is this it? Here it is. See? Look. See how difficult this is? There it is. There it is. -$15 billion in unrealized losses on page 125 of 181 page financial statement. David Leary: [00:32:38] So on December 31st, 2022, they were already insolvent. And I'm assuming these are this is an audited financial statements. So these were the auditors truly to blame for this? Like is it the auditors responsibility to say publicly that a bank is insolvent? Blake Oliver: [00:32:54] Well, so they weren't insolvent on a GAAP accounting basis. I'm saying they were insolvent on an economic basis, that if the bank had to liquidate that day, they would not have enough money to pay out all their creditors, including their depositors. Because if you look at the if we go back to the balance sheet, which is we have to find it again, sorry to make you scroll again. Where is the we have to find the equity line. Terrell Turner: [00:33:18] But I think that, David, to your point, I think that just ties back to, you know, accountants are not trained to think forward looking or that critical about it. They're just saying, hey, based on Gap, GAAP says the value of this is 91 billion because they're going to hold it to maturity. Like they're not trained to think, well, what if there is a bank run? Or, hey, what if they do have to liquidate it and they do take some losses? That's like that's just not part of your typical accountants training or even the audit process. Blake Oliver: [00:33:51] Okay. So I was I was not quite correct. I was wrong there. Total equity was 16 billion, but they were very, very close to being underwater. Like super close. Right. And Tyrrell, I agree with you. Like auditors, accountants, we aren't supposed to look big picture like this. We aren't trained to look big picture like this, Right? We're just supposed to say, do we follow the GAAP rules? David Leary: [00:34:16] If you had 200 hours of education, though, maybe we can maybe we could train that into you. Blake Oliver: [00:34:21] This is a critical thinking thing, right? Like this is this is actually step back and look for a minute and see what is going on. Right. And the reason I bring this up is because I want to say it was not obvious and it's obvious. It was not obvious because if it was obvious, then these investors, these big investors who had a big stake in SVB would have realized what's going to happen. Right. And and they would have done something about it sooner. All of these unrealized losses piled up over the course of 2022. I mean, there were three sets, four sets of financial statements that would have shown this happening. But because management was allowed to say, we're not going to sell this stuff, so we're not going to recognize the losses, they were able to hide them in plain sight. Now, I would argue that this is pretty much buried in plain sight because who has the time to read 181 pages of financial statements? And it's what's wrong with accounting? Accounting is just way too complicated. Every bank has 181 pages of financial statements. It would take you like 3 or 4 hours to read all of them. And there's thousands of banks in this country like there's no way that anyone can make informed decisions. So and so they all just look at the bottom line. But this number was not in the bottom line. This number was not in earnings per share. It was not in net revenue. And so when it did hit that, that's when everyone freaked out. So that's what I'm trying to say. David Leary: [00:35:38] So so accountants, obviously there's a lot of finger wagging. Shame on you, auditors. Shame on you accounting industry for not catching this. Should the accounting industry be pushing back? Be like, no shame on you politicians, for having laws that allow companies to make decisions like this, to not write this off properly or disclose this expense? Blake Oliver: [00:35:57] Well, I think this is the fault of GAAP, which is ultimately the accounting profession's responsibility, right? Because the SEC has delegated accounting standards to FASB and the Financial Accounting Standards Board decides if companies can do this kind of stuff. And so they should instead of doing stuff like making lease accounting rules and revenue recognition rules that are like 600 pages of guidance, maybe actually focus on simplifying accounting standards so that this information is actually useful. And we're not reading 181 pages of footnotes in order to like figure something out. This is useless. This is why financial statements have become less and less useful over time, and why, as Baruch Lev says in his book The End of Accounting, investors only use financial statements for 14% of their decision making. When was the last time you guys looked at financial statements like this to make an investment decision? When was the last time anybody actually looked at the financial statements to decide whether or not to buy a stock? Very few people ever do it, including really sophisticated investors with lots of money. So this this actually goes back to the talent shortage, in my opinion. Terrell Turner: [00:37:12] Yeah, I mean, I do think that from I would say from from my brief time I spent in investor relations where I noticed that the very large institutional investors would be relying very heavily on the Wall Street analysts like. So during that time, like I was in Investor Relations, we had 21 different analysts from different banks who would analyze our business and they would comb through the financial statements and then they would make their forward looking projections of where they think the price is going to go or the stock. And these are some of the things that they would dig into. But even then, like what something to this level, like not all analysts would be able to catch this. And these are often people who have a, you know, degrees and maybe engineering or finance, and they are deeply quantitative and analytical. But even them a lot of times I would notice like there would be stuff that they would miss too, where I'm like, based on I agree with you, based on the way GAAP is and just the the level of detail, you got to dig in to get to this point. Most people are not trained or aware enough to find this. Blake Oliver: [00:38:18] Yeah. And we got to remember a lot of these financial analysts, you know, they're really smart and they they they come out of school, but they're like in their 20 seconds. They don't have a lot of experience and they are overworked just like the auditors are. And so that's why simplification could help. And I'm not saying that, you know, I'm just saying like, let's let's try to get rid of 80% of the information in these financial statements. And the way that we can do that. Right. The information that doesn't matter and just focus on the 20% that does is by getting rid of the volume of estimates that we make in accounting. Right. So much accounting is estimates. And there's also a lot of ways to manipulate earnings. So if we really want to have good accounting, we need to remove the options for management to manage earnings. And this is a perfect example, allowing them to decide what is available for sale and what is held to maturity basically says like you get to decide if you're going to recognize the losses on your investments. It's up to you. Right? And you can manipulate your earnings that way all day long. David Leary: [00:39:18] And that's the bigger issues like the street judges, everybody at quarter to quarter to basis. People are motivated by the next quarter's numbers. Their bonuses are driven on the next quarter's bonuses. There's not that long term view of a business in the health of a business because this current CEO is not responsible for the business. A decade from now, they're responsible for next quarter's results. Blake Oliver: [00:39:38] And pumping up the stock price, right? So they get that big bonus. So this goes back to our discussion of the accounting talent shortage, Nathan said. Just had a community leader ask if we know anyone who wanted a non profit director job for $90,000 a year. Then we joked how hard it is to find somebody and how small firms are no longer auditing. There's a good chance audits will no longer happen for non profits based on the fact that only one firm is still providing the services here. That's where we're headed, right? Firms are not going to be able to get audits and then. David Leary: [00:40:10] Businesses causes market confusion. Right. And I'm going to transition to this audit thing. But did you see the Jim Jordan, Republican representative from Ohio, talking about how so the Trump hush money case, Right. Stormy Daniels. He paid Stormy Daniels. They're calling this now a bookkeeping error like the these words get just bastardized like and taken over like any chance to like throw accountants and bookkeepers and auditors and CPAs under the bus Now, yes, Blake and I feel like we're hard on the CPA and these things, but this is just like inside family hard. But like we really defend it externally, right, when you see these things coming on. But going back I'm. Blake Oliver: [00:40:51] Just I'm sorry, David. I'm just picturing the bookkeeper and the Trump organization, you know, saying like, hey, this payment to Stormy Daniels, right. And they're like, oh, I have that video. How should I classify this, Mr. CFO? You know, how should I classify this hush money payment? Yeah. David Leary: [00:41:07] And tying this back into, like, this misunderstanding and then how bad it is if the nonprofits can't get audits right or there's misunderstandings. So this is an article and this is out of Boston. And just long story short, because I don't think it's the part of the story I want to bring to the show, but it's A to nonprofits that are maybe tied to like improving neighborhood parks or something, right? They're they're kind of being accused of fraud a little bit or where's this money being spent on there? There's two nonprofits. But I read the article and what I'm really seeing with this is this is just lazy bank feeds. Accounting is what it is. So they actually say, for example, an entry may list an expenditure of $1,100, but it literally does not say what the purchase, what was purchased for the money. There's actually a column in the ledger labeled line description, but it's blank. And has been left since blank since January of 2017. And they give these other examples. But you start reading this, it's really even reimbursing employees, right? It's they're just pulling down the bank feed. It says money was spent, it's categorized, but it's not saying what it's for. And this goes like in general, there's this misunderstanding of what we do as a profession and what bookkeeping is. And, you know, this is lazy bank read accounting. I don't think there's any fraud happening here. It's just people are lazy, lazy descriptions, you know, and auditors don't even know if an auditor, if it's their job to justify, like if you audit a nonprofit, unless the board of directors ask, you're not going to care that they didn't put descriptions right. Blake Oliver: [00:42:35] I don't know. I mean, and this just goes back to the whole problem with auditor independence, right? Auditors don't want to find problems because it just creates more problems for them with their client. And until auditors are hired and paid by somebody else, they're always going to defer to their client. In the end, it doesn't matter how much ethics training we get, follow the money. Right? If I'm getting paid by you, I'm going to represent your interests more than the public's interests. That's simply it. So. And I'll stand by that. Hey, David, I want to I want to toot our horn a little bit, because your favorite politician, Senator Elizabeth Warren, has written another letter complaining to the PCAOB about sham crypto audits. Yes. And we have been talking about this. We have been talking about this for months, if not years, that these. David Leary: [00:43:26] I know she's a listener. Blake Oliver: [00:43:28] And these attestation reports, these attestation reports are totally useless. And they they they confuse the public because they're not real audits. And finally, it's getting some attention. I mean, none of these letters seem to actually do anything. But it's kind of nice to to know that shady audits, she actually used the word shady audits, sham audits. David Leary: [00:43:51] Sham audits of crypto firms. Blake Oliver: [00:43:53] Sham audits conducted. David Leary: [00:43:54] By PCAOB, registered auditors mislead the public. And it's a very finger wagging letter. And then the PCAOB writes a letter back. And I would say that these letters are shams. It just is. The audits are shams because these letters don't actually do anything. It's just a lot of finger pointing. It's grandstanding in the same way the crypto companies grandstanded that they had audits from these companies. These are she is a legislator. She could do something about this. Instead, she just writes letters spanking and finger wagging at Pcob, who writes a letter back to her because there's no threat. Let's write a letter back. The whole thing is ridiculous. Sorry. Blake Oliver: [00:44:32] Very good point, David. No, no, I think you're right. Moving on to to another story. This one's more of a fun story. Jpmorgan Chase is nickelback's turned out to be full of stones. Imagine if you're the auditor in this situation. So apparently a while back, JPMorgan Chase bought a bunch of nickel that was being held at a warehouse somewhere. David Leary: [00:44:52] Oh, like like this is the actual raw material. Like. Yeah, nickel not not nickels. Okay. Blake Oliver: [00:44:57] Got it. No nickel. Right. So they purchased bags of stones that were thought to be nickel. Like nobody opened up the bags and checked to see if there was any nickel in them until finally the London Metal Exchange did poke in and realized that the bags were full of rocks when they were weighing them. And so I just think this is amazing. Can you picture that Like you're the you're the auditor in the warehouse and you go to open one up to check, you know, you're just like, you know, doing my doing my job. And you discover that, like, you know, over $1 million is just gone. I really wonder. Like it was 50 metric tons of nickel that was replaced with stone. Wow. This is going to like, can you imagine how much metric ton? 50 metric tons. Terrell Turner: [00:45:36] That's a lot. Like, did they not check any of it? David Leary: [00:45:40] Organized crime. This is did they. Blake Oliver: [00:45:42] Take out like one bag at a time? You know, like I just this is fascinating to me, of course. And, you know, the funny part is this $1.3 million of nickel, which represents 0.14% of the nickel inventories in the world, just disappeared. And of course, it's like a rounding error for Chase. Right? It's probably immaterial to them. They bought the bags years ago and they just figured it out. David Leary: [00:46:05] Wow. So this could have happened years ago. There may have never been nickel from day one, right? Yeah, possibly. Blake Oliver: [00:46:13] Possibly. Never nickel. Just bags of rocks. Terrell Turner: [00:46:16] I mean, it could have been like the greatest heist of all time. Like, originally it was nickel, but slowly over. I know that's what you wanted. Replaced it with rocks. Blake Oliver: [00:46:24] Just filling, filling, bringing, like rocks in their pockets. Every day. Every day. Just a little bit of nickel. Yeah. Well, David, I think it's time that we got to app news. Yeah. So my big story in app news this week is OpenAI is connecting Chatgpt to the Internet. And this is either going to be the best thing that ever happened to us or it's going to be the end of the world. So if it's the end of the world, none of this matters. So I'm just going to focus on the the good part, which is basically that. First of all, actually, let me just stop for a second and say, first of all, if you are not using Chatgpt, go sign up for it. You can use it for free. And if you pay 20 bucks a month, you can use GPT four, which is insanely good and valuable, and people are already using it to do tax research. Paul Armstrong on Twitter, he tweeted, I have to be careful and verify what it tells me, but Chatgpt is already helping me prepare returns. If I want to fact check myself. It's way faster than using Google and word searching through IRS instructions. And he put an example of a question he asked to GPT three Do 17 year olds qualify for the child tax credit? And then it gave him a great answer. And then he said this was different in 2021. Correct. And then it clarified based on his question whether or not it was different in 2021. And yes, you do have to fact check this, and it's not always totally accurate, but it's a great way to get started. I myself did it asking a question about business deduction of, you know, mileage versus actual expenses. And I said, give me a list of pros and cons. It did a pretty good job. People pointed out that it wasn't quite accurate with luxury vehicles. But I mean, we're saying like I'm saying, 95% or more of the information was was great. And then I dug in after that and asked specifically about that, and it gave me the correct answer. David Leary: [00:48:23] And to summarize and rewind here, Blake, when you say connecting to the Internet, so in even a week ago, I think there was a demo with Chatgpt for where he actually had to manually upload some IRS guidance and then he could ask questions about it. So are you saying it's just now connected and it's there? Blake Oliver: [00:48:39] So GPT or I should say OpenAI open a company that makes GPT four, which is the latest version, has in Alpha released plug ins and plug ins allow you to connect other apps to Openai's GPT four and thereby get to other data that's not in their database, which their database that it was trained on only goes up to 2021, I think September of 2021. But now through these other apps, the API, essentially you can get to the Internet or you can get to your databases. And so a great example of this is Zapier. Zapier is one of the plug ins that I cannot wait to test. I'm not in this yet. I haven't gotten approval to use it, but I'm on the wait list and as soon as I get through, I will try it. You can connect Zapier to OpenAI and then you can ask questions of OpenAI or issue prompts, and it can through Zapier, access your notion databases, for instance, and modify them, access information, do whatever you want to them like it's a user. Okay, So this is incredibly powerful because you're no longer having to copy paste information into Chatgpt in order to work with it. You can just give it access to information that you've already put into a database and that could potentially, through a plug in, be the open internet. David Leary: [00:49:59] So I have a question, I guess, for both of you being CPAs when it comes to disclosure, right? Because I'm thinking an app like Canopy that can go and retrieve people's transcripts. Right. And could they possibly those transcripts now upload in chatgpt and maybe I can interact with Chatgpt. Who knows what the use case might be? Right. But are you going to have to start disclosing to your clients that you're you're doing you're using chatgpt because it's kind of a weird like you're handing data over. It's, it's just different, the relationship. Blake Oliver: [00:50:29] That's a good question. Speaker4: [00:50:31] I mean, so I would say. Terrell Turner: [00:50:32] From an accounting standpoint, I mean, I don't know if like if it's a requirement from an accounting standard that seems more like a legal question or maybe like an ethics question of just having to disclose to your you're taking personal information from your clients, having to disclose to them like, hey, here's what my security procedures are. Now, if you're if you're loading it into, you know, chatgpt or some type of openai, then you better have really good cybersecurity insurance because if anything gets hacked, I mean, if I'm a lawyer and I'm coming in and I'm suing you and I see that, hey, you loaded my client information into an open AI, like, yeah, I'm going to add you to the lawsuit because you could be the leak. Blake Oliver: [00:51:18] Yeah, well, so in my engagement letters, I've always had a blanket provision that says I may use third party apps for your data, including your accounting, financial, personal data, and that by working with me, you are agreeing that I can do that and I'm not liable. Now, of course, whether or not I would actually get sued, Yes. I mean, you always can get sued, right? So you'd better have the insurance. But to me, you know, it's not really any different than if I'm putting information into QuickBooks online. If I if I'm then letting OpenAI access that information, assuming that I've done my due diligence and OpenAI says, you know, we're not going to store this information and mine this information, right? We should probably look at their terms and. Conditions. I think they, in a recent update, said that they no longer use user prompts to train the data set, which means they're not ingesting what you put into chatgpt into their database of, you know, material that the AI can access. So we should confirm that, though, because if they do, that would be crazy. Like you wouldn't want to connect OpenAI to your practice management solution and then have it like ingest all the Social Security numbers of all your clients, right? And then tell other people what their Social Security numbers are. If they ask, that would not be a good thing. David Leary: [00:52:34] So so then what is the word of caution on this? Then we're on this journey because it's going so fast is but we're really truly in running with scissors experimental phase like and people need to really proceed with caution. It's easy to be excited about these things and I'm going to use this in my practice. I'm going to do this. But is it probably we're not. It's really not there yet. Like from a. Well thought out and baked process. I mean, technically, yes. For somebody like you and I. But if you're not really not conscious of the risk, like maybe dial it back a little. Blake Oliver: [00:53:06] Well, I mean, what I know is that a lot of CPA firms will say, we're not going to touch this until we've been issued guidance on how to proceed. And if you if you say that you're not going to touch this for years because that's how slow those things move. So you kind of have to make a decision. It's a risk reward sort of thing. Yeah. And yeah, maybe some data you're okay with putting in there and some data you're not, and you just have to be careful about that in your firm. Terrell Turner: [00:53:30] One quick way I think that people can like if you're running a firm that you can probably, you know, get some kind of perspective on this is whoever you use for your errors and omissions insurance. And if you have cybersecurity insurance or some type of insurance over, you know, if you're hacked or whatever is ask your insurance company. If we do this, will this be covered If the insurance comes back and says, no, if you get hacked and something happens, this makes your policy void, then you kind of got an idea of like, hey, this is a bigger risk than we thought. Blake Oliver: [00:54:07] Yeah, one way to deal with it is to make sure that the only thing that's going into the eye is anonymous information, right? That there's like no names, no identifying information. So, for instance, you know, lists of bank statement lines. If you you could you could actually, I did this. You copy paste like a list of 100 bank statement lines and ask it to categorize those according to a chart of accounts opening. I can do that and it can do that really well. I'm not putting in whose bank statement lines those are. Right. So as long as it's not identifiable, I think you're at less risk is my feeling and I wouldn't say that this is a reason not to use it at all, because the problem is like this is going to become a huge competitive advantage. And here's where I think this is going to affect accounting. Now that we can use OpenAI with our own databases, with our own software apps. If it can connect to Zapier, it can connect to OpenAI, then that means that we can automate a ton of manual work. I think that actually most of audit could be automated all the ticking and tying all that work that is really mindless could be completely automated by AI within a matter of years. If the AI can access the transaction level detail and pull pull transactions. And you know, I mean, I don't see why it can't it can already write better than I can. I mean, it writes, it writes content better than a human being. David Leary: [00:55:42] A second you by far. Yeah, you can't it's going out what takes you half hour. Blake Oliver: [00:55:47] Yeah I put something that I wrote that I think is great into it and I say please improve this and it comes back with a better version. It is wildly intelligent. So I don't see why it couldn't do a lot of that stuff, assuming that we can get the data in. And that's been the problem is you can only put so much into that chat window. But now if you can give it access to a database, you can tell it, you know, okay, here's a database of transactions. Um. Please. Like what? What is something that an auditor would do with that transaction? They'd say like, you know, pull a random set of transactions, right? And let's run some tests. I don't see why an I couldn't run some basic auditing tests or do cash confirmations. David Leary: [00:56:28] You could upload all the ten ks and say which banks are solvent. Blake Oliver: [00:56:33] Maybe that's what's going to end up happening, is that our financial regulators aren't going to actually simplify accounting. We're just going to end up using AIS to find those little time bombs in those financial statements. Maybe that's what'll happen. Terrell Turner: [00:56:47] So I think that that's probably just going to be the result is I don't think the financial regulators are going to be able to create the rules that are going to provide the level of protection that they talk about. It's just people are going to have to get smarter and more intelligent about how we're making decisions because the regulators just don't make rules fast enough. And one is the people making the rules. They don't understand the problem that they're trying to solve. Blake Oliver: [00:57:15] Yep. Well, we got time for one more thing, David. Should I play this video about Microsoft Loop or do you have something else? David Leary: [00:57:22] I think the workflow, the Xero workflow Max announcement is probably. Blake Oliver: [00:57:26] Nobody cares about workflow. Max David I don't know anyone who uses workflow. David Leary: [00:57:29] Max That's why I'm confused. That's why it needs to be explained to me. But is it even in the States his workflow? Max Only a thing and no. Blake Oliver: [00:57:36] I tried it. Okay, so Xero has this tool they bought called Workflow Max a long time ago. This like ancient practice management software that they've had for I don't know it must be 20 years. They white labeled it as Xero practice manager and it's total crap and it hasn't been improved in years and years. There's firms using it, I know in Australia and New Zealand, but this is probably the most obvious thing that the new CEO could do to streamline Xero's offerings. David Leary: [00:58:04] This is why, like me being outside of the Xero world, I always thought it was like this competitive advantage they had in their regions that, you know, as Intuit with QuickBooks Online Account and TurboTax has in the US region, I thought that was a competitive advantage for them. Blake Oliver: [00:58:19] No, no, no. It's it's not good. It's not a good, it's not good software. It's, it's really bad. If you tried it, you would be shocked. I mean, it was good 20 years ago, let's say that. Right. Okay. Or ten years ago. I don't know. I mean I lose track of time. It hasn't been that long, but. Well, this is. David Leary: [00:58:34] Why we had to clarify this story, because it looks and the bad thing is the headline of the article. This was out of the Xero's blog. It says Xero Announces Future Plans for Workflow Max. So it seems like there's going to be like new functionality in there. Blake Oliver: [00:58:47] Well, no, I think that was the spin. The future plans are we're going to kill this. Yes, because it's on their blog. David Leary: [00:58:53] The headline they titled the article Future Plans. Blake Oliver: [00:58:57] All right. I got one more to take us out. And I think this is relevant to the discussion about AI, which is, hey, the Big four aren't afraid to use AI. Pwc has introduced an AI chatbot for 4000 lawyers to speed up work. The project will be delivered through a 12 month partnership with AI startup Harvey. This is 4000 lawyers in over 100 countries. They're going to get access to the technology. It is meant to speed up work from due diligence or regulatory compliance to broader legal advisory and legal consulting services. The firm said it's also looking to extend the use of the service for its tax practice. Companies across industries are testing the promise of generative AI to supercharge efficiency. Here's a quote from Carol Stebbings the global tax and legal leader at PwC UK. Harvey's AI solution marks a huge shift in the way that tax and legal services will be delivered and consumed across the industry. So the smart people at PwC think that AI is going to make a big change. And legal is actually one of the greatest use cases right now, being able to analyze and create language very quickly. I mean, it can it can write contracts, give it a try. Sign up for Chatgpt and ask it, you know, write me an operating agreement with these terms and give it bullet points. I actually I need to put a will in place because I'm going on a trip overseas and I've never had one in place. Right. I probably should. I was just like, absurd that I don't. And I, I asked it to help me and it started asking all the questions that a lawyer would ask me. Blake Oliver: [01:00:33] Like it really made me think it's fantastic for doing brainstorming and research. If you're not using it now, you are already behind and if you start using it, you're going to be way ahead of like 99% of accountants who aren't. And then you'll be ready when it can do the stuff that, you know is really important to us. Like, for instance, Microsoft is building in the AI openai into Excel. So you're going to be able to use OpenAI on an Excel workbook. Just imagine the potential there. And I know a lot of auditors. Yeah, right. Like if you're pulling I mean, I know a lot of. I'm not an auditor myself, right? But I know that a lot of audit work gets done in Excel, right? You pull the GL into Excel and then you sample transactions that way, right. I got I hope you are. And so you could actually ask, you could you could put it in as a prompt. You could say, here's what I need to do according to generally accepted auditing standards, help me do this. And the AI is good enough that it can understand that and do that. I'm I'm just I'm saying now it's going to be able to do those audit procedures, which is going to be great for staff, right? This is how we solve the problem with auditing being super boring and tedious. We're not going to have to ship it out offshore and we're going to be able to do it here by turbocharging the auditors we have with. David Leary: [01:01:54] The train them on. Like, again, this goes back to full circle, the education, right? By the time our educational institutions teach future accountants to use this software. It's a it's five years from now, there won't be anything. Right. So it still doesn't like like, I'd much rather instead of sending somebody for 30 more hours of school. To go, right? Blake Oliver: [01:02:19] Well, and this is. David Leary: [01:02:20] Why go spend 30 hours on this. Blake Oliver: [01:02:22] And this is the problem with accounting education, because it's still very much based on knowledge transfer. So you go into school and you're learning the standards, you're learning the tax rules, you're memorizing a ton of rules. It's it's like rules, rules, rules. And if you're good at memorizing, then you do well. But that's not what's going to be important in the future because the AI will be able to give us all that information. The ten times better than a Google search does. Like Google was already disrupting traditional education because you could just go get information at the drop of a hat. Now it's going to be even easier. And so this is why accounting education is going to struggle, because it's not teaching people how to ask questions, asking questions, and knowing what questions to ask. The AI is going to become the most valuable skill in the world. Because if you know how to ask the right questions, you can be a ten x employee, you can be a 20 x employee, you can be a 100 x employee. If you don't know how to ask the right questions, you're useless in the future. And that's why actually liberal liberal arts educations that teach people to think critically and teach them to ask questions and to challenge authority and to not just do what they're told and regurgitate what they've been taught. That's really valuable, actually. Terrell Turner: [01:03:36] Yeah, I totally agree. I mean, I see that same thing with even people who are beyond the early years of accounting and people who are trying to start firms, because I run into this a lot where people reach out and they ask me questions about like CFO services, or we want to provide advisory services and ask, okay, what are you doing? And I realized like, Wow, you really don't know how to think critically because that's what the whole nature of advisory is, is you're trying to look at whatever situation or circumstance the, you know, this business is trying to navigate. Now. You have to think outside the box and come up with some recommendations or suggestions. And I think that there are a lot of people in the accounting field who just were taught the GAAP rules were never taught to really think analytically, so they're not able to add that value. And yeah, Chatgpt is going to replace the regurgitation of the rules and the people who are going to really win are the people who know how to look the rules and think forward and think analytically. Blake Oliver: [01:04:36] That's well said. David Leary: [01:04:37] So when you talk about like employees being able to 1020 x, maybe not so fast because I saw an article they surveyed HR leaders in one third of HR leaders said they weren't planning on policing employees use of GPT. Gpt Right. Yeah. But that tells me two thirds are planning to police employee use of chat GPT companies. Blake Oliver: [01:05:00] I know. And those companies are going to be left behind. It's it's so stupid not to give access to your employees to do this stuff. Oh, and we'll have to talk on a future episode about this. Like what does this do to the timesheet and hourly billing, right? Like if chatgpt makes me ten times faster, do I build ten times less? I mean, this is going to be the end of the timesheet. It has to be like otherwise this is it. This is it because it makes you that much more productive. So Terrell, it's been great chatting with you. If our listeners want to follow you online, where should they go? Terrell Turner: [01:05:33] Best place is to follow me on LinkedIn is Terrell A Turner on LinkedIn. Blake Oliver: [01:05:39] David, how about you? David Leary: [01:05:40] I'm just on all the socials @DavidLeary. And now people have instead of saying I'm not a bot, they've been saying I'm not chatgpt. That's what people have been sending me messages. Blake Oliver: [01:05:48] But there's no way to know. Like I said, you could just query Chatgpt Please compose a LinkedIn invite to @DavidLeary that will inspire him to accept my connection request and then, you know, make sure that you say you're not a bot, although I think the new rules will prevent it from doing that because it doesn't want to help you lie. It's it's got guardrails in place. I tried to I tried to ask it like, you know, what's the best way to lie on my timesheet. It wouldn't it wouldn't do it. It said you should talk to your manager about the expectations. David Leary: [01:06:24] That's pretty funny. Yeah. And how old are you, Blake? Blake Oliver: [01:06:27] And I am at Blake T Oliver. Follow me on Twitter and LinkedIn and follow us on YouTube. Cloudaccountingpodcast.com Subscribe and you'll get to know when we go live. Thanks everyone who has joined us. It was great having you here with your commentary and questions. We'll see you again next week. Speaker4: [01:06:45] Hi, everybody.