Latest / The Accounting Podcast / TurboTax Losing Customers Over Price, Thomson Reuters Builds Own AI

Transcript

TurboTax Losing Customers Over Price, Thomson Reuters Builds Own AI · 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] I want dumb AI like AI that only knows accounting. I don't want it to know the history of the world and every possible thing, because the odds of it hallucinating are trying to outsmart itself are just way higher. But if it only knows this tax law and case law and tax code, it's likely to hallucinate less. Coming to you weakly from the OnPay Recording Studio. Blake Oliver: [00:00:29] Hello, everyone, and welcome back to the Accounting Podcast, your weekly roundup of news in the profession. I'm Blake Oliver. David Leary: [00:00:35] And I'm David Leary. Blake Oliver: [00:00:37] And David, today we are welcoming Hector Garcia to the show as our co-host to talk about the Intuit earnings call. Turbotax looks like it's in trouble. They're losing customers to cheaper alternatives and the market did not like that. Wall Street did not like that. We're going to dig into it with him. We've also got a story here about Thomson Reuters building its own AI model from its own proprietary data. Really interesting implications from that for Thomson Reuters in the future of of tax. We've also got an interview with Britton Ratcliff, the youngest person to ever sit on a board of accountancy. He's on the New Mexico Board of Accountancy, and he got there as a teenager and he's still in school. We're going to talk with him toward the end of the show. Uh, and first, let's thank our sponsors. David Leary: [00:01:35] Our sponsors. This week we have cloud accountants staffing Thomson Reuters on pay and Savant Labs. Blake Oliver: [00:01:41] Are you tired of the endless search for qualified accounting talent? You're not alone. Growing accounting firms are struggling to find available and affordable team members when they need them most. Cloud Accountant staffing has the solution with their revolutionary candidate portal. Unlike traditional staffing agencies that waste your time with sales calls, paperwork, and deposits. The Cloud Accountant Staffing Candidate Portal gives you instant access to highly vetted, qualified accounting professionals. No waiting, no hassle. Just top talent right now. What makes this different? Speed and simplicity. While other firms make you wait weeks or months with cloud accountants staffing, you could interview someone as soon as tomorrow. Their boutique support ensures you're getting quality talent that's both available and affordable. Exactly what growing firms need. The candidate portal puts you in control. Browse live candidates, make selections on your timeline, and build your offshore team without the traditional headaches. To find, review and book interviews with potential team members, all in less than ten minutes, head over to The Accounting Podcast dot io slash CAS. That's The Accounting Podcast dot io forward slash CAS. David Leary: [00:02:47] Will you add Hector here to the show? I'll just kind of cover the high level Intuit fourth quarter earnings. So the full year revenue was 21.4 billion. That's 14% growth with Q4 being 4.4 billion. The first time breaking 20 billion annually. So into its numbers revenue wise are way up, right? Turbotax live revenue surged 37% and now represents 53% of all TurboTax revenue. So that's the live service where it's, you know, you get the software and the human doing the taxes with you. And then but where the street freaked out, I think is their fiscal 2027 guidance calls for about 23 to 23.5 billion in revenue, only 9 to 10% growth versus this year's 14% growth. And the street's freaking out a little bit for I think there's lots of opinions, right? You have people like AI is killing Intuit over here. On one hand, you have those people. And then the other weird thing is Intuit's reacting to that. On the other hand, where they're saying, oh, look at all this AI we have. That's why our numbers are so good. It's so brilliant to me, like Hector on, let's get some perspective and chat this out. Blake Oliver: [00:03:52] Thank you for joining us. Welcome to the show. Great to have you here. If you don't know Hector, you should. He is one of the biggest QuickBooks and accounting YouTubers. He's got one of the largest QuickBooks channels on YouTube. Uh, he has been the host of the unofficial QuickBooks accountants podcast in the past, and he runs a conference called reframe, which I am eager to get to at some point soon. And he's basically an expert on all things into it and QuickBooks. So Hector, great to great to have you here. We'd love to get your take on Intuit's earnings call and what's the future of QuickBooks and TurboTax and all this stuff. Hector Garcia, CPA: [00:04:31] Awesome. Well, thanks for inviting me. I'll take away the expert being an expert in all things into it, to being highly opinionated in all things into it. Let's just say that, um, so what is interesting about what's happening with Intuit is that if you go back to like July of 2025, and I know this very, very intimately because I, every year that I've been in practice for the past 18 years, I buy a percentage of my earnings in Intuit stock. And there's a specific philosophy on why I do that is because my brand as an educator in accounting and user of the product and a reseller of the product is very tied to Intuit. And when I see the sales go up because I see my sales go up as a reseller, I'm I'm seeing I'm bullish about it, right? So I'm buying into a stock every single year. And I have bought stock at $30 when it first started. And I have bought stock at $700, you know, last year. So I have had the lows and highs of into a stock going up and down. So right now into a stock is trading in the mid three hundreds. At its peak it was close to eight or at 800 in July of 2025. So the story is that Intuit's revenue is not going down. The profits are not going down into. It is an extremely profitable company. Their margins are crazy. So we're talking about $21,000,000 billion in revenue, $4.5 billion in profit. It's a profitable company. Blake Oliver: [00:06:00] 14% fiscal 2026 revenue growth. That's not bad for a massive public company. That's pretty darn great. Hector Garcia, CPA: [00:06:07] Public company in business for 40 plus years. I mean, you gotta take that into consideration. The sister company, not not sister company. I would say the company that the that the market that the market uses to compare Intuit with a lot is Adobe because Adobe has a very similar story. It was born in the 80s. There are software, mostly application business. They felt AI can threaten, you know, graphic design and all this stuff that they did. Um, and Intuit came a little bit later just because I guess people hadn't noticed, you know, whether or not AI could disrupt accounting until maybe three years later. They're around $100 billion in, in, in, uh, in market cap. They're somewhere in the 20s in the billion dollar annual revenue. So they're very similar companies. And you look at the two companies and the two companies have had very similar fates. Uh, when Adobe was at its peak, it was trading at 60 times its earnings. That's a p e ratio when Intuit was at its peak. This is July of 2025. It was trading at 56 times earnings. And now both companies are in the teens and the 20s and they go back and forth. So there's a broader story here, which is the market is reacting to, um, the impact that AI has on SaaS. But most accountants, I don't think look at it that way. I think most accountants look at Intuit stock and they have more like personal grievances. And they're saying, see, this is what's happening. And I think I can also tell you that story from my perspective and what the community is saying. But I think the market really, really, really is reacting, in my opinion, to just the impact of AI on companies that only do apps that are not platforms or hardware makers because Microsoft and Apple don't have the same fate. Blake Oliver: [00:07:58] So I want to talk to you, Hector, first about this TurboTax question, because TurboTax has always been a huge revenue driver and growth driver for Intuit, and Intuit acknowledged in this earnings call that they are losing DIY tax customers to cheaper competitors, and that price is now the number one reason that customers leave TurboTax. They are expecting only 2 to 3% TurboTax revenue growth in 2027, and that's because they are having to lower their entry level pricing in order to acquire and retain those DIY users. So I want to get your take on that. And you, David as well. Is, is TurboTax done? Is AI going to automate the DIY tax prep so that Intuit can't charge, you know, 100 to $200 for a return. David Leary: [00:08:50] I don't think so. If you think about how many returns Intuit does versus how many returns detector as a firm, you do a portion of your firm does tax work, right? Factor. Right. You probably charge a lot more than what I'm paying for TurboTax, more than I'm probably paying for TurboTax live. I think AI is going to disrupt that layer, not so much into it. There's always been cheaper and free alternatives to TurboTax. They've been around for 20 years. They've always been there. This option to use something cheaper has always been there just because now it's what in a chatbot format and a text box that's supposed to completely blow up into it. I just don't completely buy it. Like it just doesn't. I don't buy that and I don't buy. Also, the fear of like, AI is going to disrupt QuickBooks entirely. Like, so the street has this opinion that that's going to happen. But historically speaking, like 40, what, 45 million people use TurboTax for their taxes. Now, how many are really going to walk away? Like how many are going to be like, I'm going to use AI to do my taxes this year. That's a pretty like, think about that. You go to your spouse be like, hey, I'm not going to, I'm going to use AI to do our taxes this year, even though we've used quick TurboTax for the last 20 years. It's not going to go over very well. Like it seems. It seems risky. Blake Oliver: [00:10:00] Well, Intuit's obviously decided that they have to lower their prices in order to retain those customers so they don't go elsewhere. And something interesting. An interesting tidbit that ties into this pricing question is what does it cost to actually do a tax return with AI? And I'm estimating that it costs about a quarter, $0.25 to do a tax return with an AI agent in tokens. Most of these returns are really simple. The ones that are being done on DIY, on TurboTax. So if that's the cost, right, how can you possibly support these prices that people have been paying? And that's why Intuit is having to bring the price down. And it looks like that's, you know, they might retain customers, but they're going to get punished in terms of their margins that they've always enjoyed. David Leary: [00:10:51] But the. But in theory, they're going to benefit from this efficiency, right. That they're going to get some some percentage of cost savings by using. Well, by. Blake Oliver: [00:11:00] But I mean, what does it cost them to do a return now with the software they've built. Right. The issue is the competitors. So I can spin up a new tax prep company and I can just plug a bunch of AI agents in instead of having all this rules based logic that Intuit spent all these years developing and TurboTax, it's really hard to replicate, and the agent can just do it without me having to program that. So that's why you've got all these like small competitors popping up doing these returns. It's an interesting question as to whether or not Intuit will be able to continue to add value so that people want to stick around. Hector Garcia, CPA: [00:11:33] I have some opinions. Okay. So, um, you mentioned my firm, David. So I find it for my firm to be a healthy thing, to lose the lower end customers and gain the higher end customers. Okay, obviously I'm a small firm. I'm not into it. Intuit is losing TurboTax units. They said it went down by 2% units. So total number of Social Security numbers that process their tax returns via TurboTax. But their TurboTax live revenue went up 37%, and it's over half of their total tax revenue. Could TurboTax be in a better position by repositioning themselves not at the lowest end of the market, but somewhere in the middle of the market? That could be. I think Intuit needs to go back to the free TurboTax offerings and expand the free TurboTax offerings. Right. So because you cannot beat free and, uh, and then figure out how to maybe cross-sell to those customers in some other way, right? Like we Intuit has credit Karma. You know, I would say I would just venture to say if Intuit where to be okay with lowering the price and going after these lower, uh, echelon of, of, of the taxpayers. And you were to look at every single schedule C filer that intuit us for free or close to free and convert those to QuickBooks. That could be their winning formula. Because look, QuickBooks is $12 billion of the revenue and TurboTax is $5 billion of the revenue. I do not see those numbers flipping. I see QuickBooks and QuickBooks ecosystem and all the small business, uh, cross-selling, payments, payroll, all that stuff to, to be double or triple of what TurboTax will ever be. So I don't think Intuit, I mean, Intuit should, should, should somehow try to be everything to everyone, you know, having, you know, products all the way from, you know, the really, really tiny people to all the biggest people. Maybe they could find positioning in that, let's call it mid-market, but that higher echelon of of taxpayers. David Leary: [00:13:42] So it's a good point. More of a, hey, we, we have 40 years of experience doing taxes on the cheap with the cheapest clients and the cheapest customers. And we've done some math and like, we're not going to let you take them. So we're going to lower our price and try to be competitive on that front. But if you want to beat us and take, you know, a million customers that aren't paying much money anyways, in the meantime, we're going to maximize the other 39 million that stay with us and get them to pay three times as much because the TurboTax live, etc. it's almost it reminds me of the quicken argument, right? I remember going, you know, before they, when they bought mint, going to like a fintech conferences and seeing, you know, 200 pitches for these personal finance apps that are going to be the next quicken killer, right? They're going to disrupt quicken. But what none of them understood is there's no growth for quicken for 25 years. So that's why Intuit eventually just sold quicken. Fine. You guys want this market that's not very profitable. Take it. Because at the end of the day, personal finance is a hobby. Nobody has to do personal finance. And just letting the. Are they letting the low margin stuff go so they can sell more? Blake Oliver: [00:14:48] I've got a follow up question on that as well. First, let's thank our next sponsor. And that is Thomson Reuters. If your tax workflow still feels like a grind every busy season, you're not alone. We hear from firm owners every week who are buried under disconnected systems. Manual data entry and staff stretched way past their limits. But it doesn't have to be that way. Thomson Reuters built the tax automation suite to solve exactly this headache. It connects safes and Sure Prep and ultra tax CS into a single ecosystem that covers every step with true end to end automation, from gathering a client's documents to final delivery. We're talking up to 65% fewer clicks per return. Ai powered data extraction that saves 90 minutes per return. A 58% increase in capacity with current headcount and a 55% improvement in profitability, because those time savings go straight to your bottom line. This isn't some patchwork of tools bolted together. It's a purpose built suite where data flows automatically between every stage. That means no rekeying, no bottlenecks, and no back and forth with clients. Firms using it aren't having to bring on additional staff during peak season while still growing revenue. That's the power of real automation. To see why tax professionals across the country are making the switch to Thomson Reuters, head over to The Accounting Podcast dot ProAdvisor. Automation The Accounting Podcast dot io forward slash automation. And now my follow up question to Hector. So like David said, it seems that the strategy for Intuit is to retain those lower end customers, lower the prices, keep them around, uh, avoid losing them to competitors. And then to make up the difference with growth in, uh, upper, you know, high a customers are willing to pay more and that would be TurboTax live, it seems like. So if Intuit pushes into TurboTax live more, are they going to be competing more with firms like yours at a price point? Yeah. Okay. So yeah, what does that mean for. Hector Garcia, CPA: [00:16:50] This is the weird, this is the strange dance that Intuit needs to do, which is the only way to survive in this tax business is the TurboTax stuff. The reality I there was an attendee that came to my conference last year, and she told me that she worked full time for TurboTax during high season, and then afterwards she did her own clients. And I kind of like just picked her brain for like an hour and a half and like, what does your day look like? How much did they pay you and how much time do you spend with them? And I was doing some of the back of the napkin calculations, the amount of hours that they spent on the phone giving just general support to some of these clients and what they get paid, I don't I'm not sure how profitable the lower echelon of tax preparation is when there's a human in the loop, like to charge $100 for a tax return, which in today's world, for a person that has two w-2s, right? A simple tax return, 100 bucks seems very high, right? Because of, you know, the lower, uh, the, the, the, the lower price competitors or the AI alternative or whatever. But to charge $100, but then spend an hour and a half answering like questions that really don't need to be answered for that amount of money with technical support, I don't see, I don't see where the value is. And I don't think it's a numbers game. I think that when someone goes to Intuit or TurboTax or any big company for for tax, they don't do it because they think the tech is better. They do it because they think they know they can call one 800 whatever and ask questions to a human. So I'm having a tough time understanding how profitable that lower echelon of the business is with the amount of human labor, because finding a talented CPA or enrolled agent that will work full time answering the phone until 9:00 at night, Saturday, Sundays during high season, answering random tax questions to people that are not, you know, paying enough for that. Hector Garcia, CPA: [00:18:39] I'm not sure how how good of a business that would be. That's why I was saying like, I am not 100% sure if my strategy would be try to figure out how to serve the lower end of the market. In my own firm, I would try to figure out how to serve the ones that pay enough that it makes sense for us to answer the phone. So if Intuit keeps going after this, this the smaller client, the less complex tax client, they almost have to remove the customer service piece out of it. Like it has to be sold almost like an AI plus type of type of engagement where it goes, look, it's, it's $20, it's 25 bucks free, whatever you some, some low number, all your interactions will be with a chat bot. Don't worry. Our experts look at the chatbot in the back end and make sure the chatbot didn't give any negative advice. Don't worry, before it gets filed, a human looks at it and sends it back. Like if they find some way of saying yes, they will be talented people. Looking at the return, looking at the chat but not on call getting those phone calls. It's possible that it makes sense for them to go after that business, but like for Intuit to sell $50 tax returns and spend an hour on the phone with a client asking, answering questions, there's no money there. David Leary: [00:19:48] So you're saying this business model they've been touting for the last since the sun got in there, which is the AI powered human model experts, AI powered expert model. Like that's not from a scalability the cost. You can't you can't do both. Right? It's not what's the point of doing the AI if you're going to have this human experience? Hector Garcia, CPA: [00:20:08] I honestly think it's a bridge. I don't think that's a strategy. I think it's a bridge. It's the bridge between when AI hallucinates and AI, you know, only hallucinates 1% of the time. That bridge requires training, and that training requires inside information about how you know how to deal with these things. And I think that the high plus AI plus AI thing is just a bridge until it's all AI. I mean, at the end of the day, like just looking at like numbers and spreadsheets, I don't think it's a long I don't think it's a long term gain. Even even Intuit experts and TurboTax live, uh, all these things that accountants hate because it feels like a competitor in the bookkeeping space. I have a feeling that they will divest in that, you know, whether they announced it or not, they'll divest because there's no money there. It's just, it's just way too expensive. This is just a bridge to understand the profession and the, and the service of customers in this profession, enough to train the software and the AI on how to automate all this. David Leary: [00:21:10] Yeah. Because we have proof in the market of who was it, um, who went under a bench. But, but scale factor. Yeah, yeah, yeah. All this proof of this like technology with a bunch of humans just doesn't work like and Intuit obviously has $20 billion war chest. They can they can they they're bringing in a year to to stretch this out. But your bet is eventually it's going to have to tip or the humans just got to get pulled out of this. It'll just be lot QuickBooks Live AI TurboTax live AI won't there won't be this human interface anymore. Hector Garcia, CPA: [00:21:36] No, I think there will be a human interface, but it will be cleanly delineated like you will. Let's just say I'm just going to say five years from now, there will be a TurboTax product for $20. And that's the most people will be willing to pay for a, for a AI only app, let's say. And then it will jump all the way to like $300 to get a to get a professional involved, like, and then, and then again, the market will cycle back and someone's going to have to, one wants to figure out how to serve that middle because that's how the market always does that. But it's just I don't see the, the gap in which you can add a little bit of human only for $10 more. I just don't see it. David Leary: [00:22:13] Okay. Should we pivot to QuickBooks and some QuickBooks announcements? Blake Oliver: [00:22:18] Yeah. Let's hear what's new. David Leary: [00:22:19] I mean, well, a lot of it is a lot of bragging about all this time savings everybody has from AI and QuickBooks Live. But the thing that caught my eye, and this is why I want to have her on, is I saw the word QuickBooks free, like as a product like, but I haven't seen that anywhere. I don't have any articles about it. I feel like I saw it go by like, do you know anything about this, Hector? What is it? Yeah, actually free. Hector Garcia, CPA: [00:22:40] I actually made a video about it a couple of months ago. So they released they kind of like did this beta, you know, sort of silent release of QuickBooks free and QuickBooks Lite. So the current QuickBooks offering for those that are not QuickBooks nerds like I am, there's QuickBooks, simple start at $38. Then there's the QuickBooks essentials somewhere around the 60s, I don't remember the exact number. There's QuickBooks plus somewhere around 120 to 125, and there's QuickBooks online advanced over $300, right? It's a weird scale. There's nothing in that, you know, 0 to $38 range, right? And that's where Intuit is losing a lot of clients like the startup startups and accountants say, like, you guys don't care about startups anymore. They, they, they don't see going out and spending $38 a month as, as something that it's just like the $20 a month range, I think is really what started. I think, uh, Claude and ChatGPT, I think most software companies that $20 a month is kind of that sweet spot for, hey, 20 bucks you can afford once it gets over 30, people feel they can't afford it anymore, especially startups. Hector Garcia, CPA: [00:23:44] So there's nothing in that middle. So what Intuit did is they developed two products, a QuickBooks, uh, free, which basically allows you to do like 2 or 3 invoices a month. And that's all you can do. Like you can't do like accounting or banking. It's just to do the invoices. And of course, you can enable payments because merchant services, you know, getting a percentage of that, of that money movement is a big piece of the business. And then there's QuickBooks Lite that allows you to do a couple of more and start doing some accounting. And those are going to be stepping stones into the what we know right now as QuickBooks online, uh, ecosystem, which is simple start at $38. One thing that's very curious is they just did a price increase like a month ago, and that price increase included all SKUs except for simple start. So that leads me to believe that that $38 a month, uh, product is the one where people are mostly price sensitive and not on the other ones. Blake Oliver: [00:24:40] All right. I want to thank our next sponsor. And then after that, I want to get into the Thomson Reuters new AI model. Are you tired of payroll headaches getting in the way of the client experience? You want to deliver manual workflows, creating bottlenecks, compliance, nightmares, and endless support calls that go nowhere. There's a better way for your team and your clients on pay. Is the payroll partner that accountants and bookkeepers actually love. Why? Because it's easy to use, packed with value, and backed by support that actually supports you. Their team gets rave reviews for being fast, expert, and actually reachable when you need them on pay handles the heavy lifting. You get a dedicated onboarding coordinator who sets up worker profiles and transfers year to date data from previous providers, all at no extra cost. Their seamless QuickBooks and Xero integrations eliminate manual journal entries, and they support any type of business you serve. Farms, restaurants, nonprofits, you name it on pay can handle unique requirements without adding complexity. And on pay keeps pricing simple to everything your clients expect, from multi-state filing to off cycle pay runs is included. No hidden fees, no surprises. To book a demo. Head over to The Accounting Podcast dot promo slash. That's accounting dot promo forward slash OPAY. So Thomson Reuters has built their own AI model. This is the alternative to renting one from OpenAI or anthropic. Plugging in and how they did it is interesting. They say that they brought in 175 years of authoritative content from Westlaw, Practical Law, Checkpoint, and Reuters, together with thousands of subject matter experts. This all originated with their acquisition of Safe Sign Technologies in 2024. David Leary: [00:26:23] And historically speaking. Right. If I understand how their business model was, you'd have to subscribe. You just can't get to that data through the internet. Right? It's it's all firewalled off. You got to pay big money to get access to this data. Blake Oliver: [00:26:36] It's behind a paywall. It's expensive. And it's really valuable because the analysis has been done by subject matter experts, the top people in the field, tax experts and accounting experts. Right. Gap experts. And so that is what makes this model powerful, because other models like OpenAI and Anthropic and Google's, they're trained on the open internet, not on this material that's behind the paywall. At least that's how it's supposed to be, right? They're not supposed to steal content to train the AI models. And so the results are Striking. Uh, they benchmarked their model, which, by the way, is called Thompson, uh, against the other frontier models. And they found that Thompson scored a 0.0 or 0.914 on instruction following, which is way ahead of Claude Gemini and GPT, uh, which, you know, they didn't actually specify what it got, but it's way ahead on instruction following instructions. Uh, in terms of deep research, Thompson, using Westlaw and Practical law, scored a 0.83 on factuality versus 0.65 and 0.68 for the for two leading frontier models that use the open web. So by using this library of analysis to train the model, you get much better, more accurate answers. And that factuality metric is checking whether each assertion is supported by its cited source. So does it hallucinate or does it cite a source that is correct? Accurate completeness was reportedly similar across the three systems, but the accuracy was the big difference. So they're calling this approach fiduciary grade AI that's been engineered into the model so that if you as a professional are relying on it, you know, it's not making stuff up. And it's entering production this month in co-counsel for skills, including high volume structured document review and broader legal and tax integration is planned. David Leary: [00:28:51] I mean, it makes sense. I think we this bill went on for me, whatever, two years ago, we were at Sage Intacct conference and I'm like, I want dumb AI like AI that only knows accounting, right? I don't want it to know the history of the world and every possible thing, because the odds of it hallucinating are trying to outsmart itself are just way higher. But if it only knows this tax law and case law and tax code, It's likely to hallucinate less. Blake Oliver: [00:29:16] Maybe we call it a specialist, right? Because it's it's really smart on this one area, right? It's not a general purpose expert. David Leary: [00:29:27] And then in theory, it would say, I can't do this. Sorry. Hector Garcia, CPA: [00:29:31] Sorry. I wanted to ask you. Do you did they build their they build the whole engine or are they using like OpenAI or anthropic as their engine? Because it looks like there's two. There's two things here. One is the knowledge base. Okay. So they own that knowledge base. They have that knowledge base, specially specialized knowledge base. And the other thing is the actual engine itself. And I just wonder, did they build their own model or are they did they say whether they're using cloud or ChatGPT to, to actually process it? Blake Oliver: [00:30:02] So they built it with a starting point, not OpenAI or anthropic. They it's called the Snowden model. It was, uh, it's the Imperial College of London built this. It's an open weight Snowdon model. Got it. Open weight. So they they take this model, this, this like free model, right? It's like something you can just take like open source software. And then they trained it on their proprietary data. Hector Garcia, CPA: [00:30:30] The reason why I mentioned this is because as a firm owner, there are two challenges that I have when it comes to choosing an application, an AI application to help my work. Challenge number one is do I trust that company like or do I trust that my data will be safe? My client's data will be safe. Challenge number one. And then challenge number two, like David said, do I trust that the source of the data is going to be, you know, the truth or is it going to always use authoritative content, etc., etc.. So there's two challenges here. So I think that if they say they use ChatGPT or Claude, and people don't trust these companies for whatever reason, right, then they're not going to use the engine. So if they build something, I think the winners are going to be the ones that build their own thing, which basically signals that your data is staying in their ecosystem, that they're not using an outside engine, an outside processor, or an outside data center. Like I think all these things are going to play in together is, is my provider of AI or my intelligence provider control their the source of the data? Do they control it and own it? Of course. I mean, you can't own tax law, but what I'm saying is they're not ripping it from someone else. Did they? Do they control their engine? Like, you know, the flow of information from my computer to their center? And do they also control their data centers, their servers? And like, the companies haven't gone this route because most of the software companies are outsourcing data centers or processing or, or AI engines. Hector Garcia, CPA: [00:31:58] So I think the companies that do that are the ones that are going to win, because I predicted a couple of years ago that the local LLMs, like accounting firms buying their own servers, spending 20 $30,000 for like this super amazing server so they can keep all their data in their physical office within their control was going to be the next thing. And I completely failed. By the way, if you want to gain in the stock market trade, every the opposite of what I trade and you'll make a lot of money. So I'm just not really good at predicting. But I'm saying, I just thought as a firm owner, I'm like, look, I'm spending 200, 200, $300 a month just in my account, plus another 50 or whatever on the accounts for every one of my team members. I don't electricity is cheap. I don't mind spending 20 grand, 30 grand front load it for a computer that can run all the the intelligence locally and my data never leaves my office. That to me, I thought was going to be the big thing. But either, you know, people are apprehensive towards buying hardware or maybe the hardware is not available, or maybe it's too technically difficult. But I think that those companies that can encompass and control the entire thing are the ones that are going to win the accounting market. David Leary: [00:33:05] And so they're saying it's in their own AI frontier model, which implies like it's not really running anybody else's stuff, but they built it. They spent $40 million to build it still, but they used open source software too. So they're like you said, they. Blake Oliver: [00:33:19] Use an open source model, right? Open source model. Then they trained it further on their own stuff. And then the other thing I didn't mention that they did is they, they brought in partner level practitioners who spent months building rubrics for different research tasks. And so then they tested the model's outputs against those rubrics and had it self-improve based on the the feedback from the humans so that the humans were in the loop of this training cycle, giving it feedback. And it got better. They had lawyers contribute thousands of hours to compare the model outputs as well, and rate them and review them. They've got 1500 attorney editors. And so that is the big difference too, is that they can they can they can spot where the model misses things, those humans, and then improve it, teach it. David Leary: [00:34:17] And this also feels a little of like the disruptors getting disrupted now. So everybody like this is what started the SaaS collapse, right? The SaaS apocalypse is there was that legal demo of ChatGPT or anthropic doing some sort of legal task. And people are like, oh, that's going to kill all these apps, right? And then we went through that period of time and now. Touché. Right. This is oh, guess what? We just disrupted you, ChatGPT, because we built our own AI model. That's better. And are we going to see this in industries in different verticals where we're going to see better, smaller AI models like this from Thomson Reuters pop up that really disrupts the big models. And this is why the big models are fighting against the China open source AI models. They don't want the open source AI models. It has to be in control. They're fighting for government regulation to stop this from happening. But this is obviously probably long term, the better approach for for end users, consumers who need to use this. Blake Oliver: [00:35:12] All right. We got to keep moving on because I want to talk about the fundraise. But Hector, I'll let you I'll let you have the last word on this. Hector Garcia, CPA: [00:35:19] I was just going to say, if CCH is listening and you want to hear the best possible advice you will ever hear from anyone, of course. I think that's because it's coming from me. But I'm saying if you want to hire me for more advice like this. I've been teaching ChatGPT on cloud for three years, webinars every single week. I do a webinar in a different platform, and the question that comes over and over and over and over is, can I do this in copilot? Can I do this in copilot? How does this work in copilot? And the secondary question is what about security? What about safety. So people are freaking out security and safety. But then they're asking how to do it in copilot. It turns out that because copilot is built in into the thing that the firm bought, and it's all built in into the ecosystem, they get automatic trust. So CCH you want to nail this do a partnership with Microsoft where you have a Microsoft 365 accounting firm edition. You package it all together, give the impression that it's all one ecosystem. You immediately win. You will be in platform. It's like Internet Explorer in windows computers. You know, that's how they won, right? So I think they need to do that. Blake Oliver: [00:36:22] What's an easy way to do that? Easy way to do that would be like, uh, give people the ability to connect. What is the Microsoft one called? David Leary: [00:36:31] Copilot. Blake Oliver: [00:36:31] Copilot. Connect copilot to Thompson via an MC P server so that when I ask questions that Thompson is designed to answer, it just goes out and and my agent talks to that agent. Hector Garcia, CPA: [00:36:45] That's too much work for accountants, Blake. You just package it. You make it $3 more per user or whatever to the Microsoft 365. Every single person in that accounting organization automatically gets it. That's how you win. You win just by selling at bulk, making it available to everybody. You don't make it a whole production to get into it. You make it built into the system. David Leary: [00:37:04] And you don't make you make it as a standalone prompt and app and website. You don't make it part of Microsoft Copilot because Microsoft Copilot, the old models, it does everything. You don't you don't want to introduce that variable of the everything. Blake Oliver: [00:37:15] All right. Let's thank our sponsor. And then David, I'm going to come back to you to learn about the relate fundraise. And this ties into what we were talking about with Intuit. Intuit is experiencing pretty great growth in the mid market segment, I think. Correct me if I'm wrong, but I think it was like 39% or something revenue growth in that area. And that's exactly where relate lives to. So our next sponsor is Savant Labs. If your finance team is using AI for drafts and research, but still closing the books by hand, you're in the same spot as most enterprise accounting teams. Claude and Copilot handle the easy stuff, but what about the close, the reconciliations and the tax provisions? Still manual, still spreadsheets, still eating up days every cycle. The real issue isn't effort, it's trust. General purpose AI gives you a different answer every time, and an auditor can't follow the trail. That's why savant exists. You describe a finance task in plain language, and savant turns it into a governed agent. It pulls, cleans, and reconciles your data across ERPs, spreadsheets, and PDFs with over 500 connectors. Every workflow runs the same way every time. Same inputs. Same output. Every cycle. Data lineage approvals and Sox reports are built in automatically. The result is up to 70% less manual work and 80% fewer errors. And here's the best part. Bring savant A complex use case that's eating 20 plus hours a month, and they'll build you a custom agent for free with a 30 day trial. To learn more about savant and start building your first agent, head over to The Accounting Podcast dot io slash A. That's The Accounting Podcast dot promo forward slash SAVANT. David Leary: [00:39:01] All right, so let's talk about relay. So relate is one of these new disruptive AI ERPs on the market. There's a lot of them popping up right. Well they just hit unicorn status. They raised $100 million in their series C for a $1 billion valuation. And that's it's great, right? Like rah rah cheer, all this investment, the money you're getting. But in the meantime, and this is why I think the story is important to talk about the same week this is announced, right? Somebody decided they're going to pay $51 billion to buy workday, the old traditional ERP. Right. That in theory, these new ones like relate are going to disrupt. So if you think workday is one of those stocks that got hit by the SaaS apocalypse, right? They were down 15% year to date and more, more than 40% since its peak in 2024. But my question is, like, if you think about this Silver Lake, you know, they want to buy it for $51 billion. So really, it has 600 customers, $100 million investment, right? And then $1 billion, if you take the $1 billion valuation, divide it by their 600 customers, that's $1.6 million per customer. The valuation, right. But you take the $51 billion valuation that's being spent to purchase workday divided by workday's 11,500 customers. That's about 4.4 million a customer. So this is where the market's weird, right? When when real money gets involved, not $100 million investment here, when it's $51 billion, the money went to the established player in the market, not the AI disruptive startup. If you really think all these new startups are going to disrupt the existing SaaS players, why would somebody spend $51 billion on workday? Unless you really believe that's who's going to win? Not the ERP startups. It's an amazing amount of money. Blake Oliver: [00:40:51] Maybe it's because once you're on an ERP, Just like once you're on a gel, it's really sticky. Yeah, it takes a lot to get somebody to switch off QuickBooks. We've seen this story with zero. And so the growth for real, it is probably not going to come from switching off workday, which by the way, is for, I think, much more massive companies than what it's going after, really. It's going after like NetSuite. David Leary: [00:41:19] Yeah, this is going to be like Netflix US Bank. Yeah, it's it's almost, it's almost SAP area right way up market. Blake Oliver: [00:41:25] And really, you know, they're let's see. Customers include Neuralink, Elon Musk's brain implant startup, skilled AI Mercor. They've got public companies though and non-technology businesses. So it's not just startups, but yeah, definitely not like the scale of, of some of these massive companies. They say their annual recurring revenue is, is doubling every quarter, and it doubled again during the three months before the round. So wow. I mean, that's not independently verified, but that's impressive if true. Hector Garcia, CPA: [00:42:01] For a billion guys. $1 billion for you said 600 customers. Blake Oliver: [00:42:06] So they've got 600 customers now and they raised 100 million at a 1 billion valuation. Hector Garcia, CPA: [00:42:11] Oh I see. Blake Oliver: [00:42:12] Yeah. Okay. Hector Garcia, CPA: [00:42:13] But still, I mean, I think if you're that successful at raising money, but not that successful at raising customers, there's a challenge there. Um, I don't know what the average ticket per customer is like if these customers are paying $1 million a pop, I guess, you know, then I'm then I'm talking crap, but like, seriously, like 600 customers. I mean, again, you're right. It's very, very, very challenging to get people to change ERPs, but then the numbers just doesn't, don't make any sense to me. Blake Oliver: [00:42:41] Well, think about it this way. There's in the mid-market, probably, you know, tens of thousands of potential customers for this software at least right. Like NetSuite, for instance. I don't remember their number of customers, but I think it's in like. David Leary: [00:42:55] They have like 25000 Sage Intacct has like 45,000. It's not a lot when you think about how many QuickBooks has. Blake Oliver: [00:43:01] Their big annual fees, right? You know, NetSuite starts at tens of thousands a year just starting right. And then goes up into the six figures easily. David Leary: [00:43:09] You could hit 100, 100,000 like nothing. Hector Garcia, CPA: [00:43:11] Yeah. And so that's where I think we were talking about earlier. Yeah. I think this is where I think Intuit kind of has it right somehow, which is of course to the detriment of the smaller clients. They focus a lot of on mid-market, and they said it in the investor call that says, oh, because we refocused on mid-market, we think we lost some of the smaller startup clients. But Intuit in two years that they've had the Intuit Enterprise suite out. It's only been two years, September of 2024, it came out. They, they today they have $145 million in revenue from that business, a brand new platform, a brand new name. And if you take, you know, 34500 $0 per customer average. That's about 25000 company. So Intuit has been able to put 25000 companies in there without having to raise additional capital. So like, I just don't I don't see how somehow really raising a lot of money they're going to be able to beat into it at this game. I just don't see it. Blake Oliver: [00:44:09] So they're rebuilding the gel from scratch, right? They're not layering on top of NetSuite to do AI automation. And I don't think that's where the value is, right? Like, sure, you can make a better gel, but people aren't going to switch off what they're on just to get a slightly better GL. It's the automation and the AI and the potential for automation. When you have it integrated into a modern GL and everything is available for the AI to work with because it's not ancient code. And this is the problem that Intuit has with its code base, given that it's built up over decades, is. I'm sure it's a challenge to be able to build like the endpoints so that the AI can go in and retrieve information and then analyze it and push changes back if it's. Hector Garcia, CPA: [00:44:59] A topic for a different podcast. Blake. But, um, me as a developer that I developed for into it with my app called right tool, I can tell you the modernization of the endpoints. It's, it's happening. And I just don't think that I don't think it can win in tech. I think the same way that Thomson Reuters will win because they have the legacy data. I think Intuit can still win because they have the legacy data, the training data, the market data, that sort of thing. Blake Oliver: [00:45:27] So regardless of how they do it, here's how I think really can win. If, if here's how they can win. And it is going to be by making these accounting and finance teams at these mid-market companies super efficient so that they aren't adding headcount because then paying six figures or more for an ERP makes a lot of sense when you don't have to hire somebody who costs six figures. Or maybe you don't have to hire five people who cost six figures. Now, that may not be great news for accountants, although I don't worry about it too much because we already have a shortage. But like, here's an example, right? So Merkur is one of the customers featured in their fundraising announcement, MERCOR. They generate more than 2 billion in IRR. And their finance team, the headcount, three people, three people managing finance for a company with $2 billion in annual recurring revenue. Postscript. Postscript has more than 100 million in IRR. They close their books in three days. There's an AI coding company called windsurf that handles finance with just two people. So that's the that's the opportunity. If they can build into the GL and all the systems, the the ability to automate all of this financial close work and reporting and all that effectively, which is really a user experience question. It's like a product design thing. If they can do that faster than Intuit can with Enterprise Suite or that NetSuite can or that any of their competitors can, then they're going to win because I, as a CFO of a mid-market company, would much rather pay for something like relit than hire a team of 12 if I can do it with three. David Leary: [00:47:16] Yeah. Because they're, they're, they're developing on the bet that you'll want to hire less people, which ultimately labor is always going to be your most expensive thing. And the bell, that bell kind of went off for me when we were, I think we were at the Oracle NetSuite conference that time. And every module is $75,000, $45,000 to get a module, get a module. But then you start talking to the people. The way they think about it is I could hire somebody for $110,000 a year to do this work, or I could buy this module from Oracle. That makes me only have to hire a quarter of a person and I people. The enterprises at that level. Think about how many bodies do I have to hire? Right. And so yeah, there could be upside for really here, but what's the reason? I think this market confusion over here, the money's shorting all these established playing stocks. And the meantime, this what will be the biggest software acquisition ever is one of the the most of the money now is going to be moved into an old SaaS player, not the new AI company. The market's so confused. And maybe that's what this is. It has to shake out. Still, nobody knows what to pick. Yeah. Hector Garcia, CPA: [00:48:19] And one thing I'll add is I think the mid market players that will win the mid market ERP players that win are the ones that will be able to erase from the PNL this brand new expenditure that didn't exist three years ago. So three years ago no company had a budget for ChatGPT or cloud. All of a sudden they not just have a budget for ChatGPT and Claude. Every single company is thinking, how do I increase that budget to get a direct correlation on decrease on cost of labor? So the ERPs that give you a reason to get rid of ChatGPT or Claude are the ones that will win. Because even if you raise the price, but you go, yeah, but we reel it or whatever, whatever the app is with this, you're, you don't have to have any cloud subscriptions or any ChatGPT subscriptions, because this will do the same thing that it will do and arguably better. I think that might be the best positioning for this ERP companies. David Leary: [00:49:14] Can you restate that? You said so on the profit and loss. So you're going to have this. Hector Garcia, CPA: [00:49:18] So three years ago you. David Leary: [00:49:20] Guys. Hector Garcia, CPA: [00:49:20] You you guys have been in business for five years. Okay. In your budget, having a chat bot as part of your budget, you know, to operate your business and, and for every single staff member wasn't there. Now you have to have it because you use your chatbots to organize content, notes, whatever. Right. So every single company has now all of a sudden have a new line in the PNL or in the budget that never existed, which is AI expenditure. And that number is going up and up and up. And it's not just going up. The C-suites are actively looking for ways to increase that because they see a direct or a negative correlation between increasing my AI and my staffing costs, right. Because I can get less people to do the same thing, or I don't have to hire an additional person to open up a new competency inside my business. So they're seeing like in when they budget for, you know, going out and buying software in general, they see a parallel expense, which is ChatGPT or cloud or copilot. If the ERP company comes in and goes by buying our ERP, relate Ise or whatever, you no longer have to pay those companies because this ERP is all encompassing. It cannot just do what cloud and ChatGPT can do. It can do it better. Now, I would argue that for coding, that might not be the solution, but not every company is coding. And you would argue that, well, maybe companies are dabbling into coding well. Companies like Intuit, they should create an environment for specialized coding that only has to do with coding things that interact with the ERP, not random coding. So I think that the companies that will win are the ones that their platform is the source of truth, and they allow people to do all sorts of crazy things that they do in ChatGPT and cloud. Now inside the platform to modify and code their own experience inside of that ERP, I think those are going to be the winners. David Leary: [00:51:16] So you said something that really this is burning up my brain because it ties to another article I bring up is AI AI spend tokens. Spend is going to become so significant that it's now going to show up on the panels, which previously maybe it just rolled up under software, like people are going to start breaking out because it's so significant, which makes a lot of sense why stripe, who is a huge payments processor, bought AI router open router. So are you familiar with the open routers? What they do? Blake Oliver: [00:51:41] Yeah, they decide based on your prompt which model to use to maximize your effectiveness while minimizing your token spend. David Leary: [00:51:49] Exactly right. And so stripe's getting ahead. Like obviously stripe has the same thinking you just said, Hector, which is a whole line. I mean, they're going after a whole line item on the profit and loss. They already stripe already has the income line for a lot of businesses on the profit and loss, and they get a piece of it for the expense line on the profit and loss it. And they're paying $8 billion for this. Um, and it makes perfect sense because it's just at some level, the token spend is just transactional. And that's what stripe is. It's just lots of thousands of transactions. And now they're going to do it with the tokens. Blake Oliver: [00:52:20] Well, I can tell you. Hector Garcia, CPA: [00:52:21] More to that. I think I just know I want to add more accounting nerd to this is software has always been a fixed cost, a indirect cost there, there's going to be a point in the very near future that token costs are going to be variable costs. That means that they're going to be moving from expenses to cost of goods sold, because companies are going to be able to run a direct correlation between their growth and their sales to their token spend. And that's going to be super interesting because all of a sudden, like we have a brand new direct cost that never existed. And if you're not, you know, incurring that, that means you're not growing and you're not selling. Blake Oliver: [00:53:00] We're going to have to invent some new cost accounting methods to handle this. It's going to be interesting for the future of accounting theory. Hector Garcia, CPA: [00:53:10] The new PNL is going to be income cost of goods sold. Token expense expenses. Okay. It might be a whole category in the PNL. Blake Oliver: [00:53:19] Yeah. It's it's I have to think about that. Hector, thank you so much for joining us. Um, I want to give you a chance to talk about your reframe conference. This is really exciting event. It's, uh, it's what is it? Second year. Third year you've been doing this. Hector Garcia, CPA: [00:53:33] It's a fourth year. Blake Oliver: [00:53:34] Fourth year. All right. So like, yeah, what is it? Tell us about it. Like, why should our listeners consider. Hector Garcia, CPA: [00:53:41] Sure. So reframe is the brand of our events company. We put together an annual event in Miami, a Miami, because it's my hometown and it's great in November. We kind of own that November Miami space, I would say in the accounting profession. So it's going to be in Miami November 5th to the seventh. And it's called reframe because I strongly believe that my my personal goal in life is to help the accounting profession rebrand themselves, rebrand themselves to be sought after as the most creative, innovative, and transformative of all professions. That's a, that's a really tall order, very difficult to all of a sudden have people look at accountants as creative and that's somehow be a positive thing. But I think being creative myself and you guys are amazingly creative people being creative myself, this was opened up the doors to create new lines of business, new forms of serving clients, new forms of becoming different. But I cannot change accounting. Accounting is a beautiful science. Gaap is amazing. Uh, debits and credits are amazing. So how am I going to change the profession without changing what it does? So that's where the word reframe comes in. Hector Garcia, CPA: [00:54:48] So it's changing the thing without changing the thing. It's changing how you look at the thing. My favorite quote from Wayne Dyer is if you change the way you look at things, the things you look at change. So we are trying to change the profession by changing the way we look at it and most importantly, changing it from a branding perspective, the way, uh, our customers look at us. So this year is called, uh, uh, innovative, uh, sorry, reframe 2026 innovative advisory. And that's I A because the subtitle is flipping the AI narrative. We believe that the narrative that AI is going to do what we do, it's only narrative. I believe that the narrative is winning. There's a lot of BS. There's a lot of money in the stock market. There's a lot of money in marketing, making it look like AI can do what we can do. And if we allow the narrative to win, the narrative wins. So it's time for us to take back the narrative and get customers to seeing us as their trusted advisor again. Blake Oliver: [00:55:47] If you want to learn more and get your ticket, go to Reframe accounting.com. Hector, thanks so much for joining us. We're going to bring on Britton Ratcliff now, but please stick around and we'll see you at the end. David Leary: [00:56:01] Hey Blake on that I want to talk about one example. That's the opposite of Britton if you're what not to do. Right. Uh, I don't know if you saw this about, uh, Pablo Escobar. Have you seen this? Saw this story. Blake Oliver: [00:56:13] Okay. David Leary: [00:56:13] Essentially, there was a, uh, at Penn State. There was a huge cocaine trafficking, trafficking ring out of two fraternity houses between 23 and 24. 24 year old Agostino Altobello apparently made regular drug runs to New York and Philadelphia, and then had the fraternity pledges cut and distribute the cocaine. But here's why it's on the show. He is an accounting major who used his accounting skills kind of for bad. If he makes any sense. So. So an accounting major and he was on the honor the Dean's list as well. So he's on the dean's list and he's running a cocaine trafficking ring at Penn State. He got busted. Ticket. 14 people have been charged. It's a pretty big deal. But I caught my eye because he's an accounting major, an accounting student that did this. And so Pablo pledged to go the opposite story. Blake Oliver: [00:57:02] I'm watching Narcos right now for the first time, so I'm so glad you brought that to the show. Yeah. And now joining the show is Brittany Ratcliffe. Here he comes. David, I have a guest for you that is unlike any guest we've ever had on the show. He is the youngest person I think, ever to be appointed to a board of accountancy. While in school. David Leary: [00:57:26] So that means he's like 45. Blake Oliver: [00:57:30] Not going back to school. Like in school. David Leary: [00:57:32] In school. Blake Oliver: [00:57:32] Okay. In accounting. Not yet. A CPA appointed to the New Mexico Public Accountancy Board in February of 2026 by Governor Michelle Grisham. He's the board's public member for a three year term. And he got that role when he was a sophomore at Unm's accounting program. And he's also a forensic accounting fellow at the New Mexico Department of Justice. And his name's Britton Ratcliffe, and he's here on the program. Hey, Britton. Britten Ratcliff: [00:58:05] Hi, everyone. Thanks. Thanks for having me on today. Blake Oliver: [00:58:08] Britton. Uh, how did this happen? Like tell us the story. Because like, when I heard about this, like it actually came across my feed reader when I was looking up stories for the show and I saw that you had gotten appointed and how young you are. And like, I mean. David Leary: [00:58:25] It's hard to wrap my head around it too, because my daughter's now going into her junior year at the university and I'm like, I can't imagine her like being on the state county board. I just can't, I can't fathom this. So you make this real? Britten Ratcliff: [00:58:39] Yeah, yeah. Well, quite the zinger of an intro, but like, I, I hope I can like live up to, to, to the hype throughout this episode. Um, so funny I was, I was going to school at UNM, I recently just transferred, um, but I was going to school at UNM and I have a good friend, Victor Reyes. He's the student regent. So he's the student that sits on the Board of Regents of the school that makes all the decisions. He was governor appointed for that position as well, and he was telling me about his experience. And he was like, he's really just sitting on boards. He was telling me about some of the boards he sits on. He was sitting on an agricultural board, and some of the stuff sounded interesting, some of the fiscal stuff, and then some of it just sounded really boring. And so, um, he was like, you know, there's a state public accountancy board, you know, and I was like, what? I've no, I mean that like, that's really cool. I was taking, um, some of the intro accounting classes at the time and anything past 2110. Britten Ratcliff: [00:59:33] I was kind of, uh, I was, I was kind of sleeping through, I, I didn't love the, the whole technical accounting aspect, but I really was interested in like the, the principles of accounting and, um, and a lot of the regulatory policy side. And so I was like, this is like the perfect, like I have to be on it. And at the time this was happening, I was recently finding out about the new pathways from the 150 to 120 switch and then, um, alternative practice structures and private equity. And then of course, AI is just affecting all, I mean, everyone's life, but especially young professionals lives right now. And I was like, we need like a student on the board to, to at like no one, no one has a student perspective. Like we, I feel like there needs to be a student who's kind of able to speak about their experiences and what students need right now. And so, a couple handshakes later and a couple emails later, I ended up getting a letter in the mail from the governor and the appointment happened. And yeah, so I. David Leary: [01:00:33] And to summarize, so you weren't like some sort of accounting scheme in my career since I was a second grader. And you were some accounting all star that had this blessing. And then they came and recruited you. You were really just like, I'm kind of interested in accounting. I'm just a student, but young people are not being represented. Britten Ratcliff: [01:00:50] Yeah. Yeah, exactly. I mean, at the accounting program at school, it's going to again, I really loved, but like, you can just tell that like what is being preached about accounting like in the classroom as well as like on the regulatory side, like, like, I feel like there's just so much that's so far removed from like how students perceive accounting and kind of what we're like looking for. And so, um, yeah, I was, yeah, I kind of just plugged in and I was like, I feel like there needs to be some representation here. So, um, I'm sure to a lot of the listeners, they, whatever, um, whatever we get into, I'm sure they're going to know a little bit better than I do. Um, and probably more structured thinking, but I hope I'm able and, and I feel like what I have been able to offer the board so far is a pretty unique perspective in the position that I'm in. Blake Oliver: [01:01:37] So we talk a lot about private equity on the show. It's a big issue in accounting with all this private equity money coming into accounting firms. And you've said you said to me when we were setting up this interview, that that was something being discussed on the board and it was you really had something to say about it. So tell us, what are the board members worried about in New Mexico when it comes to PE? And then what are you worried about or not? Britten Ratcliff: [01:02:07] Yeah. Um, I don't want to speak for any of my other board members. I, I, I definitely there's some like common kind of common concerns that I'm sure, you know, both of you have as well. But I'll definitely speak to you. But I don't want to speak for for any official term on the board. But, um, I think especially for young professionals, like the, the incentive when, when you're a young associate coming into accounting is you want to make partner and you want to be an equity partner and you want to be able to cash out when you're retired. And, you know, obviously we want, we're passionate about accounting and we want to serve the public. But, you know, becoming a partner is really is really a priority. And so, um, when, when there's, you know, a privately owned accounting firm and private equity comes in and buys it out, a lot of that equity is taken out and you now have no incentive to become an equity owning partner. And, you know, typically with what we see with private equity is private equity kind of buys it for 3 to 5 years, they own it and then they give it back. And sometimes it goes back to privately held ownership or it goes to another private equity firm. And, um, so I think that's kind of my concern is, is how is it changing the incentive structure for young professionals like interacting with, with, with future careers. And, um, curious, I was listening to a podcast episode the other day and there was some AICPA data approved, uh, or data that was provided by AICPA that was kind of talking about some of the midsize firm, um, and like tracking how many people are going to partnerships and then senior managers and stuff like that. And so I'm curious to kind of look at some of that data of, of how young professionals are being affected in the, in the companies that are, that are being bought out by alternative practice structures. I think that would that's really interesting. David Leary: [01:03:57] So is this conversation happening among accounting students about the awareness of P's influence in accounting? Is this something that's actively you and your peers when you're sitting around at lunch or whatever, chatting about. Britten Ratcliff: [01:04:10] I mean, it depends who you ask, I guess like to my friend group, I would say so definitely. Um, I, I'm sure there's, uh, other unaware, like there's a lot of other unawareness as well. And I wouldn't say it's like a COVID burning concern, but, um, definitely like among the students who are maybe those high achieving students who, who are looking, who are going to be the top performer performers at some of those accounting firms. Um, definitely, I would say it's a, it's a concern and something that a lot of people are thinking about, especially, um, I've at all the school events, I, I try to have arguments and conversations with as many young professionals as I can who are at the accounting firms right now. And that's also something that is, uh, is, is being talked about amongst amongst that demographic as well. Blake Oliver: [01:04:58] What are the other concerns that you're hearing from students? Like, what do they worry about? What interests them? Like what should we as like old dudes be considering that, you know, like, what do they care about? Britten Ratcliff: [01:05:13] I think accounting is such a it's such a technical micro field, right? It's it's not necessarily like there there's budgeting, like you can, you can look at it in a macro lens, but I feel like, um, a lot of accounting is in this like very highly technical field. And so, um, a lot of the teaching methods of accounting are this very applied learning style. Um, you are like, you're memorizing a lot of things and, and there's, I think there needs to be a bigger emphasis on like large market scales and like understanding what the business's purposes as a whole before we understand like debits and credits. And so, um, in an educational setting, I would kind of like to remove like, like I took cost accounting my, my third semester ever. And I, it's not the most challenging class, but like, it's a very technical class in accounting when you've never even been in like a manufacturing plant or you don't like there's, there's like, how does it go from finish good? Or you know, what in production and like, and so seeing all of that, um, it was, was definitely complicated without actually knowing like how the full structure of a business works. And so, um, and I had a professor, we, we were grabbing lunch the other day and he asked me, he was like, what is, what is an asset? And I was like, and I described all these examples of what an asset was. And he was like, no, like, what is the definition of an asset? And like, I like, I, I really like, didn't, I couldn't, I didn't know what the theoretical definition of an asset was. And so I think, um, I think we kind of need to take it back and, and teach it a more larger, um, philosophical scale almost as you will, um, to kind of understand, um, like how the application of accounting actually works. Britten Ratcliff: [01:07:08] So that's kind of what I think it looks like an education. Um, and like before me and you were kind of talking about it, but I think as well, the role that AI is taking for a lot of those, like lower level, lower level intro associates. And that's not me. I, I, this is not from first hand experience, but this is kind of some of the conversations that I've had is when you're coming in to now a, a alternative practice or a practice that's alternatively backed, you're coming in with a lot of capital when they typically have a lot of AI integrated models that are allowing that are kind of taking away that first associate analyst work in an accounting firm. And, um, it's kind of it's sink or swim now that you're coming into the industry, you know, and, and I don't want to fall, like, because, because AI is, is taking on a lot of that weight that the first year analysts were doing. And it's private equity. The whole thing is to make it an efficient industry and an efficient corporation. And, um, you're it kind of takes away some of that learning experience when you're looking at an audit, last year's audit report from the same business or an audit report as you're kind of slowly moving towards that. So that's kind of what I've heard from some of the incoming younger professionals that are that are going into some of those mid market firms. Blake Oliver: [01:08:29] Is anyone actually doing their homework anymore? Are they all just using AI to do it? Because like. Britten Ratcliff: [01:08:33] Oh, don't get me started on, on homework. Well, I mean, just to be very honest, like, oh, like this. Mcgraw-hill, Wiley stuff. I, I just, I can't, it's so I can't even don't get me started on that. Like you're not, you're, you're not learning, man. You are like in this, like the formatting alone of a balance sheet and like, whatever you see on your homework is enough difference that when you see a real life balance sheet, you're like, what am I looking at? Like, I mean, just like the formatting alone. And so I think like we're trying to do this, such a technical, real world applicable thing. We're trying to recreate that for students so that universities can measure data against each other and say, well, our students have 37% growth in their understanding of debits and credits, when in reality we're escaping like, what is a debit and credit? And again, I realize accounting is a very applied practical technical industry. But, um, call me, call me old school, but I think we need to bring back some of some of the more macro conversations. David Leary: [01:09:34] But can you describe what the relationship is with you and the board because you were appointed by the governor? I imagine the other let's just call them the established members of the board. Maybe weren't. Britten Ratcliff: [01:09:47] The old people. David Leary: [01:09:48] The old people. I don't want to, like you said that, not me. But like, what's the dynamic? Do they do they go to you like for a fresh view and pull from you a lot? Or is it your is there a lot of horn locking? Like what's the, what's the relationship like? Britten Ratcliff: [01:10:02] Yeah. Um, like, I think a lot of like, I've only been to two board meetings. So my sample size of kind of what that looks like is honestly low. And so, um, right now we have a very cordial relationship with all the other board members. Great relationship. There hasn't been any arguments or butting heads so far. Um, I can't speak for myself in six months, but, uh, I think, um, yeah, I think I'm able to introduce like a diverse perspective. And, uh, I was surprised of how willing they are to like, let me speak my mind and I, I, I, I think in my shoes, they find it, um, they find it as perspective that they weren't aware of or that they like. Um, but I think just to kind of set the terms of like what a New Mexico board meeting looks like, there's a lot of formalities dealing with like CPE e not not meeting CPE requirements. Listen to earmark, you get free CPE from that little plug. Um, I love that it's such a smart idea. Um, like, so a lot of it is just formality, like administrative stuff. Like a lot of that is kind of what we look at with the pork. But recently and some of the other board conversations we've discussed, like alternative practice structures and private equity. And that is and that's probably a smaller portion of, of what the board is, is dealing with. Um, and a lot of those conversations happened at like the recent conference I just attended and, and stuff like that. So we haven't actually had a whole lot of, um, like proposals, if you will, of handling some of these issues. And so I guess there hasn't necessarily been the opportunity for me to, to have some of these conversations where that would be a plausibility. But yeah. David Leary: [01:11:45] It's still early. No conflict yet. Britten Ratcliff: [01:11:48] Yeah. Still early. I yeah, I'm a, I'm an argumentative fellow, so I don't know what's going to happen. Blake Oliver: [01:11:54] Britain, it sounds like you're a natural regulator and you're gonna stick around in this potentially. You're now at Cornell doing. What are you doing there? Britten Ratcliff: [01:12:06] So I'm doing public policy. So. Blake Oliver: [01:12:07] Okay. So definitely, definitely sticking with regulation. All right. Sweet. So I want to ask you, uh, you know, what do you feel needs to be done from a regulatory perspective in accounting? What areas should regulators such as boards of accountancy, uh, a, a board of accountancy be focusing on and what should they be doing about it? Britten Ratcliff: [01:12:34] Um okay. So it's a really good question, Blake. So for example, we were talking about a lot of the CPA requirements or CPE requirements that need to be met. And then there's a discussion of if those should be changed, if those should be brought down, if those should be brought up, if the if what happens with CPE requirements and how that's tracked should should be adjusted. And I'm going to be really honest with you. I don't know how much of that matters. Um, like I, I think it's really hard to regulate like naturalistic human behavior. We've always had the majority of people try to, you know, lazy their way out of like administrative processes. And so I think increasing, um, I don't want to you. I know disclosures is a big word, but increasing the amount of disclosures or the depth of which disclosures need to be like, I don't necessarily know if like heavy regulation and creating more regulation is, is kind of the answer to that. And what we're seeing is there are a lot of state legislatures, a lot of state legislatures are also kind of headed towards this, like the regulatory, um, kind of kind of mindset and favoring. And when bills are proposed, we kind of saw that with like the Florida board. Um, and so I think that like, personally, what I advocate for is like very simple shifts. And so for example, with like, and I don't know how in depth we need to go or how much explaining I need to do, but for like alternative practice structures, the non-attached side contracting the test CPAs, like I don't know how much regulation there needs to be or just transparency disclosures. There needs to be regulated upon that interaction. I think it's a more simple answer of like having CPAs tell people if their CPA or not, depending on like on all the work that they're doing, not just regulated CPA work and not just not regulated CPA or if you're CPA or CPA. And I think it needs to be more like simple than trying to, to overstep jurisdictions and regulate an industry that we're not regulators of, you know. Blake Oliver: [01:14:52] Britain. I love that approach, and I can't wait to have you back to talk more about this in the future. Thank you for sharing your story and your perspective. David and I have been talking with Brittany Ratcliffe, the public member of the New Mexico Public Accountancy Board. Britton, thanks for coming on such a great interview. Great to have Britton on the show. That's all the time we have this week. Don't forget, you can earn free CPE for listening to this episode and our back catalog, as well as many other incredible accounting and tax podcasts such as Oh My Fraud, Federal Tax Updates, Tax in Action, She counts, and many, many more. Go to earmark.app in your web browser, or download the free Earmark CPE app from the App Store. Create a free account and earn one free CPE per week. David. Always a pleasure. See you around here next week.