Latest / The Accounting Podcast / Xero Buys Melio, QuickBooks AI Agents Are Here, More Big Four Cheating

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Xero Buys Melio, QuickBooks AI Agents Are Here, More Big Four Cheating · 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! David Leary: [00:00:04] We're all going to be more productive. Productivity is going to happen 3X5X. Like you just said, look at the profits that are there but at the expense of what? So if you imagine, Blake, you're a manager at a firm. You have 20 employees, you have 20 employees. You're human. Human employees. You have five AI agents that are doing the work of another 20 humans. You're basically managing 40 people now. Coming to you weekly from the OnPay Recording Studio. Blake Oliver: [00:00:34] Welcome back to The Accounting Podcast, your weekly roundup of news in the accounting profession. I'm Blake Oliver. David Leary: [00:00:41] I'm David Leary. Blake Oliver: [00:00:42] And David is back from Ireland. David, you took off a week, first week off in like seven years. How did it feel? David Leary: [00:00:49] It was good. It it's interesting to not have to record, but I still prepared for the show. The news kept coming. Even news about me came. You actually broke that news for me and texted me. Blake Oliver: [00:01:01] Big news. Your former employer, Milio, is getting acquired by zero for $2.5 billion. And we found that out as you were flying back from Ireland, getting delayed all sorts of times, I think you were awake for like 24 hours at one point. David Leary: [00:01:17] About 30 hours to get home. Yeah, it was not fun. Blake Oliver: [00:01:20] So that must have felt good. I mean, because you bought your options, you got some stock in Melio and it looks like like you might do pretty well, right? I mean, how do you feel about this? David Leary: [00:01:30] No. It's great. I mean, the acquisition makes a lot of sense. We've talked about this on the show before. The natural place to play bills is in the accounting system. This is why Oracle NetSuite rolled out their own bill pay. We saw Sage Intacct roll up bill pay. Quickbooks obviously partnered with Bill.com and they partnered with Melio. And now QuickBooks has built their own bill pay. Xero was the only GL without bill pay built in. And now they're going to have bill pay built in because of Melio. Blake Oliver: [00:01:56] That's the plan. David Leary: [00:01:57] They're going. Blake Oliver: [00:01:58] To have the. David Leary: [00:01:59] Full end to end because they bought Hubdoc back in the past for scanning bills, because that's the other natural place. You don't want to go to a separate website to pay your bills or scan your bills. You just want to do it in the accounting system. Blake Oliver: [00:02:09] That's the ideal. And that is what Xero is going to work toward. They say they're going to build Melio into the product, so you'll be able to pay your bills right in Xero, probably do a lot more all the payment stuff, but they're also going to keep Melio as its own independent app. So users who are using Melio can keep doing that. And they have also committed to this is important, keeping other payment services available in Xero. They're not going to pull it into it and block everyone else from putting their payment link on invoices, which that's what QuickBooks does, right? You have to use QuickBooks payments if you want that payment link to work. David Leary: [00:02:46] Yeah, they never had the option to specify a different payments provider the way Xero does. Yeah. Blake Oliver: [00:02:53] So more terms of the deal. It's actually a mix of cash and equity, the $2.5 billion. And we don't know exactly what that mix is, although we do know that Xero borrowed 1.2 billion as part of this deal, along with another 400 million unsecured facility. So seems like what, like a good chunk of this, maybe half of this or more is in cash. Uh, so that's that's good news for you, David. I guess, you know, maybe I don't know how how they do this when they do these. David Leary: [00:03:25] I've never experienced this before, so I don't know either. Blake Oliver: [00:03:27] You'll probably get some zero stock, some cash. Um, there's another 500 million that Xero will pay to Melio for performance milestones over three years. And I heard that the founders of Melio are getting $100 million each. Is that what you heard too? David Leary: [00:03:43] I've not. I've not heard or read anything about that. Um, I did see that. It looks like Tom Barr, he's one of the founders, is now going to be the US vice president or US of America's president. Like some role like that? Blake Oliver: [00:03:57] I don't know, high up in zero somewhere. Uh, and I think it's worth mentioning that Emilio is an Israeli startup. Um, I mean, they've got a headquarters in New York, but like, a ton of the work, a ton of the development, like the company is in Tel Aviv. Right, David? David Leary: [00:04:12] Yeah. And it was interesting because I think the Australian press and analysts are not like super keen on the deal. But then on the other side, they love it. Because finally, like Israeli texts back, Israeli, Israeli company had an exit. You know it's not the IPO because they just they always call it Startup Nation. It's not the IPO that they think they maybe wanted to have out of Tel Aviv. But it is an exit and it's a good multiple for a tech company and its tech back or tech acquisitions back. Blake Oliver: [00:04:46] Well I want to say congrats to Emilio. Congrats to zero, uh, on making that big purchase. And especially congrats to you, David, because when you discovered Emilio and I view it as you discovering it, because I didn't know about it when you went to work there, I was like, what is this company? Why is David going to this unknown Israeli payment startup when there's so many of them? But you saw something. You knew they were going to make it. David Leary: [00:05:12] Well, I was in the hunt, and I can go back to when I. When Bill.com launched on QuickBooks and go back to 2012. And I was still into it. And I remember I was trying to like whiteboard a workflow. Do you remember that company Shoeboxed? Yeah, you'd pull all your receipts in a blue envelope. It's like a Netflix envelope. A blue envelope, you'd mail it off, they scanned your receipts for you and then send you back nicely organized paper clip receipts back to you. Blake Oliver: [00:05:39] Yes. And you get a file with all your receipts or digital online storage with all your receipts organized. Yeah. David Leary: [00:05:44] And in theory, it put the bill into QuickBooks. And so I was trying to connect a workflow where you'd mail off your bills and your and receipts, and then the bill would show back up in QuickBooks and somehow get to Bill.com and you'd pay it. I remember sitting in the room and I was just thinking, Bill.com could only ever get 2% of the QuickBooks base because it's way too expensive. And I always felt like if you could build a bill pay product, that was better experience than the bank websites, because that's what everybody was doing at the time, but almost free or at the cost, like five bucks a month, you could win 90% of the small business market. And I actually going back to the very first QuickBooks connect hackathon, I actually pushed the Hubdoc guys to build this. They pitched it. There's a recording of it on YouTube somewhere, but they never obviously they were trying to build Hubdoc. They didn't have time to pursue this, but they pitched like this free version of bill pay for businesses now. So when I discovered Melio, because it's essentially Venmo for small businesses and I was like, oh wow, this is amazing. Like, you have a chance to win it all. Blake Oliver: [00:06:52] Yes. David Leary: [00:06:53] Like it's cheap and free. Blake Oliver: [00:06:54] It was like completely free. Is it still that way? Like, how does what makes it different? David Leary: [00:06:59] Now they have a paid tier. Um, so they have a free tier, which I think is like five bills a month, which is the same as what's inside of QuickBooks. And I imagine once they get into Xero, it'll be the same type of model where there'll be a free tier and then a charge tier. Um, but what made it really different than all the other bill pay was the credit cards. So you could pay a bill to a vendor. But if you think about, like. Blake Oliver: [00:07:24] I could use my credit card to pay a vendor that doesn't accept credit cards and I would pay the fee. David Leary: [00:07:30] Yeah, it's very similar to Venmo. Like, if I pay you through Venmo, you don't care how I funded my Venmo, and I don't care what you do once you have it. And that's kind of that same thing. I can pay however I need to pay, and you can choose to be paid. Ach, um. Um, paper check. Right. And so you've that, that that freedom on both sides of the equation. But it's a, it makes so much sense because you have people don't want to go somewhere else to pay bills. It just doesn't make any sense. Blake Oliver: [00:07:58] And I would say the other thing that is underrated about Emilio, but is what has allowed them to grow so fast, is the ease of use. They really have prioritized reducing the number of steps to pay a bill, to sign up, to start paying bills, to connect your accounts, to do all that. It's like the easiest possible setup. At least it was at the time when I tried it. And that's really important. Like there is, you cannot understate how important that is and how many companies screw that up. David Leary: [00:08:26] And I think it's still pretty easy to use now. They went upmarket a little bit. And so they had to add some you know I'm going to use the word enterprise functionality. So some of the workflows have a little bit more fields than maybe you would like. But fundamentally it's still pretty easy to use. You just jump in. You put the you put who you're paying, you put their email address and you pay. Blake Oliver: [00:08:46] So investors in zero zero stockholders may not have liked how much zero paid for millio, but I am convinced that if zero can deeply integrate Millios functionality into zero, they will really make zero much more user friendly for the US. And that's what they want to win. They want to win the US. You got to have payments in the app. This is the way they're going to do it. David Leary: [00:09:09] So and the other thing they get out of this zero does is milieu has a lot of banking relationships. So they have a relationship with Capital One. They they basically millios like the small business pill pay part of Capital One. If you have a business Capital One card. Um Fiserv. So they do they own Clover cash registers point of sales. They provide lots of services to banks. They provide a cash flow forecast tool of some type to banks for small business clients. And that is powered by Millio. So this opens the door to two, possibly new customers for zero. Blake Oliver: [00:09:46] So, David, I want to talk more about zero because there's lots of zero updates we haven't covered in previous weeks that have built up. We're also going to talk about QuickBooks and their new AI agents feature. And we've got tons of news about AI agents in general. Big firms are adopting AI agents or spending like $1 billion on AI agents. These investments are crazy. Digits has AI agents. Ignition has some updates. Got to cover that. The IRS might be using AI in audits soon. And there's a new VC backed accounting roll up. So that's that's all the app news I have. Oh, including an anthropic survey about AI agents that features tax pros at the top of the list. In a good way, actually, or maybe a surprising way. So we're going to get to that. Hopefully we'll fit it all into this episode. We also got to talk about the PCAOB getting saved for now by the Senate parliamentarian. Thank you. Parliamentary procedure for saving the Public Company accounting Oversight Board. Uh, and a whole lot more tariffs, the tax bill, whatever we can fit. First, though, we have to thank our sponsor for this episode, cloud accountant staffing. Thank you. Cloud accountant staffing. David Leary: [00:11:00] And human at scale. Blake Oliver: [00:11:01] Human at scale as well. Thank you to cloud accountant staffing and human at scale. Stay tuned for messages about those services. If you are looking for offshore talent to augment your team, that's cloud accountant staffing. What is human at scale? David Leary: [00:11:17] Do David human at scale helps you figure out, um, help helps you attack your processes and your people so you don't have to be in the weeds as the firm owner, the person, the business owner, etc.. Blake Oliver: [00:11:29] Awesome. Um, this is also the time of the episode where we would thank our live stream viewers. We are not streaming live this week because we had massive technical difficulties trying to get our live stream going. We tried twice, we tried thrice, couldn't do it. Who knows what's going on? The the the internet gods were not with us. So we're recording asynchronously and we're streaming out to you, uh, after the fact. So if if that's why we're not seeing your messages. Well, now, you know, that's why. All right, David, let's talk about other zero news before we get into into QuickBooks. Um, Xero is reimagining their home screen. What they have called the dashboard in the past is getting a new look, a new feel. What do you think about this, David? David Leary: [00:12:18] What's your initial reaction was, oh, the Xero user base is aging up. They're getting older because. Blake Oliver: [00:12:25] How do you know that? David Leary: [00:12:27] I mean, like historically speaking, there's a big divide, right? You, the Xero people are much younger than the average QuickBooks ProAdvisor like did Xero Advisors. I mean, look at you. You were younger generation no longer. Blake Oliver: [00:12:40] I no longer count as young anymore. But I guess when I started using it. Yes. David Leary: [00:12:45] So the biggest change I see, they have an animated image of the old UI and the new UI and the fonts are just bigger. I can read it and I was like, this is this is proof that the, uh, the zero user base is growing up and they have bad eyesight now and they have to have bigger fonts. Blake Oliver: [00:13:00] On the other hand, David, it might just be proof that the zero interface hasn't changed in decades because, um, resolutions on computer screens used to be lower. And so the the interface would naturally appear larger on an older monitor. And now you have to like command plus control Plus to increase the font size on these new high res monitors. That could be a two. Um, we'll see how that that looks. I mean, I guess it's nice that they're refreshing the look, what's funny to me is that proadvisors complain about QuickBooks changing the interface constantly. This is like every year, multiple times per year. They have many different types of interfaces and zero hasn't done it in. I honestly, I don't think that the dashboard has changed since I started using zero, which we're coming up on like 20 years now, 15, 15 years. It hasn't changed. That's because it. David Leary: [00:13:54] Never had that web 2.0 feel of the rounded corners, slightly bigger fonts. It just kind of had a a web feel. It never had that that new modern feel. Now it's clean and modern. There's rounded corners. Um, the widgets look like you'd expect a modern app and widgets to look like. It's a good improvement. Blake Oliver: [00:14:13] Now, other than just look and feel what's going to be there, that's different. What information? It's going to be different. There's going to be a task list that will help prioritize actions like outstanding invoices and bills. There will be a widget for recently paid invoices, a widget for net profit and loss, a widget for an enhanced. Well, they already have this the Chart of Accounts watch list, but now it will be enhanced with budget tracking information. If you're using the budgeting in there. So that's going to be rolling out to users gradually. Um, beta participants get access soon if not already. And then the full rollout is planned for later this year after beta feedback collection. What else is new with Xero now? Us customers can, uh, collect payments from iPhones with tap to pay, tap to play, tap to pay on iPhone functionality for us. Customers who have stripe accounts is now functional. No additional hardware required if you're using an iPhone. Uh, this works on iPhone X or later with the Xero accounting app. And I guess your customers can just tap their iPhone to your phone and use Apple Pay and pay you without a dongle. David Leary: [00:15:25] The dongle stuff anymore? Blake Oliver: [00:15:27] Yep. Um, Xero and Tally for are integrating. This is a new partnership with Tali for the, uh, tax prep. How would you what would you call them? They're like a well, what they started as was like trial balance, um, adjustment software. Right? Like, so pull in your data from Xero, adjust it, and then export it into your tax software. Do all the mapping. David Leary: [00:15:53] But you're constantly doing it every month. So at the end of the year, you're not scrambling to have closed books, right? Right. Blake Oliver: [00:15:59] It's it's a live mapping into the tax software. Uh, and then once you do the mapping, everything just flows through. So really streamlines that, that work that you would do in Excel. Um, and so basically you're going to be able to pull Xero data into tally for with just a few clicks. No more exporting to a CSV or a report and then pulling into tally for. That's all. David Leary: [00:16:21] I've got something else on Xero. Blake Oliver: [00:16:23] Oh. What else is new is zero. David Leary: [00:16:24] So zero is launching a series of no code development videos. So They have their zero developers. So somebody who knows how to write code. They can integrate with the Xero API. But for a lot of accountants we have to use no code. I can't code, but I can use no code tools. So they're going to have a series of YouTube videos that are coming out. They're launching at this title of this video series is called Xero Automation Unleashed AI Powered Workflows for your business. And they're going to cover tools like Replit, lovable, Solar Cursor, Cloud Code, windsurf, OpenAI, OpenAI, Codex. So allow you to learn to build things and connect to the Xero APIs and access that Xero data. So it's just a really probably a good Xero video series that's going to help the audience, right? Which is accountants I feel like are the the biggest no coder population, because you kind of know how to write code because you can create spreadsheets, you just need a tool. Blake Oliver: [00:17:21] Where do you access those videos on YouTube? David Leary: [00:17:24] They also have a blog post we'll have in the show notes, but it's on YouTube the very first, like three minute video giving the overview is on YouTube already. Blake Oliver: [00:17:31] What do you search for if you want to go find it on YouTube? David Leary: [00:17:33] I would search for Zero Automation Unleashed. Blake Oliver: [00:17:37] And it turns out I have a bit more zero news that was buried at the bottom of my list. Constant contact and zero are partnering. There's another partnership for you. It's going to allow for automated contact syncing from constant contact into zero contacts and or I guess the other way around, from zero into constant contact. So then you can create email campaigns and. Zero customers will gain access to constant contacts. Full suite of digital marketing features including AI powered email, SMS, social media tools and event management. So basically contact syncing from zero to constant contact, which makes me think of Intuit's deal to buy MailChimp. That's why this is happening, right? Is zero is playing a little bit of catch up here. Zero has also partnered with carbon to streamline workflow carbon, the practice management software. What is going to be enabled by this partnership? I actually can't really tell. Oh, here it is. Real time exchange of client billing and payment data between systems. So if you are on carbon and you are using Xero. Enjoy that new partnership there. All right. That's all I got for Xero news. David let's talk about QuickBooks and I agents. We have talked about this on the show in the past, but I think it bears repeating because Intuit's CEO says this is one of the most important product releases they have ever done in the history of the company. Is that right? David Leary: [00:19:12] Yeah. So there was an interview in Fortune.com, and Intuit said that this is a quote unquote, the most significant launch we've ever had in our history. And he's referring to the AI agents that come out tomorrow. When's the first two days from now. It's soon. By the time you listen to this or watch it, the AI agents might be doing your work for you. Um, so you could tune into all the future live streams. I don't know. I, I kind of question that because the launch of QuickBooks probably is the most significant because they built quick. It was quick and they bought TurboTax. Quickbooks was actually built right. That was actually a launch. Outside of that, there hasn't been any other launches. They acquired mint for personal finances. They um what else did they launch recently? Oh, they acquired MailChimp. All the other products were acquisitions, like there is no launch enterprise suite. Blake Oliver: [00:20:07] Intuit Enterprise. David Leary: [00:20:07] Enterprise was a huge launch. That was a big launch, right? And that is just QuickBooks. Blake Oliver: [00:20:13] Well, it's QuickBooks. Consolidated, right. Consolidated QuickBooks. Quickbooks linked together. Okay. So these AI agents we've talked about this on the show before, but for the listeners who missed it, I want to highlight what they are going to be doing. There are four different types of agents. David Leary: [00:20:29] So one is to spot it's a customer focused one. So spotting leads in emails, drafting emails, tracking interactions all the way to the point of sale. They have another one for payments to streamline and speed up that process. They have one for finance to help analyze and help boost the health of your business. And then the fourth one is for accounting to reconcile expenses and quote unquote, make your bookkeepers happy. And then he goes on to say that it's not just about workflows. It's about a business feed that does everything the customer, everything for the customer while they're still in control. And it's not just about technology. It's also about the human expertise. Because in our world, even millennials, they want the reassurance of a human. But I don't know, my my $0.02 are like, where are the accounting agents? Like really the the most basic thing you can do with AI is write emails. Like, like this is what we're getting. So. So the accounting company is rolling out agents that don't do accounting. Like what's the accounting work. Blake Oliver: [00:21:29] That the work is supposedly transaction categorization reconciliations and anomaly detection. But what that actually means in practice when you're using QuickBooks is something we're going to have to discover because QuickBooks already does transaction categorization. So what does it mean for an AI agent to be doing that? Does it mean I'm no longer going to have to click to accept it? It'll just automatically enter transactions if it reaches a certain confidence. But what is that confidence? How is that measured? How do I define that? How does it work with me to decide what it enters and what it doesn't? And when it comes to reconciliations, what does that mean? Does that mean it's going to automatically reconcile my bank accounts for me? How is it going to do that without a bank statement? Am I going. David Leary: [00:22:11] To have to go there? I don't have to go to the bank feeds screen every day and match transactions. It's not really clear, but this is what's great. This is launching. We'll talk about digits. They're launching I agents. I think in about 60 days we're going to know where we really stand with all these AI agents and how it's going to affect accounting and bookkeeping. Blake Oliver: [00:22:29] You've been gone for a couple of weeks, David, so I'm sure you've got a lot of accounting cleanup work to do. Catch up work. You could use these AI agents potentially to see how well that goes. You know, can can these agents really help with the accounting stuff? That's what I want to know. The marketing I get the, you know, customer agent, like you said, email drafting. Yes. Duh. We all know that it can do that. Scheduling meetings. Sure I suppose, but. David Leary: [00:22:54] The email one like is not impressive. Like who cares? Like really? Do you need a custom created email every time somebody has an overdue invoice? What's wrong with the same template email you sent? You have an overdue invoice number with mail merge well, invoice number and sent it out that folks have been using for 25 years. Blake Oliver: [00:23:11] Like, well, here's my question about that. Let's just talk about invoice follow ups. Will the AI agent just proactively, every day surface the invoices that need to be followed up on and then do it automatically? Or will it just be something where I have to take initiative to do it and I talk to it, and then it does tasks in QuickBooks. That's very different to me. David Leary: [00:23:34] It's drafting the emails up. Right is part of the it's saying I've prepared these overdue emails. Would you like to send them? Blake Oliver: [00:23:42] Well can it send them itself? I think that's to me that's what an AI agent would, you know, if. David Leary: [00:23:47] I gave up control, I guess. Right with that. But but here's where I'm really not impressed with this. I have another article about David's bridal's. Okay. David's bridal is the wedding dress company, right? Yeah. And their CEO is talking about 100% of their emails are AI generated now. So basically we have the accounting technology company delivering the exact same thing the wedding dress company built themselves, probably in-house. It's just I'm not impressed with this is not this is not accounting jobs being done with AI agents? Blake Oliver: [00:24:18] Not yet. Yeah, I think there's a huge overselling of this term AI agents right now, because if it's just like an enhanced chat bot where I chat with it, it has access via the API behind the scenes to do various stuff in the software, but I ultimately still have to chat with it and tell it what to do. All it's doing is is taking away that previous step where I had to go click buttons. Now I'm chatting instead and that could actually be less helpful. That could actually be more difficult if it doesn't do it correctly the first time I have to go, then fix it. I mean, if I could just chat with it, tell it to make an invoice, sure, that could be helpful. And it just asks me questions until it's got all the information it needs to go make the invoice. Yes, that could be good and right. David Leary: [00:25:02] So Stanford and MIT had a study and they came out and are saying that AI is handling repetitive tasks and freeing accountants to focus on higher value work. So they're saying that accountants using generative AI can close the books faster, serve more clients, produce more detailed reports without sacrificing quality. They are saying this is Stanford and MIT are saying this. I don't know any firm owners that are doing this because I can't use AI in my thing. It just sends emails. I can only create overdue emails. Like I don't see AI doing anything else. So accountants using AI finalized monthly reports 7.5 days faster, and spend 8.5% less time on routine tasks. Firms saw a 12% increase in report detail granular granularity when using AI. Um, this is what tells me accountants aren't using AI. 62% accountants. Based on this, their study worry about AI generated errors. That that seems too low. So 40% of accountants are using AI and just not worried about any errors. They're not using it. They're not using it. Blake Oliver: [00:26:05] The question is like is this all theoretical? Is this real world stuff? Like who are they surveying? Are these big companies? Are these small companies. I don't know, but I mean, here, I'll give you an example of something that we did from an analytics perspective. Recently. I took all of our episodes since we moved to our new podcast host, which is years ago, like five years of episodes. And I took the seven day downloads and the titles, and I had a report in the in the browser looking at our show. I copied and pasted the whole thing into ChatGPT and I said, do an analysis. I want year over year comparisons because our show is seasonal, because accounting is seasonal, we have different numbers depending on the month. I said give me a month over month comparison of these seven day downloads, and it took all the data that I just copied and pasted it, organized it into a table, and then it analyzed it. And it did the month over month analysis showing the percentage change from 2024 to 2025 for every month, and it adjusted Did for the number of episodes that we released and it did averages. I mean, it did a very sophisticated analysis that would have taken hours. And then I asked it, okay, go a step further, look at the titles and tell me, what topics do people like the most? What? What is engaging? And it gave me a list of keywords and topics and compared them to the average downloads per episode, and told us what we should be focusing on based on that information. You know, that's really cool. Like, if you're doing a bunch of Excel analysis like that somehow in your company, then I crushes it when it comes to that kind of work. And if you're not trying that I would I would highly suggest doing it. If you can get a subscription and get your company to approve it. David Leary: [00:27:57] And this is where I think there's a huge disconnect happening. There's this messaging or even this study form from Stanford and MIT that it's the the boring work is being done by AI and I agents. I don't see that happening. I see the use of I as like all this data here is correct. Go, go look at it, digest it, process it. Give me an output like you did with the stats about the downloads for the show. Blake Oliver: [00:28:22] I think it depends on how big the company is, David. And I think that's why you're not seeing it, is because a lot of this stuff is happening in like fortune 500 companies where they have the internal resources to automate this stuff with the ERP system, and they are just processing massive amounts of transactions. And so it makes sense to use AI to automate that. That's my guess. You'd have to. David Leary: [00:28:44] Dig in and you move it. You move the needle a little bit, you see your benefit. Blake Oliver: [00:28:48] But when it comes to small businesses and, you know, most of the accountants listening to the show are working with small and mid-sized businesses because that's most of our economy when like half the economy and it's most of the accountants. Right. It's more most of the people, most of the employees, um, Like that. We don't have that yet. That is not happening yet. I guess it's starting to. We're going to see what happens with QuickBooks. And that's why this is such a big announcement potentially is. Yeah. So David let's talk about digits. I agents you mentioned this QuickBooks has their AI agents. What's what's going on with digits. David Leary: [00:29:31] And now digits is launching their agents. That's built on top of their they call it their autonomous general ledger. Um, and so they, uh, they launched their agents, all built on their existing tech stack, but caught my eye about this. And this is where I think we're really going to see the benefit of these AI agents. So one of their partners they work with, which is a firm called Helene, I think, you know, the firm maybe. Yeah, firm. Yeah. So they praised this agent, as they called it, quote unquote, the 24 over seven junior staff accountant. Like this is the dream accountants. Accounting partners have wanted and firm owners. They want the employee that can work 24 hours a day. And that's where agents are going to be interesting. They're going to just be working all the time doing stuff and that's that. That's what's interesting. So even if it does things wrong, it's the volume of work it's doing that you could overcome what it does wrong. Blake Oliver: [00:30:30] And for those who don't know digits, one of the things it does is pulls out all the detailed transactions from QuickBooks, modifies them and pushes them back into QuickBooks. So using AI agents to say do the bookkeeping to categorize the transactions is something that, like digits, is position well positioned to do. They also analyze the data and produce reports. So digits conducted a study. This is according to digits comparing their bookkeeping agent against 12 human outsourced accountants across 2000 real transactions, and they claim that their agents achieved 97.8% accuracy versus humans at a who made a who had the humans had 79.1% accuracy. So the AI agents made ten times fewer mistakes, and they did it at less than one second per transaction versus half a minute for the human. David Leary: [00:31:34] Am I reading this correctly that they're claiming 8500 times faster? Did they read this. Blake Oliver: [00:31:40] 8500 times faster because it's 0.04 seconds per transaction versus 34 seconds per human transaction, and the cost $100 for the digits I versus $40 per hour for humans. So 24 times lower cost. So more accurate way, way faster And significantly lower cost. So they've got a bookkeeping agent that they've launched that categorizes, matches and cleans up transactions. Humans only approve exceptions. This actually sounds very much like what QuickBooks is building or has built. They also have a finance agent that streams live data into always current dashboards and surfaces trends automatically. And then they have a reporting agent that drafts interactive reports, complete with charts and insights ready to share. Now, the reporting agent sounds very much like what you can do today with these chat bots, where you take financial information reports and dump it in and get a narrative. Um, that seems totally doable. I believe that the finance agent. I'm curious about what that means more, but like QuickBooks, their finance agent is like doing cash flow analysis. Trend analysis, looking for stuff. My one criticism about using this for Or analysis using AI agents in the accounting system for analysis or for finance, or for CFO type stuff is like it just doesn't have enough information to do that job. If all you have is the accounting information, you're missing a huge piece. You don't have operational data. You probably don't have payroll data. David Leary: [00:33:16] The rest it'll just make it'll just get all that. Right. Right. And that goes back to when we were at Sage Intacct. The big one for me is at the Sage future conferences. Maybe you don't want your agent, your accounting agent trained on every single thing in the world. You just want them trained on accounting data or your accounting data specifically. Blake Oliver: [00:33:39] So we've got more AI agent news. The big firms have been making big announcements when it comes to Agentic AI or AI agents RSM. They announced a 1 billion agentic AI investment as reported by accounting today. They're there are top ten accounting firm. They're going to target this $1 billion into embedding Agentic AI into assurance tax and consulting. They're going to provide AI tools to boost productivity and professional development. And they are going to develop AI solutions to improve service delivery. They're developing what they call AI flows, purpose built workflows that allow professionals to leverage AI agents and generative AI capabilities within their existing work processes. I always wonder about these billion dollar announcements like, does this mean they're spending cash to do this? Does this mean they're giving everybody an hour on their time sheet every week to do this? I, I you know what I mean? It's sort of like the Melio purchase where it's like a mix of stock and cash and equity. Like, what is it really? David Leary: [00:34:47] I imagine it's not real spend. I think it's some real spend, but it's really probably just time and company resources on the whole they're investing into this. Blake Oliver: [00:34:59] Kpmg has launched their multi-agent AI platform called workbench. Workbench. So what do I mean by multi-agent AI platform? It means that you can create these agents, these think of them like AI chatbots, give them instruction sets and then allow them to communicate with other people in your organization and with each other. And by building a network of these agents that can work with each other, you can really increase what they're capable of doing. And so KPMG is saying that they have currently a network of 50 AI agents that are operational with nearly a thousand more in development. And they will work as, quote, digital teammates, unquote, alongside KPMG professionals. It's built on Microsoft Azure infrastructure with these agent to agent coordination capabilities, and it integrates with their existing platforms for tax advisory and audit. And if they can do this, if they can integrate their audit and their tax and their advisory data with these AI agents, and basically get the agents doing a lot of the work that people would be doing. I mean, the profits could be astronomical. David Leary: [00:36:20] So that's something I saw in an article that was, uh, the title of the article basically is, uh, cognitive load will grow due to AI usage and the we're all going to be more productive. Productivity is going to happen 3X5X. Like you just said, look at the profits that are there but at the expense of what. So if you imagine, Blake, you're a manager at a firm. You have 20 employees, you have 20 employees. You're human. Human employees. You have five AI agents that are doing the work of another 20 humans. You're basically managing 40 people now. Blake Oliver: [00:36:52] Or, I mean, it could it could rapidly expand to, uh, hundreds of agents or people or combination of people and agents. Yeah, I could see that. David Leary: [00:37:03] I saw a funny tweet related to this. Um, managing. Managing your AI agents is like managing your offshore contractors. You wake up in the morning, the work is 80% done, and everyone has a question. And so you have a you're going to have like all this extra work to do because like if a decent human employee, I could ask them to do something, they go off, they do it. And I trust like they're owning the execution of it. And you can't AI agents don't take ownership to get things to the finish line. Right. And that's going to be. Blake Oliver: [00:37:35] They're not conscious, right. They can't. David Leary: [00:37:37] So it's still on your plate. So now you're doing eight x the work you ever did in your whole entire life 20 x the work. But it never actually gets out of your brain. You're never taking it off your plate fully. Yeah. Kind of. Blake Oliver: [00:37:49] No, I, I see where you're going with this, David. So the phrase you used was cognitive load, is that right? Correct. Cognitive load. So the the load on my brain, um, the amount of stuff that I can remember that I can think about in a given day is limited. And it's not limited. By the time I have in the day, it's limited by my mental energy. No matter how much time you or I have have in a day, there's only so many things that we can think about, um, and think about. Well, and not just in passing. And I think a great example of this is the limit on the number of students a teacher can have. There have been many studies that find that a, a teacher in a classroom, they have an upper limit on the number of students that they can have a relationship with, that they can think about every day that they can focus on. And it's like 20 to 30 more than that. And the students start to lose connection with the teacher. The teacher can't really keep tabs on all of them, and so it's kind of the same thing when it comes to all this AI stuff. I think you're right. It's like we assume that because we can automate all this work, that we're going to be way, way, way, way more productive, that it scales up linearly, right? That that the managers of these AI agents will be able to handle it. But I don't know about that. David Leary: [00:39:16] I mean, we're we tend to be humans. We're going to find more work to do. Right? We're not going to oh, I'll just work three hours a week now because I was AI agents doing all this work, I don't why not? Blake Oliver: [00:39:27] Why not? I've got a story about that. David Leary: [00:39:28] We're still going to work 80 hours a week. And Microsoft just recently came out with something with this term. Have you heard the term infinite work days? Blake Oliver: [00:39:36] Oh, that sounds that sounds dystopian. What does that mean? David Leary: [00:39:40] Maybe essentially it's it's accounting firm culture a little bit, right? Yeah. Nonstop notifications, nonstop emails, late night work, blurred boundaries between job and life, and Microsoft saying, guess what? Ai is not going to help with this. It's not going to solve this. Essentially, the takeaway here is the modern workday is broken. And unless people can, organizations can overhaul workflows. Ai is just going to help us burn out faster. And we just talked about that. Blake Oliver: [00:40:06] Right? Because now we have even more stuff to think about. But we don't have the brain space to think about it all, no matter how much time we have in the day. Yeah. So we have to think about these assumptions. Um, and this is the problem in accounting is when you think of everything as based on units of time, you don't account for the brain space problem in, if you think about it. Uh, let's, let's just do a thought experiment here, maybe like the root problem of audit and the reason that audit quality is because the managers and the directors and the partners are overwhelmed. They have too many things to think about. And so if you automate all the routine work with AI, it doesn't solve that problem. It just makes it worse even because now they have even more stuff to review. Speaker3: [00:40:54] Now, because. David Leary: [00:40:56] If I go to a meeting and I pay attention to the meeting and I take three sentences of notes, two action items are for me, I'm done. No. Instead, now I get an email after the meeting with notes. About 10,000 things I don't care about that I have to digest to find my one todo that's in there. Like we're already feeling this. Every meeting you go, do I get a fireflies? I get a zoom summary at Google. I get five summaries of every meeting. This is insane. Blake Oliver: [00:41:21] Yeah. Mhm. I don't know. I don't know how we solve that. It's. Well here's how you solve it. Um, this is what. David Leary: [00:41:29] An AI agent to review. All my other. Blake Oliver: [00:41:31] Exactly. So, so this is where the AI agents talking to each other could potentially solve. This is, uh, because humans can't review all the work the AI's are doing. You now have to build AIS that review the work of the preparers. And this is the classic accounting workflow is somebody prepares work, somebody does a work paper, somebody prepares a return, and then a senior or a manager reviews it, and then they flag all the issues. They kick it back down to the staff. In an ideal world, they kick it back down. They they don't they don't fix it themselves. They tell that staff accountant what they did wrong and they fix it. And then it comes back for review. And then once it's acceptable, it goes through to the next layer. Could you build that with a network of AI agents? Could you have preparer agents and reviewer agents, and could you then get them reliable enough where you could replace the human review for 90% of the work? I think theoretically, yes, this can be done, but will it be done properly in practice, or will this stuff just be rubber stamped by AI and then the humans at the end of the hose, just like, are overwhelmed and can't actually look at any of this stuff. And so quality then goes out the window. I don't know. I mean, that's the question. It could. It could get really good. We could improve audit quality. We could improve return tax return quality, we could improve financial reporting quality, or it could just go all this shit. It's sort of one way or the other, depending on how you do it. David Leary: [00:43:05] The good news is, obviously, with all these AI agents finally getting into people's hands over the next two and a half, three months, we're going to start seeing good data about this. And but there's already indication that AI spending might be slowing down at some companies. So ramp ramps a spend card corporate spend. So they get to see what people are spending their money on. So as I grew, they were able to track all the new spending that's happening with all the AI companies. Well, it's kind of plateaued and flattened out now. It's actually decreased a little bit. So anybody that's going to buy AI stuff has already bought it until there's a new wave of an improvement that it's probably not going to be new adoption. So we'll see if things decrease or go move up with all this. We're going to find out in the next three months because these agents are here now. It's not it's not promised. They're here. Blake Oliver: [00:43:53] I'll tell you what is going to get people to buy it in the in the big market. Okay. It's it's I would buy today. I would pay a lot of money for an app that allows me to build a genetic AI workflows, where I can create multiple AI agents and I can give them jobs, and they talk to each other and they attempt to complete a task as a, as a team. I've been looking into this. I think there's some stuff that I'm going to check out that might be ready. Microsoft Copilot now has this built in Copilot studio just announced that you are going to be able to build multi-agent workflows. I might check that out. I've been a Google Apps user for a long time. Maybe Google has something like that is what I would spend money on beyond ChatGPT perplexity. Claude, all this stuff I'm already paying for. So. And that's what the big four are investing in. That's what they seem to be building. That's what KPMG is building there. Um, yes. I mentioned the copilot studio thing that was in there may announcements. Uh, so yeah, you can now like agents can actually delegate to each other. So I would be really curious to see could I build like an accounting firm of AI agents that does like simple tax returns as an experiment? I bet it could be done at this point. Speaker3: [00:45:09] And I'm sure. David Leary: [00:45:09] Somebody is trying to build that as we speak. Right. Blake Oliver: [00:45:12] So all that review, all that, all that stuff where it's just you're just looking for the same thing every time. It's like the same mistakes happen over and over and over again. So, you know, if you can just find the like just do ten 40s that way, see if you can get AI agents to do a bunch of ten 40s like people would do. I mean, you know, how trained is the workforce at an H&R block, really, David? How much do they actually learn before they start giving them returns to do? I bet you we could train some AI agents that could do much higher quality work than like an H&R block entry level employee doing returns. Who's taken what? Like how many hours of training do they even get? It's probably. Speaker3: [00:45:55] Not that many. David Leary: [00:45:56] Evenings here and there. Blake Oliver: [00:45:58] Okay, David, we got to blast through because we got way more. I, I mentioned Big Four, so I'm going to finish out my stories here. Pwc Cfo.com reported how PwC's tax team is using Agentic AI. I think actually Adam Zaki last week mentioned this when he was guest co-hosting, but we didn't get into the details and I wanted to highlight one of the ways that PwC is using AI agents in their tax function. And the example that I really like is K1 data mapping. How did people do it in the past? How did people do it now? Teams of humans huddle around cubicles to interpret complex K1 footnotes and map deductible expenses. What's the new way AI agents trained on expense treatments can assess K1 footnotes, determine deductibility and map items with confidence levels. When confidence is below 100%, humans review and provide feedback teaching the agent for future scenarios. This seems totally realistic. Totally doable. Something that if you had enough K1 footnotes examples and you had outcomes and you had, you know, like the human explanation for what should be done if you train an AI on a bunch of those, you could totally automate this. Um. So that's that's one of the examples. Okay. That's all the Big Four stuff. I've got. David Leary: [00:47:22] All I Big Four stuff because I think there's other Big Four news that's out. Speaker3: [00:47:25] There. Blake Oliver: [00:47:25] Well, we got some pcob news and I want to make sure we get to that. We cannot forget, but we still got too much stuff to get through. David. So do you mind if I just, like, churn through some of. Speaker3: [00:47:34] This news here? David Leary: [00:47:35] If it's bothering you, churn through. Blake Oliver: [00:47:37] Okay, so, um, let's talk about ignition. Ignition. The proposal management app has announced AI powered pricing intelligence. Intelligence features. So what does this mean? It means that. And we were there. I was there actually. Sorry. You weren't there, David. But I was at ICP engage when this was announced. What it means is that if you create a proposal in ignition, um, you will get AI based feedback on if your pricing is too low just right or too high. And the way ignition is going to do that is they are going to take these service items that are, um, we have descriptions of the services, and you have the price and you have the title, and they're going to compare those across their entire user base, all the companies using ignition. And then tell you if you are priced correctly, or give you some insight as to whether you're underpriced for, say, a particular service that you have put into a proposal before you send it so that you could then potentially change it. Now, I think that has a lot of potential, because pricing is one of my favorite things to use AI for. I would not send a proposal for anything that is bespoke without running it by AI at this point. David Leary: [00:49:03] It's interesting because I think there's pushback on some of these apps and companies that are helping people figure out what they should charge for rent. So basically, all the landlords are utilizing the same database to try to. Speaker3: [00:49:15] Which can actually. David Leary: [00:49:16] Price fixed, but kind of in a way it is price fixing. Speaker3: [00:49:19] Well, there's. Blake Oliver: [00:49:19] A big lawsuit against some of these, uh, rent, uh, rental apps, rental management apps, property management apps. Uh, in the past, because they were that's what they were doing is they were giving that information to their users, which can be a form of price fixing and could be illegal in certain areas. Um, my hesitation with this or I guess the the thing that makes me think this might not work so well is the same reason why AI agents will have a hard time delivering CFO type insights based on accounting information when they don't have operational data, when they don't have data that's outside of the accounting system. So ignition only has a limited set of information. They have descriptions and they have prices. They are also going to have to pull in information outside of that in order to deliver information on, or insights as to whether the price is correct. And they are going to do that for some things they've already said they're going to pull in, uh, industry type, uh, they're going to pull in the billing type and frequency and geographic region. And I think that's important because the amount you can charge for a tax return in Los Angeles, California is very different than the price you can charge for a tax return in. I don't know. David Leary: [00:50:35] But this is. Speaker3: [00:50:36] Horrible. Nebraska. David Leary: [00:50:36] You've already seen these surveys where people are undercharging. So what's going to happen is you're going to get feedback that says you're charging too much. You're way above the average, right? Speaker3: [00:50:48] Right. Blake Oliver: [00:50:48] Because what if the whole industry is underpriced? Speaker3: [00:50:52] That's a good point. David Leary: [00:50:52] They've already had those survey data. We've covered this in the show in the past. These survey data that shows what people are charging. And it's like ridiculously low. Speaker3: [00:51:00] Mhm. Blake Oliver: [00:51:01] Very good point. So right. And this is the thing about AI is that because it's it's trained on all the information out there, it can be very average very mediocre. So if you use what the AI gives you you are accepting an average result. If you want above average or superior pricing, maybe you have to ignore what you're getting from the collective unconscious. Speaker3: [00:51:29] Yeah. Blake Oliver: [00:51:30] Ignition also has launched auto collect to help small businesses wipe out late payments. Uh, auto Collect integrates with your accounting software to streamline payment collection. It automatically imports unpaid invoices from QuickBooks Online and Xero into ignition, and then allows businesses to invite clients in bulk to pay via an online portal. So pulling your invoices from the accounting system into ignition and then send them out to clients, it's sort of the opposite of what you normally do. David Leary: [00:52:03] That doesn't make sense, because if I guess this would be if I'm a migrator, I've not been using ignition yet. This could make a lot of sense, but if I'm already using ignition, in theory, I have no overdue invoices because I made everybody agree to their contract and put in their payment information. I'm billing them immediately. Blake Oliver: [00:52:19] So so so I like it because there's always situations where you did something and you didn't use ignition to do it. And then creating the whole proposal just to get paid is silly. So this way you can just create the invoices in your accounting system and still pull them into ignition to get paid. So you're getting paid in one place for all the stuff you're billing in ignition and all the stuff you're not. So a great example of this is an accounting firm has a CAS team, an accounting services team, and they're using ignition to do all their monthly recurring billing. But you still got a tax team over here that isn't. They're not on ignition. They're using you know. Speaker3: [00:52:56] Whatever they're using. Blake Oliver: [00:52:56] Whatever they're using. Right. And so those invoices are getting imported into into QuickBooks online. And then well, you still need to get paid right by the clients. Well, now you can pull them all into ignition and send them out. So I think that's brilliant actually in terms of getting like wider adoption of ignition in accounting firms across teams where some teams may not want to or be able to use ignition to send the proposals. Okay. Multiplier. Funded, not funded. Founded by X stripe exec Naps 27.5 million to fuel AI powered accounting roll ups. I spotted this in TechCrunch and I thought, wow, that's pretty relevant to our podcast. Noah Pepper is a former stripe executive, and he's raised 27.5 million. And he's doing a roll up of accounting firms, uh, funded by AI, funded by AI, funded by VCs. I'm losing track of my acronyms, David. Funded by VCs instead of private equity this time. Uh, and leveraging AI. So multiplier was actually originally, um, a software company. They were selling software to tax accountants. But then ChatGPT came out and he realized the real opportunity wasn't selling SaaS tools, but making accountants dramatically more effective. And so now he's acquiring existing firms, small firms, and integrating AI into those firms, and he's rolling them up. Speaker3: [00:54:22] And this is. David Leary: [00:54:23] What I talked about last week or two weeks ago with Crete, with Crete. Speaker3: [00:54:28] Professionals. David Leary: [00:54:29] That's the business model by accounting firms. Make them buy the AI. Blake Oliver: [00:54:33] So they recently acquired a firm called Citrine International Tax. It's a 12 person boutique cross-border tax accounting firm. And they say that AI tools helped Citrine more than double its profit margins by eliminating manual work. So that's the idea. Buy small firms, put in the tech, double the productivity. And you know, there you go. It pays for the acquisition all by itself. So this is interesting because this is way smaller than the types of deals you see in private equity. Where to get that. You got to grow to like I got to be a 50 person firm, a 100 person firm. But now I might be able to grow a 12 person firm and then get a nice buyout. So I can see this is where things are going to go, because there aren't going to be that many 50 or 100 person firms once they all get bought by private equity, right? So if you're thinking ahead here, maybe the best thing you could do is start a firm now, grow it to like 12 people and sell it in like 2 to 3 years. And you might. Speaker3: [00:55:32] Be able to sell. David Leary: [00:55:33] It to this this VC company. Other firms will gobble you up because they want 12. You know, they want your 12 person firm. Blake Oliver: [00:55:40] That's right. And you know, professional services is a giant industry. Um, but I don't know if you can even call it an industry, right? It's just a giant like segment of our economy. And so much of it is done in a very inefficient way. And so, yeah, if you can just figure out how to apply AI to increase productivity, you can buy them all day long and essentially, um, just pull money out of them, just just as long as you can keep the people. That's the problem. Right? Is like that's, that's that's where they slow down and is because they implement all this. I people don't like it. They leave and then the firm is unable to grow and and they lose clients, that sort of thing. So it really is all how you do it. But I mean, it's the same thing we've seen before where you take a traditional accounting firm and you apply cloud based accounting automation. What happens? Productivity goes way up. Profits go way up. We've been seeing this story in client accounting services and firms. David Leary: [00:56:41] The difference with that though it was accountants and bookkeepers and people in in the industry doing these transformations. Now it's outside people coming in and changing the industry. And that's the difference with the cloud accounting was driven by cloud accounting and by accountants and bookkeepers and forward thinking cloud accountants. But now it's being driven by cash, really ultimately at the end of the day. And this goes to that argument when I was talking about the professional alliance and. The Red lobster analogy, they're going to force you to buy their shrimp, right? Because you own the shrimp company as well. And the argument that a lot of people had, I put a LinkedIn post and a tweet about this is over and over again. I keep getting educated. I'm using air quotes here for those listening educated on. There are laws and regulations preventing these things from happening to CPA firms that you can't use the verb CPA. So I don't know if you saw this week Tesla delivered its fully driverless delivery of a new car. So somebody bought a car and the car left the factory and just drove to their apartment. And that's how they bought the car. And the reason I brought I think this story is important because it's not about what the driverless car. That's not the story here. The story here is that car dealerships basically were saying the same thing about Tesla ten years ago, because many states have protectionist dealership laws. David Leary: [00:58:16] For example, Texas prohibits automakers from selling vehicles directly to buyers. So a Tesla has to do is they can't have a showroom and finalize a purchase on site. They have to do a website, right, and buy it through the website. And now they've. So basically what Tesla did, they've done gone through some legal battles to get some things changed, but really they just bypassed the whole entire system. And why I think this is important for, for we have CPA protectionist laws. Well, and people think that's going to save them from changing when an accounting firm is and I don't think that's true. I think you're very naive to think that they're going to first start by telling you, you can't put CPA on your, your LinkedIn page, or they're going to create a firm whose initials happen to be CPA, like create professional alliance. Like people need to not don't be so naive that these laws to protect CPAs are going to save you and your firm. And what is an accounting firm and who has control over the accounting firm? These laws are like, oh, only CPAs are going to control the firm, probably aren't going to be around. People are going to figure out ways around it, just like you can buy a Tesla and it just shows up at your door. They're going to bypass the entire loss of the system. Blake Oliver: [00:59:27] So Tesla was getting blocked by this. All these laws that protect dealerships. Speaker3: [00:59:33] Yeah it's like. David Leary: [00:59:33] A partnership thing. Like you can't you have. Speaker3: [00:59:35] To be involved. Blake Oliver: [00:59:36] You have to sell a car through a dealership. The dealership people got these laws passed and all these states to protect their business. It's protectionist. Speaker3: [00:59:45] Yes. Blake Oliver: [00:59:45] To prevent car manufacturers from selling directly. And so you're saying Tesla just bypassed the whole dealership system? David Leary: [00:59:54] Full bypass has happened now, right? Speaker3: [00:59:55] Right. David Leary: [00:59:55] Because order online, just the car drives itself to you. Speaker3: [00:59:58] There's no dealer ship. Blake Oliver: [00:59:59] Yeah. And they got around the laws that way. And and you're saying that basically private equity is going to figure out how to do that with accounting, that the laws that we have to protect us as CPAs Guys will get bypassed because creative people will figure out how to bypass them. And we've already seen that with alternative practice structures. I mean, that's how you get around the rules about CPA firm ownership and independence. Speaker3: [01:00:22] How you. David Leary: [01:00:23] Have a letter of dark horse. Speaker3: [01:00:25] That's. David Leary: [01:00:25] An owner of Dark Horse because of. Speaker3: [01:00:27] This. Yeah. Blake Oliver: [01:00:27] I mean, I'm a shareholder in Dark Horse CPAs. Just to get around this requirement that your firm has to have the name of an owner in it, or the exception is you can use initials. Right. So I'm the O in Dark Horse and there's a, there's an owner, a shareholder for every single letter in the in the word phrase dark horse CPAs. Um, but like that's just a small example of something stupid that doesn't really protect the public. It's just an antiquated thing that still exists from when accounting firms couldn't advertise. Like, people forget that accounting firms until like the 70s, I think, or 80s couldn't advertise. You could not advertise your services. Um, And so yeah, I think I agree with you, David. Like private equity will figure out how to get around all these rules. And unless the regulators sort of like wake up and and and think about deeply about what does it mean for CPAs to protect the public, how do we actually protect the public? And they stopped just making rules to make rules and they start thinking about their purpose. Um, yeah. It's it's going to happen. It's already happening. And and so, yeah, the CPA will get sidelined if we don't do something. Speaker3: [01:01:40] Um, I know. David Leary: [01:01:41] You said the word rule, so I'm going to bring up another quick another story here. One of the things you always bag on Blake is the, uh, you always, like, lease accounting standard. What? How has that helped anybody? You go off on this all the time about lease accounting standards. Not helping anybody. Well, what if I have an example of how an accounting standard is actually disincentivizing stores from lowering prices to consumers. Blake Oliver: [01:02:04] Really? What would that be? David Leary: [01:02:06] So there's a working paper by UCLA Anderson's Zhitong Zheng. He's a PhD student, essentially the accounting standards codification of 606. So it used to be 605 and it changed to 606. Blake Oliver: [01:02:20] And that's revenue recognition. David Leary: [01:02:22] Revenue recognition, um, for uh discounts. So previously the way this worked is the, let's say a bag of potato chips, right. You're the store. I'm the manufacturer. Hey, Blake, if you sell these 10,000 potato chips, I'm going to give you $1,000 as a bonus. Well, they changed this to where? Before I would just. Now I have to figure out how much of that bonus I'm going to have to pay upfront before I actually damage. You're going to sell. Well, now, if I already gave you the discount, that $1,000, what's your motivation to sell the chips or lower the price? But if your discount the rebate, I pay you. You were motivated by moving the chips to get the discount. You might do chips, buy two, get one free. You might do specials like that. And so what they have data on this. The from the implementation of this effective they looked at since 2018 prices on consumer goods rose 4.4% on average. And this is based on analysis of 3 million products across 30,000 to 50,000 stores. Blake Oliver: [01:03:30] Because the accounting treatment for discounts changed. Speaker3: [01:03:34] Yes. Blake Oliver: [01:03:35] Okay. So what was it before? David Leary: [01:03:37] So what it was before. Um, you could I would I would pay you a discount. You'd be encouraged to sell the chips. Blake Oliver: [01:03:48] Now, like you said, you pay me a thousand bucks to sell X quantity. David Leary: [01:03:54] Yeah. So now I have to record it now and issue the discount and figure it out upfront. Speaker3: [01:03:59] Right. It has to be baked. Blake Oliver: [01:04:00] Into the baked into. Speaker3: [01:04:02] The price and. David Leary: [01:04:03] Subtract it from the revenue right away. But that's a lot of work. So instead of doing that, I'll just pay you. How about this, Blake? I'm just going to pay you $1,000 to put these chips up on the wall. Blake Oliver: [01:04:14] Right? David Leary: [01:04:14] And now you got the money. So you have no motivation to actually sell the chips. Blake Oliver: [01:04:17] So changing the accounting treatment removed the ability to offer the incentive, which then has increased prices. It's fascinating. David Leary: [01:04:26] And so this is this is again these accounting standards have impact. They actually have real real impact. Now I know you said that the least who's the least standards helping I don't. Speaker3: [01:04:36] Know I haven't. Blake Oliver: [01:04:36] Met anyone. Speaker3: [01:04:37] Yet. Blake Oliver: [01:04:37] Who defends it. But all right David I got to, um, cover something real quick because, uh, we put it in the title here, and that's the fines for big firms. Big firms have been caught cheating again. The PCAOB, the Public Company Accounting Oversight Board, has fined Deloitte, PwC, EY, Netherlands member firms for exam Misconduct, as reported by Accounting Today. This happened between 2018 and 2022. Hundreds of professionals participated, including partners. They shared answers on mandatory internal training tests and the total penalties amount to $8.5 million. Deloitte Netherlands 3 million, PwC Netherlands 3 million and EY Netherlands 2.5 million. So basically cheating on internal training tests that I guess they're required to have in order to monitor and improve their quality control systems as audit firms. David Leary: [01:05:41] It's interesting from the pcob, right? Blake Oliver: [01:05:44] Yeah. Pcob. So, you know, we've talked about this before, right? When these fines happen, it's like they kind of sound big, like, oh, that's millions of dollars. But then you look at how much these firms make and you know, over all these years. Speaker3: [01:05:56] We're gonna spend. David Leary: [01:05:57] $1 billion each on I. Over the next five years. Speaker3: [01:06:01] Yeah. David Leary: [01:06:02] What's 5 million here? 8 million here? 2.5 million here. It's nothing. Speaker3: [01:06:06] So, um. Blake Oliver: [01:06:07] The Pcob has also fined KPMG 690,000 pounds British pounds in the UK for audit independence violations. Apparently KPMG was auditing cars Group, a London listed agriculture and engineering company, and the firm improperly relied on work from a smaller audit firm that had conflicts of interest. So KPMG didn't realize that they were relying on work. They'd subcontract work, contracted work to a smaller firm. That was in a conflict of interest situation. And I think about these fines and I think, like, did this really actually impair anyone's independence? Like when you actually look at the rules around audit independence, like it'll be, it'll be something like the if anyone on the audit team owns a single share of the company they are you're auditing that's an independence violation. Does that actually make a difference? If I own one, share in like Coca-Cola and I'm auditing Coca-Cola, do you think that's really going to make a difference into how I, you know, approach the audit? There are all these rules around independence that are just so strict, and you get in so much trouble if you violate them. And the pcob goes after these firms for these sorts of things, like independence violations, you get fined easily for that. You have to have these complex systems to monitor everybody and how much they own of every stock and who's on what and who's done what. But what are they actually doing to enforce audit quality? You know, like they're going after the easy wins, but are they really doing their job if they do this? And I have a story related to that that makes me think maybe they aren't doing such a great job. And the headline is PCAOB Permanently Bars Repeat Offender. This appeared in accounting Today as well. The Pcob permanently barred Michael T Studer and revoked his firm's registration. Following severe audit failures related to a 2019 audit of JMU limited, a China based public company. This is a public company, and this guy is not ever going to get to audit public companies ever again. And his firm has permanently lost its PCAOB registration. David Leary: [01:08:23] What was the name of this firm? Blake Oliver: [01:08:24] Uh, it's Michael Studer, CPA, and I forget the name of the firm. I think it's also got his name in the firm or something like that. David Leary: [01:08:32] Very similar story with a different firm, different name. Speaker3: [01:08:34] Okay. Blake Oliver: [01:08:35] Well, so. So his failure was egregious. Um, he failed to do testing on 96% of Jmu's reported revenue. He relied on the work of a contractor. Uh, that he didn't review ignored basic audit sampling principles falsely entered work. Paper sign offs for auditors who had not actually performed the work failed to test a $106 million goodwill impairment. Didn't supervise the contractor in China, only spoke to the guy one time. And here's the thing. This happened in 2019. So where are we now, 2025? It takes six years delay to actually make this happen. And Studer had gotten in trouble before. In 2012, the Pcob sanctioned Studer and his firm for similar violations across five issuer audits. The financial penalty in this case was only $20,000. So think about this from 2012, or perhaps before until now, a CPA was able to get away with falsifying work paper sign offs, doing really shoddy work, not testing Most of the revenue. The vast majority of the revenue of a public company, and it takes this long to get caught. So what that makes me think is, well, how much of this is going on that we're not finding out about? And how many other audits did this guy do that were fake and fraudulent? And it makes me think of the BF borgers story. There's probably a lot of this crap happening, and the Pcob is focused on finding big firms for cheating on tests and independence violations, and not on actually catching the people who are doing fake audits. David Leary: [01:10:25] But the cheating on exams, like I would say, is probably an indicator that you're probably willing to cheat on your audit too and fake your audit because they also, I don't know. So there was a they revoked and find another audit firm. This is a Utah based accounting firm. Heaton and Co, a firm founder and partner Christopher Heaton, were fined a combined total of $60,000. So two people together find only $60,000. Um, and one of their audits. This is this is what caught my eye. The firm created more than 90% of the work papers almost two years after the documentation complete date. Speaker3: [01:10:59] Wow. David Leary: [01:11:00] And after the after the Pcob got involved and started requesting documents, they created the docs. But you're right. It's only $30,000. The fines. The fines have to be much bigger on this. Blake Oliver: [01:11:11] So, like, if I was scooter, right? Like I'm just going to put myself in his shoes. Like, I probably made a lot of money because I was cutting corners or not doing corners, right. Like, just just circle. I'm just doing a circle here. Not even a square. And, um, I'm making a ton of money and. Okay, what's the worst that happens is now I get to retire and go do something else, or I just can't do audit. I can still do other stuff. And I only pay a fine of, what, $20,000? It's ridiculous. Speaker3: [01:11:41] It's a. David Leary: [01:11:41] Business expense. It's like a parking ticket or. Speaker3: [01:11:43] Yeah. Blake Oliver: [01:11:44] Yeah, it's just a cost of doing business. Okay. And the reason I led with all this stuff is because the Pcob has been under threat of like going away. The Republicans in Congress want to scrap the US audit watchdog and give its responsibilities to the SEC. This is in was in the big beautiful bill when the House passed it. And it just got stripped out of the Senate version because, man, the Pcob is lucky. The parliamentarian ruled that it goes against the rules of this type of bill to include the PCAOB provision in it. And that's because this is a budget reconciliation bill, which can only be done once per year and can only relate to budgetary items. And the Pcob is not funded by federal taxes. It is funded by a separate assessment on public companies, and the Pcob is a nonprofit that collects that. So I guess that means that they can't put this in the big, beautiful bill. David Leary: [01:12:46] This is why they can't touch Social Security either. It's a separate institution that's self-funded. Blake Oliver: [01:12:51] It's not part of the federal budget. So Pcob is safe for now. Although Republicans are talking about bringing this up as separate legislation. I do think, though, it'll be a lot harder to kill the Pcob if it's a separate bill, because then, you know, special interests, people who care about this stuff can speak up and create, you know, a reason not to do it. And I want to say, even though I'm really critical of the Pcob in its enforcement activities, I don't think that zero enforcement is the answer. So sure, guys like Studer and BF Borgers might go, you know, under the radar for a long time, but Pcob is paying a lot of attention to the big firms, and they have been hard on them. And I think that's a good thing. We need somebody holding the biggest firms accountable and looking over their shoulder and making sure that we don't have another Enron or a Worldcom. But at the same time, Pcob could really be doing a much better job of just protecting us against fraudulent auditors. Speaker3: [01:13:55] And that's that's. David Leary: [01:13:56] Just there's no excuse for that. It's it's almost it's embarrassing as an industry. Speaker3: [01:14:01] It is like. David Leary: [01:14:01] Everybody else in the industry should be very upset over this. Blake Oliver: [01:14:04] You know, I suppose medical and legal has this problem too, right? You have bad doctors. You have bad lawyers. Right? But, like, I feel like. Speaker3: [01:14:10] Um, we're. David Leary: [01:14:11] Supposed to be above all that. We are the CPAs, right? Blake Oliver: [01:14:13] If we want to be better and we want to increase our value. Right? That's how you do it. All right, David, that's all the time we have for this week. We've already gone way over. Thank you everyone who listened to the End. Don't forget you can earn free continuing professional education for the accounting podcast. Go to earmark, find our show, take a quick five question quiz and get your CPE certificate. I'll see you around here next week, David. Bye everyone.