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The IRS Agents Who Will Watch OnlyFans At Work · 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! Blake Oliver: [00:00:04] Audit teams with more women deliver higher quality audits at lower fees. A study analyzed 20 large accounting firms and over 4700 clients from 2010 to 2018. Teams with more female auditors reported fewer financial misstatements and charged less, and the effect was strongest when women held senior roles like team supervisor and product manager. David Leary: [00:00:32] Coming to you weekly from the OnPay Recording Studio. Blake Oliver: [00:00:39] Hello and welcome back to The Accounting Podcast, your weekly roundup of news in the accounting profession. I'm Blake Oliver. David Leary: [00:00:47] And I'm David Leary and Blake. Congratulations are in order. I see that you again made the top 100 most influential people in accounting list. Blake Oliver: [00:00:56] Thank you. David Leary: [00:00:57] David. Put you into with all the bigwigs. Um, you must have lots and lots of fans, I suppose. Blake Oliver: [00:01:03] You know, it made me think maybe I should figure out how to capitalize on this fame and fortune. Should I start an OnlyFans? David Leary: [00:01:12] Well, we should start OnlyFans for the podcast would be even better. Blake Oliver: [00:01:15] Well, now, with this new no tax on tips deduction, we could potentially save a lot of money up to $25,000. You can deduct from your taxes, and digital content creators are on the list of the people who can take this deduction, according to the IRS. But there's a complication for the IRS. Uh, could create some interesting job opportunities there. Conservative groups lobbied for an exemption in the IRS regulations, and it looks like the bill allows the IRS to decide who qualifies for this deduction. David Leary: [00:01:57] And so conservative law. But so the Congress is putting the the what it should be on the department to figure that out. Blake Oliver: [00:02:06] Right. So the IRS has to figure out who qualifies. Um, you know, one of the criteria is that this has to be occupations that historically have received tips. And so the IRS said digital content creators are on the list. So podcasters David, we could do this. Accountants no, lawyers, no, etc.. But here's the catch. There's a lot of different kinds of digital content creators out there. And one of the biggest sites we all know is OnlyFans, which has millions of creator accounts. And these conservative groups lobbied the Trump administration to exclude, quote, pornographic activity, unquote, from this new deduction for tips. So the question is what counts as pornography? Is it? Strippers? Onlyfans, cooking channels, foot pictures? Because OnlyFans actually has more, uh, than you might think, apparently. And so here's the situation we're going to be in if if things continue down this path is we're literally going to have IRS agents having to look at taxpayers content on OnlyFans to make subjective calls about what's pornographic, because the courts have never ruled the Supreme Court never ruled on a definition of pornography. They only established the definition for obscenity, and Supreme Court Justice Potter Stewart famously said, I know it when I see it. So that's my question is, are IRS agents going to have to sit in their offices at work and look at OnlyFans accounts and determine whether or not this content is, uh, qualifies for the deduction or these creators do. And then and then actually, it begs a bigger question, which is will tax professionals have to do this? So let's say you get a client that comes in that says they want the no tax on tips deduction, and they're like an online creator. Blake Oliver: [00:04:06] What are you going to do now? What are the people on your team going to do. Are you going to watch. Are you going to check out the content and decide whether it, uh, it qualifies. So this was reported in the New York Times. The headline was for No tax on tips the IRS Gets intimate. I thought that was this is a hilarious unintended consequences situation. Um, now, David, the other question is where are these IRS agents going to be looking at this content? If they have to do that and it's going to be in the office, apparently, definitely not at home. The IRS has closed out their hardship requests for telework, citing the return to office mandate. So now you can no longer, uh, do a hardship telework request, such as for fleeing domestic violence or being an immunocompromised worker. The agency is now limiting most employees to just five days of telework per year, and any hardship approvals have to come from top leadership. This is, of course, all happening. While the IRS has a backlog of over 8000 reasonable accommodation requests and lost more than 25% of its workforce this year through voluntary separations. That was as reported in the Federal News Network. David Leary: [00:05:16] So just kind of thinking about this law then, right? In general, the whole principle of OnlyFans is tip based. So in theory, all the content on there is tip based. Blake Oliver: [00:05:26] I don't know, I don't know how it works. David Leary: [00:05:27] I think it I think that's how it works. Don't. Blake Oliver: [00:05:30] Maybe we should go investigate. David Leary: [00:05:32] I don't want to open it on the screen here, but I think I think fundamentally it's tip based. So now if maybe you somebody did one session or one video or whatever it is, and maybe that got determined to be pornographic, do you lose the whole deduction or can you claim all the other days that you got tips and still claim that amount or there, just the amount during that video. Blake Oliver: [00:05:54] These are the types of questions, David, that I would love to have answered on a CPE course on earmark. Maybe one of our tax professional listeners, like somebody who's an expert on this, no tax on tips deduction, could reach out to us and let us know if you're interested in doing a CPE hour. I myself would be fascinated to learn the answer. Please email us at The Accounting Podcast at earmark. And if you're just tuning in, if you've never heard about earmark before, don't forget you can earn free continuing professional education for listening to podcasts. Get the free earmark app. You can go to Earmark App in your web browser or download the app on the App Store. Create your free account and start earning one free CPE per week for listening to podcasts. And if you want to support our work, the subscription is the lowest price in the industry, $170 a year at this moment for unlimited CPE David. David Leary: [00:06:44] It looks. Blake Oliver: [00:06:44] Like our sponsors. David Leary: [00:06:45] Before we do that, it looks like our live viewers are tuning in and they're telling us that you have to buy a subscription to each individual account on OnlyFans, so people would have to buy a subscription to use a subscription to me, a subscription to The Accounting Podcast, they'd all be separate subscriptions. It's not quite tips, but I think you can still. Somebody said it's both. Yeah, you. Blake Oliver: [00:07:06] Can still give I you definitely can give tips on OnlyFans. I've heard about that before. Not that I've ever done this myself, of course. Uh. David Leary: [00:07:15] So David knew that so many of our listeners were like, these answers came right away. People are definitely a lot of our listeners, apparently, are experts on OnlyFans. Blake Oliver: [00:07:24] This is important, um, because like, OnlyFans is huge. There's like millions of creator accounts, hundreds of thousands of paying subscribers. So like, it's a big business, billions and billions of dollars a year. Okay, David, let's thank our sponsors, our sponsors. David Leary: [00:07:39] This week. We have on pay. We have the Association of Certified Fraud Examiners, ACF, and we have cloud accountants staffing. Are you tired of payroll headaches getting in the way of client, 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 experts in actual actually reachable when you need them on pay on pay handles the heavy lifting. 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Blake Oliver: [00:09:14] Continuing on with IRS news and tax news in general, the president made an interesting statement recently. I'd like to play this video for you of President Trump talking about the federal income tax. Speaker3: [00:09:31] Next year is projected to be the largest tax refund season ever, and we're going to be giving back refunds out of the tariffs because we've taken in literally trillions of dollars, and we're going to be given a nice dividend to the people in addition to reducing debt. We, as you know, I inherited a lot of debt. But it's peanuts compared to the kind of numbers we're talking about. So we're going to be making a dividend to the people. And additionally we're going to be able to reduce debt. And as time goes by over the next two, three, four years, those numbers are going to go up. And I believe that at some point in the not too distant future, you won't even have income tax to pay, because the money we're taking in is so great, it's so enormous that you're not going to have income tax to pay whether you get rid of it or just keep it around for fun or have it really low, much lower than it is now, but you won't be paying income tax. Blake Oliver: [00:10:31] So there you have it. You have it. The president says that someday, in the not too distant future, we will be able to eliminate the federal income tax thanks to tariff revenue. David Leary: [00:10:42] But he said tariffs revenue is bringing in trillions. Blake Oliver: [00:10:46] Yes. Uh, well, no, it didn't though. It only brought in. David Leary: [00:10:50] 2.5 billion, is what I found. Blake Oliver: [00:10:52] The number I have is 258 billion. But either way, that's not trillions. David Leary: [00:10:57] Not trillions. He said trillions, plural. It's not trillions. Blake Oliver: [00:11:01] It's in the hundreds of billions, but not trillions. Income taxes last year generated 2.7 trillion. So if my number's right, then tariffs are only 10% of that. So how are we going to use tariffs to eliminate the individual income tax. That is a big gap of over $2 trillion. David Leary: [00:11:25] And then even the deficit thing ultimately based on 2025 receipts, the income was about 5.2 trillion and there was over 7 trillion in spending. So there's a deficit of 1.7 trillion still. Blake Oliver: [00:11:39] And yet the plan is to send out dividend checks to Americans using the tariff money. So instead of using the tariff money to pay down the debt or to offset the debt, we're just going to give it to Americans. So let's see if I have this right. Tariffs are taxes paid by American businesses on imports. So American businesses pay these taxes to the federal government. Small businesses, big businesses, anywhere from Walmart down to your local hardware store. They send that money to the federal government, the federal government going to turn around and then write checks to Americans who will then, I suppose, use that money to go buy stuff. But the stuff will be more expensive. Expensive because the businesses had to raise prices in order to pay for the tariffs. So there you have it. It's the cycle of of tariffs and rebates right there. David Leary: [00:12:35] Doesn't anybody like prep him before. He just says these things like hey here's some accurate numbers. He could just have two note cards like here's the actual amount of tariffs and here's the amount that we spend and here's the amount of the deficit. He just makes up numbers. Blake Oliver: [00:12:50] You mean David you you think that reality is going to change his view on this matter? David Leary: [00:12:56] Well it is it. Does he live in Fantasy Island or is he just not prepped properly? He has bad support staff. Blake Oliver: [00:13:05] I don't know, you know, we don't know. We have no way to know that one for sure, right? So, David, let's keep talking about the president and taxes. Here's some good news, some great news. The president signed a new act into law called the IRS Math Act. The IRS, as our listeners know, sends millions of math error notices every year and issues corrections and then sends checks or demands payment. But they don't explain in these notices what you did wrong or why your refund changed Now, thanks to the IRS Math Act, which the president signed into law, the IRS will be required to give clear explanations of errors and give taxpayers 60 days to dispute them. I can't see anything wrong with this. This is great. It's kind of amazing that they were issuing these corrections notices and then not telling you why. David Leary: [00:14:02] It's funny that there had to be a law passed to have them accurately report things to us taxpayers. That doesn't make any sense. Like, that's just not a normal part of the operating values of the IRS. They should be like, we're going to do things accurately. Blake Oliver: [00:14:21] Continue on with tax news. Gop Senator Jim Justice has agreed to pay $5 million in back taxes, and he did that just hours after the Justice Department sued him. Apparently, the IRS has been pursuing Senator Justice since 2009, and he's been ignoring Treasury Department notices for years. So they finally sued him. $5 million in back taxes. David Leary: [00:14:48] And that's like 16 years, right? Yeah. Blake Oliver: [00:14:53] 2009. Uh, yeah. That's that's wild. Yeah. He just he just never paid it. The IRS filed liens of more than $8 million against justice and his wife last month for unpaid taxes dating back to 2009. Six justice owned family companies were ordered sold by a judge last year to satisfy outstanding debts. The family's Greenbrier Resort in White Sulfur Springs, West Virginia, narrowly avoided foreclosure last year after a debt settlement. Senator justice said in response that his companies are, quote, complicated and complex, and that his children are doing a magnificent job running the businesses and alleges that the collection efforts are politically motivated. Senator justice has been in the US Senate since January of 2025, and, uh, he was previously West Virginia governor from 2017 to 2025. He is the heir to the West Virginia coal company bluestone, and he won his Senate seat by over 40 percentage points in 2024. David Leary: [00:15:57] Do you have any more government related stuff? Blake Oliver: [00:15:59] That's all I got for taxes. Well, okay, quick, quick hit on this. The IRS just released guidance on their Trump accounts. Well, not their Trump accounts. Trump's Trump accounts. Um, this is a new individual retirement account for kids. And Michael Dell and his wife announced that they are donating $6.25 billion to give 25 million children, 250 each for their investment accounts. And here's how these accounts work. If you haven't heard it yet, the government is going to put in $1,000 for eligible kids born between 2025 and 2028. 28. Parents and others can contribute up to $5,000 per year, and employers can chip in 2500 annually without it counting as taxable income. The money has to be invested in S&P 500 funds or similar American stock indexes. Kids can't touch it until they turn 18 and then it becomes a regular IRA. Contributions can't start until July 4th. The IRS is asking for public comments on how to make this work. So free money for anyone who had a kid. David Leary: [00:17:04] It's a stimmy payment, but you can't use it for 18 years. Yeah, basically. Blake Oliver: [00:17:10] Um, so go get your free money. David Leary: [00:17:13] Yeah. Start having kids. That's whether you get it. So, technically speaking, the PCAOB is not truly a government agency, but I think it transitions from semi semi-governmental. Blake Oliver: [00:17:25] Right. David Leary: [00:17:26] Right. So they had there was a conference and they um, talked about how they're warning that they are going to more closely scrutinize AI use in accounting firms, and they're going to more closely scrutinize PE backed firms because they feel like that, you know, especially with PE, there's pressure for just short term results. And they think it's going to affect audit quality. And they are worried that AI, even though on one hand it can improve audit quality, possibly by, you know, risk assessment and things like that. But if there's overreliance, the junior auditors won't know and those mistakes will be made. So they they're going to be watching and scrutinizing AI use more and PE backed firms more. So if you if you fall under those two umbrellas and you're doing audit work, expect some extra reviews from the PCAOB this year. Blake Oliver: [00:18:14] Well, they say they're watching, right. But they've been watching for how long? For decades. David Leary: [00:18:19] They said they're closely scrutiny will closely scrutinize. So that's that's closely scrutinizing. Right. Blake Oliver: [00:18:24] Well watching closely. Look looking looking deeply. Um, yeah. That I saw this as well. That was, uh, at the AICPA conference on current SEC and Pcob developments in Washington, D.C., and reported on by Accounting Today. The key speakers were George Batik. Batik. He's the Pcob acting chair. And then Christine Gunia, director of PCBs Division of Registration and Inspections. I have a really simple solution to this problem of private equity in accounting. Simply split off the audit firms require audit firms to be traditional CPA firms. No outside investment, no money ties to anyone. And they can do audits. And let's end this alternative practice structure. There you go. Problem solved. Yeah. No private equity, no money influencing auditor decisions. David Leary: [00:19:23] Who who kind of created this alternative practice structure ultimately. Was this like an initiative? Aicpa. Blake Oliver: [00:19:31] I have no idea. Probably some creative lawyers. David Leary: [00:19:34] Yeah. Blake Oliver: [00:19:34] Right. That's the whole thing is the alternative practice structure was developed as a way to get around state rules regarding CPA firm ownership, so that they could take on outside money, and they didn't have to be a partnership, just a partnership. Or they could take on partners who are not CPAs. That sort of thing. And so you the way you do it is you carve out all the non-audit work, all the non attest work into a new CPA firm entity that shares the same brand as the audit firm. And then that firm does the management has the staff and like leases staff back to the audit firm. And then that's where that's the entity that takes the private equity investment. But to the public it looks like the same firm right. Same website. Yeah. Nobody would know there's a difference. So yeah, it's just a it's a workaround and I don't see why this has to be complicated. It's. It's. If you want. You want to make this really clean. Just don't let auditors be a part of the firm. Don't let them have any, like, don't have anything to do with private equity. But see, that's the problem is that the firms don't want this. The big firms don't want this because they want to be able to take the private equity money. They want. David Leary: [00:20:51] To cash. Blake Oliver: [00:20:51] Out. The audit partners will block this because they they want to write like they don't want to get carved off necessarily, but it might actually improve audit quality. I think one of the arguments against it has been that the audit firms will become smaller, and that they won't have the resources. Um, but I spotted a paper, um, called Profit Persistence in the US audit market and it's by, um, Will Chekhonte from the University of Kansas and the University of Illinois and the University of Florida. I guess he's got he's listed under all of them. And Andrew Kiddo from the University of Massachusetts. This was in the Journal of Accounting Research. And basically they find that when there's less competition among auditors in in certain markets, they actually get higher audit quality. And they did this by looking at Pcob part one inspection findings, financial statement restatements and discretionary accruals. And they find that offices with persistent profits, which you would assume have less competition, have fewer inspection deficiencies, and they actually have fewer audit hours as well. There is no evidence that reduced competition harms audit quality. The evidence points in the opposite direction. And think about it. This makes sense, right? What does competition do? It pushes down fees Which incentivizes auditors to cut corners. David Leary: [00:22:32] And then you have that fear of you don't want to get dropped by the company you're auditing. You want to get dropped on them. Blake Oliver: [00:22:37] Yeah. David Leary: [00:22:38] But if they can't drop you because there's nobody else from the pick, you can be as harsh as you want on the audit. Blake Oliver: [00:22:43] Yes. David Leary: [00:22:44] It's interesting that the complete opposite results are occurring here. Blake Oliver: [00:22:51] What do you mean? David Leary: [00:22:52] Well, you just said it like the. The assumption would be that more competition would be better, but the exact opposite results are occurring. Blake Oliver: [00:23:00] Well, normally in like a free market economy, competition increases quality. David Leary: [00:23:06] Yes. Blake Oliver: [00:23:07] But I don't think it works that way in audit. David Leary: [00:23:09] Why is everything always the opposite for us in this industry? Blake Oliver: [00:23:13] Well, because because our system is not set up to reward auditors for like the output, like all the audit reports are the same, right? There's no differentiation between one audit report and another. Nobody reads them. Nobody cares. Right. All they care about, all the investors care about, is that the company either got a clean audit or didn't. And so you can't create a competitive market dynamic when everybody's essentially selling the same thing. So you actually are better off if you just have highly skilled professionals who are well compensated, who are compensated so they don't have to cut corners and are incentivized to do a good job by, say, the pcob looking over their shoulder. David Leary: [00:24:07] Yeah. Because if you had an accounting firm, you came out and said, we fail almost every company we audit. Nobody's going to go to you. You get no business for being the best. Right. You don't get rewarded for being the best in a competitive market in our space. Blake Oliver: [00:24:20] Here's another interesting piece of information about audit quality. This is fascinating to me. I saw this in Accounting Today. Audit teams with more women deliver higher quality audits at lower fees. A study analyzed 20 large accounting firms and over 4700 clients from 2010 to 2018. Teams with more female auditors reported fewer financial misstatements and charged less, and the effect was strongest when women held senior roles like team supervisor and product manager. Now here's. David Leary: [00:24:59] What matters. They charge less. Or is there just a wage discrepancy in the accounting industry? And that's the difference in price. Blake Oliver: [00:25:05] I don't know about that. David Leary: [00:25:06] Okay. Blake Oliver: [00:25:06] But think about that like it's better for the client. Whatever the reason. Right. They're getting an audit that has fewer there's fewer misstatements and and lower fees. Um, and but here's, here's an interesting like tweak to this. The benefit only showed up in supportive work environments. So if the office had fewer female partners or poor work life balance, the positive impact disappeared. So in offices that have good work life balance and more female partners, audits were higher quality. When there are more women on the audit team. So this was research that is going to appear in the review of accounting studies conducted by researchers from the University of Buffalo School of Management and Ohio State University, Fisher College of Business. All right, David, let's thank our next sponsor. And that is the ACF, the Association of Certified Fraud Examiners. Ever wonder how much fraud is really costing your organization? According to the Association of Certified Fraud Examiners, companies lose an average of 5% of their revenue to fraud every single year. That's that's crazy. That's 1.7 million per case, on average, 5% of revenue. But here's the kicker. Organizations with dedicated fraud teams cut those losses in half and catch frauds twice as fast. That's where the Association of Certified Fraud Examiners comes in. As the world's largest anti-fraud organization, they are empowering professionals like you with the tools, training and credentials you need to protect your organization whether you're in accounting, compliance, internal audit or fraud investigation. Acf membership gives you access to cutting edge resources, exclusive webinars, and a global network of over 95,000 members. Plus, you'll save 20% on all training and products and gain access to prepare for the prestigious Certified Fraud Examiners credential, the only one of its kind in the world. To learn more about ACF membership and receive a free ACF webinar, head over to The Accounting Podcast. That's The Accounting Podcast. And David, I know that you used AI to write that ad. You know how I know it. One phrase I actually know which AI you used because of the phrase. David Leary: [00:27:32] Let me see. Let me look at this. Blake Oliver: [00:27:34] Did anyone else listening? No. Notice? Did you catch it? It was in the first ad, too. That's why I really paid attention to it. David Leary: [00:27:41] Usually they always try to put in the kicker. Blake Oliver: [00:27:43] Yeah, here's the kicker. And that is strangely a phrase that appears all the time over and over again when you use clod by anthropic. It doesn't happen with OpenAI. There's something about the way they trained clod, where it just loves that phrase. David Leary: [00:28:00] Interesting. It's funny because I feel like in the early days when I would be writing ads and I don't know if we actually trained the model, possibly, but it would always for every app, it would always say that it syncs with Bill.com. And then eventually I was like, wait a minute, that app doesn't sync with Bill and I caught it, but it would stick it in lots of like, almost like I feel like I trained it. I was like, use these ads as a model and they would always stick in. That syncs with Bill.com, which I just thought was weird over and over again, because 1 or 2 ads maybe said that at one time. Blake Oliver: [00:28:30] Speaking of AI, did you see the news that KPMG auditors were caught using AI to cheat on internal compliance training exams? David Leary: [00:28:40] Yes, so, so full circle because they cheated on ethics exams back in the day, right? I think that was KPMG. Blake Oliver: [00:28:49] Uh, I think so, yeah, I think that was them. David Leary: [00:28:52] And so now they just got more efficient at their cheating essentially, instead of sharing answers with each other. Blake Oliver: [00:28:59] Here's here are the details of the scandal. This was as reported in the Australian Financial Review and happened at KPMG Australia. During 2023 to 2024. Multiple KPMG auditors used AI and collaborated through group chats to complete mandatory compliance training, and that was after KPMG had been investigated for the exam cheating. So you're right, David, it was KPMG and the exam cheating was from 2015 to 2020. So they got investigated. Everyone knew they were getting investigated and they still did this. David Leary: [00:29:34] They got fined $50 million for for it before and then they just continued to do it. So the fines don't work, obviously. Blake Oliver: [00:29:42] So KPMG's response was that management launched an internal investigation. After discussing discovering the AI assisted cheating, several staff members received formal warnings. One received a verbal caution. One person left the firm months later, apparently voluntarily. The all the implicated staff were required to retake tests without AI assistance and passed, but the firm did not report the incident to regulators. I guess there is no legal requirement that they do so. Um, by the way, AI is really good at taking these kinds of tests. That's part of the problem. Just copy paste all the questions into ChatGPT now and like 5.15. 25I just got 5.2. Like it'll, it'll, it'll you'll pass in a heartbeat. That's um, so you know this is going to keep happening. So yeah. David Leary: [00:30:39] I'm glad you brought this because I saw OpenAI has their, uh, enterprise, uh, survey. They surveyed 9000 workers to to document patterns of AI adoption. And I went through the whole PDF of the report, and nowhere does it talk about accounting or accountants. And I was wondering like, how are they saving time now? You showed me how they're saving time. They're using to cheat on exams. So the one of the big conclusions from this, um, from OpenAI, is that they're saying workers are saving one hour a day because of AI. And the way they break this down is 75% of the workers are reporting just a faster or higher quality output when they use it, and saving 40 to 60 minutes a day. But heavy users are reporting that it's saving ten hours a week, but it's also tied to the function. They are saying that, um, accounting and finance for users are reporting the largest benefits, followed by communications and engineers. But the real key to this thing that I thought was interesting is users who are saying they gain the most from it are when you use it for a skill set you don't have. David Leary: [00:31:47] So yes, let's say you previously you couldn't do coding work and now you're using it to write some code or some custom functions that you need that currently that's up 36%, but that's the one that people that's really the difference maker here. Where you save time is when you're doing a skill set that's above and beyond your current skill set, and that's where AI is really powerful to augment that. But I go on to read the whole doc, and what's interesting, it doesn't really talk about it tell us about all the departments that are saving time. You know, IT departments are getting 87% faster issue resolution marketing product marketing teams have 85% faster execution. Hr is 75% improved engineering, 73% faster code delivery. But none of this survey really talks about accounting. So I go through the whole deck and they even have like six use cases from companies like intercom, lolz. Indeed, BBVA, Oscar Health and Moderna. None of these use cases are accounting departments. Like like if accounting is going to be the first job eliminated by AI, how come when OpenAI does a survey, not one piece of data indicates this? Blake Oliver: [00:32:56] I know why I have a theory. Why? Anyway, why is that? Because it's because the work that accountants do requires a high degree of accuracy near 100% accuracy. And studies show research by meter. Meter. You can go check it out at. I think it's meter shows that AI is 80% accurate, 80% successful at doing tasks that take say, 30 minutes, but 100% only tasks that take a few minutes long. So it's not that you can't use it in accounting. It's just you have to use it at tasks that only take a few minutes at the moment. Now I think it's going to explode because we just talked about this last week. We've now got AI chatbots in Excel. And so accountants spend hours and hours a day in Excel like half the day in Excel. And so once these chatbots get really good and you can just automate a lot of that in Excel, we're going to save hours and hours. But that just happened. That's like this quarter. So it's going to take off. But that's been the blocker so far. We can use it in creative pursuits like I use it constantly, all the time to like, write and to create PowerPoints because it'll get me 80% or 90% of the way there, and then I can finish the job. But it doesn't really work that way when it comes to a spreadsheet necessarily. Not yet anyway. Soon, soon. David Leary: [00:34:27] The Harvard Business Review actually did a issued a report. They surveyed 603 global businesses and technology leaders in July of 2025, and their conclusion is that only 6% of companies trust AI for core business processes. So you can have it do low risk or supervised tasks. But when it comes to your actual company's core functionality, nobody can trust you to do that yet. And some of it is just there's weak infrastructure data quality's weak. Governance is slowing this trust to do it. Um. Blake Oliver: [00:35:01] So it's going to it's going to take time. David. So like we we have not seen very many ERPs or apps that accountants use actually implement AI in a systematic way. The one example that I have from this year actually I have two now, right? So ramp the AP app expense management app. They have AI approvals in there now. So you can create like an AI agent that approves stuff automatically and handles 8,090% is the idea. I also turned on the auto rec auto reconcile AI feature in zero, and now I'm seeing transactions come in and zero is automatically clicking okay on some of the transactions. That has high confidence in. And I haven't found any mistakes so far. So that's the beginning of this right? Is the small little tasks like just going in and matching one transaction to another. Ai can do that really accurately all day long if it's got the right instruction set. Sorry I interrupted you. David Leary: [00:35:59] Oh, no. No. It's okay, it's okay. No, no, it's it can really align to the numbers in the survey. A couple other things in the survey, um, of the 603 businesses they surveyed, 9% have fully deployed AI and 50% are piloting or exploring, and then 86%, just like you said, expect their investment to increase over the next two years. But 9% have fully deployed agentic AI like like what does fully deploy even mean? Like, can you deploy any AI at this point? It's not done yet. Like it's still got ten years of roadmap. The fully is a pretty broad term, I think, on this. Everything's an experiment still. Blake Oliver: [00:36:39] Well, maybe that just means they've got like one agentic AI like workflow going on. So I want to talk about a headline I saw in the Wall Street Journal a couple weeks ago. This is near and dear to my heart. It is. Say goodbye to the billable hour thanks to AI. This is by Rita McGrath, academic director at the Columbia Business School. And she writes in the Wall Street Journal that the billable hour is dying and that AI is killing it. And I couldn't agree more. She says, to paraphrase, that when AI can review thousands of contracts in minutes instead of weeks, charging for time spent becomes economically absurd. Firms using AI most effectively would see revenue collapse under hourly billing, even as they deliver better results. David Leary: [00:37:32] It's been that was kind of the story of with cloud accounting and apps and APIs and data moving automatically. Blake Oliver: [00:37:38] That was the story of me and my firm when I was a freelance bookkeeper. I billed hourly for keying transactions into accounting software. I then figured out how to automate all of that, 90% of it. And I had a choice. I could either bill 8,090% fewer hours and lose all my revenue, or I could switch my clients to fixed fees and take ownership of the process and overseeing it. And I think that is what we are going to see in all the other areas of accounting that have not yet experienced that shift. David Leary: [00:38:17] So was this article just specifically about billable hours in accounting or all professions. Blake Oliver: [00:38:23] Lawyers, all professions. David Leary: [00:38:24] Psychology, etc.. Blake Oliver: [00:38:25] All professions? And we should recall that the billable hours started in legal work. It was introduced in the early 1900s by Reginald Heber Smith at the Boston Legal Aid Society. Interestingly, it was originally designed as a management tool to improve efficiency, not for billing, but it became a widely used billing method in the 1960s and 70s across law firms. And then it spread to accounting firms, consultancies, and it actually replaced earlier models that charge for outcomes or services rendered. So it's not like we've always had the billable hour. We used to bill for results 100 years later. Switched. David Leary: [00:39:08] Switched. Blake Oliver: [00:39:09] Yeah. And I agree. The reason this shift is going to happen is because AI is going to reduce the time it takes to do a huge percentage of tasks. And so that labor cost is going to go down. And when the labor cost goes down you don't need to control that labor cost as much because um, well it's just lower, right. It's not as big of a problem. And, and the reason we've used it is because labor costs are so high in traditional professional services that the billable hour is like a it's it's like. David Leary: [00:39:44] It ensures you always have some. Blake Oliver: [00:39:45] It ensures that we always get the margin we want. It basically locks in the profit of the firm. And even though you could theoretically make more money not doing it because accountants and lawyers are conservative, but especially accountants are conservative by nature, they would rather lock in the profit than have the uncertainty. But now, with the labor costs going way down, you can have a profit. And actually, the certainty will kill you. David Leary: [00:40:15] This is interesting because there's probably gonna have to be some legislative legislative changes as well. I remember when I was getting my divorce and I went in and I was like, can I just do a fixed fee? Because I was influenced by Ed Kless and Ron Baker in early days of the billable hour going away. And this is a decade ago, and I was basically told it is legal for them to charge a fixed fee. Blake Oliver: [00:40:33] For the legal. David Leary: [00:40:34] Services in the state of Arizona, apparently. Wow. I don't know, I just believe the lawyer. I mean, why would they lie? Blake Oliver: [00:40:41] Your lawyer just didn't want I didn't. David Leary: [00:40:43] Want an explanation because they would have charged me for the longer explanation, so I would I would rather take the short one. Blake Oliver: [00:40:48] Well, so, David, since we're talking about how AI is going to change accounting, let's actually talk about what it's starting to do. Another great story in the Wall Street Journal is all about how AI is co-writing financial reports, and the story is that AI is now writing entire sections of company's financial reports, not just helping with drafts. The example is on semiconductor. They are now using AI to draft financial reports. They've been expanding that over the last year. The CFO, Thad Trent, says that AI now writes entire sections of management discussion and analysis, not just paragraphs. Hewlett Packard Enterprise they are preparing to use AI for first drafts of financial statements, potentially starting in January. 28% of financial executives international event attendees already use generative AI for external reporting preparation, so over a quarter of finance teams are using AI to generate these external reports. The management narrative, like discussion analysis totally makes sense. You can do this right now. Take a set of financial statements. Drop it into a ChatGPT and ask for the narrative. And it does a spectacular job. David Leary: [00:42:12] Because the narrative could be the next time you do it tomorrow, it could be slightly different as long as the narrative is there. But you don't have to have that preciseness that you have. Blake Oliver: [00:42:19] Well, yeah, it's actually you're telling a story. Now the numbers have to be right in the narrative. And of course, it might make up a story that's not true. You need to verify this, but to actually, like take that, take those numbers and turn them into English, like a story that people can understand that are not accountants and highlight what's important. It's really good at that. David Leary: [00:42:45] I would love to find out. For example, at Intuit, when they do their report, their quarterly reporting, their public company, if they're putting their money where their mouth is. Right. Like, are they going to use AI on their own bookkeeping and on their own financial reporting that they're giving to the street. I would love to find that out. Blake Oliver: [00:43:03] That'd be a great question for the call. And actually predicting analyst questions for earnings calls is one of the use cases of AI. So give your financial statement package that you give to the analysts to AI and ask it to predict the questions the analysts will ask. And you know that the analysts are really good. The analysts are probably using AI to ask the questions, too. So there's some other good examples in here that I wanted to highlight. I think that's it actually. Yeah. Predicting the analyst questions. And this is great too. Like um, let's say that you are a manager in a outsourced accounting practice and, you know, you are preparing for a board meeting with your client or you're preparing to meet with the owner, you can use the financial statements and, you know, ChatGPT or cloud or copilot to anticipate the questions that they will have and try to be ready with answers when they ask those questions. David Leary: [00:44:01] Especially if you captured like the questions you get across a bunch of your clients. I mean, naturally you could start learning those as a human. You probably would, but you can't. Now you could have your staff attend the meeting without you. It really gives you it sets you up to scale well. Blake Oliver: [00:44:18] It sets up somebody who's less experienced. Like, I remember when I entered, um, I went into a big firm as a manager, and I was working with larger clients than I'd ever worked with on my own, and I had to have these meetings with them. I felt really out of my element, and I had to go to some of these meetings without support, without the help of a partner or a director to, to, you know, give me guidance. And it would have been amazing to be able to prepare using something like ChatGPT to help me think about what types of questions would be asked. That's the beauty of using these tools, is it gives you access to the experience of the all the documented experience of the world. And so you as a as a young employee or somebody inexperienced can gain that experience or anticipate what's going to happen even though you don't have it yourself. Okay. I want to talk about Facebook and. David Leary: [00:45:15] Let me do our last before you talked about Facebook's accounting. Let's do our last ad. Blake Oliver: [00:45:20] All right. David Leary: [00:45:21] For cloud accountant staffing, if you're thinking about increasing your team using remote team members, but you want to avoid the high pressure sales calls and commitments before you even review possible candidates. Good news you can now review potential candidates without having sales calls or any commitments. Cloud Accountant Staffing is just launched their Candidate Pro portal, where you can browse resumes, introduction videos, assessments and personality test results at any time of the day or night. No sales call, no pressure, no commitment. The candidate portal is updated daily in. All candidates are available for an interview within 24 hours. You can browse candidates by both roles and experience. Want a bookkeeper that knows QuickBooks and has experience with nonprofits? You can drill down to find those candidates. How different would your firm look in 2026, and honestly, how different would your life feel if you could instantly add 40, 80, 120 hours of extra capacity every single week to explore the accounting Staffing Candidate portal? Head over to The Accounting Podcast that is Accounting Today. Blake Oliver: [00:46:25] And welcome to our livestream viewers. Great to see you. Matthew Mo male, 22 Ibai I CNC and boring accountant. Thanks for commenting. Thanks to everyone who joined us. Don't forget you can tune in live, subscribe to the accounting podcast on YouTube, hit that notification button and you'll get notified when we go live, which is typically or even. David Leary: [00:46:52] Before we went live today. Uh, boring accountant was giving us coffees before we even went live. Blake Oliver: [00:46:57] First comment before we even hit record. All right, let's talk about meta and their aggressive accounting for their new data center. Again, wall Street Journal. Love their accounting coverage. Reporter on this is Jonathan Weil. So meta is constructing a massive data center in Louisiana. It's called Hyperion. And they have successfully. Well, we'll see what the auditors say, but they have moved. I don't know, maybe I don't know if this has been blessed. It probably has been because it's not on their balance sheet anymore. Anyway, Facebook has taken this data center called Hyperion. Hyperion. And they've moved it off their balance sheet through a complex financing arrangement. They created a joint venture with Blue Owl Capital, where meta owns 20% and Blue Owl funds 80%. Blue owls portion sold a record 27.3 billion in bonds through an entity called Beignet Investor, and meta is leasing the data center for up to 20 years, starting in 2029. The initial lease term is four years, with renewal options every four years. So this is a variable interest entity, and meta claims that it does not have to consolidate the joint venture and thus put the data center on its balance sheet, because it says it doesn't have the power to direct activities that most significantly impact economic performance, and that it doesn't have an obligation to absorb significant losses or the right to receive significant benefits. Blake Oliver: [00:48:31] But Jonathan Weil in The Wall Street Journal identifies some problematic aspects of this treatment. Meta is the AI. Uh hyperscaler tech company expert, right? Blue owl is just a financier. So who has control over this Economic exposure. Meta is bearing the risks of cost overruns, construction delays and provides a residual value guarantee and then guarantee complications. So meta is guaranteeing the full debt amount if it doesn't renew the lease or terminates early. So there's some conflicting accounting contradictions here. Meta says that it lacks power over decisions that matter most, despite it being the operational expert. There's a reasonable doubt that meta will stay beyond four years, despite their saying there's this 20 year plan, right? And like they're saying, like so meta won't have to honor its guarantee. But where everyone's assuming they're going to renew. And basically if they don't renew their guaranteeing the the bond investors. So. David Leary: [00:49:38] So so that should be a liability. They should have the liability and the asset on their balance sheet. And they're basically avoiding both because. Blake Oliver: [00:49:45] They've moved the data center off the balance sheet with this this variable interest entity. And they're saying, okay, yeah, we don't have to consolidate it because we don't control it. You know, there's like I don't want to go into the details on on the rules around this. Right. But you know, in order to do that you have to satisfy all these like accounting rules. And they've kind of like wiggled around it, but it just like reading this story, it just sounds like BS. So now it's an operating lease instead of a financing lease. So they don't have to put it on their balance sheet. And I want to I want to read the, the the last line in this. It's great. Um, ultimately, the fact pattern meta relies on to meet its conflicting objectives strains credibility. To believe Meta's books, one must accept that meta lacks the power to call the shots that matter most, that there's a reasonable doubt it will stay beyond four years, and that it probably won't have to honor its guarantee all at the same time. Artificial intelligence meet artificial accounting. All right. We've got probably time for one more story. Do you want to talk about pilot? David Leary: [00:50:58] Yeah, some app news. Jump in. Blake Oliver: [00:51:00] So gosh. David Leary: [00:51:02] First, like when you. Before we started the show, you said, I have a pilot story. I forgot all about them. I think we've. Blake Oliver: [00:51:08] Been talking about pilot for years. David Leary: [00:51:09] Yeah, they got that billion dollar investment or valuation from Jeff Bezos that time, right? And at that time, I think they had like a thousand customers. And we were just like, you know, that's what, $100 million a customer or whatever the ridiculous valuation was. Um, so we continue on with their story. So you bring them back, they still exist. Blake Oliver: [00:51:26] Yeah. So the news is that pilot has launched a program, um, a partner program for independent bookkeepers and accounting firms. And what it does is matches these bookkeepers and accountants with pre-qualified clients. That align with your specialty and location, and then you'll get to work with those clients on the pilot AI platform that automates the bookkeeping work. And it's in select cities now, and they are planning a nationwide rollout in 2026. David Leary: [00:52:01] So I'm imagining this is something like the QuickBooks find a ProAdvisor site. When you go there, you put in your city or zip code, and then it'll show you accountants that have expertise in QuickBooks that you could hire. But in this case, it'll be from pilot. Blake Oliver: [00:52:15] Yes. So. So, David, uh, to me, this indicates that we were right and that there is no long term SaaS story for pilot. Like you said, the bet was. David Leary: [00:52:36] An accounting firm with tech. Blake Oliver: [00:52:37] It's an accounting firm that built their own software. Built tech. And why did Bezos and all those other VCs invest in it? Because they were betting that pilot would be able to automate the work the humans do, and eliminate that labor cost and make SaaS margins and grow exponentially. And they didn't. They haven't. Right. They have, what, a few thousand clients, maybe. David Leary: [00:53:05] Actually, they have it on this website. So they spun up a website. They call it local partners, but it should just be called their accounting partnership page or whatever. It's called local partner. But they say get exclusive access to pilots platform, the same technology we use to serve 2500 plus businesses today. So yeah, they only have 2500 clients, which is not much. Blake Oliver: [00:53:27] No. David Leary: [00:53:28] And they're a decent sized accounting firm essentially. Blake Oliver: [00:53:33] Right. But let's think about how much money they raised. Uh, I'm trying to find it. I looked it up earlier. Yeah. So pilot raised around $222 million at an approximately $1.2 billion valuation. That was at the time of their series C expansion. David Leary: [00:53:56] So the valuation was over a billion. But how much was the money? Blake Oliver: [00:54:00] Well, it says they've raised I think they've raised they raised 100 million in their series C back in 2021. And I'm counting 222 million raised so far. But I don't have I can't log into PitchBook right now. So they've raised at least $100 million. That was their series C and I'm I think it's a lot more than that. Twice as much as that. They they were valued at $1.2 billion in the series C round. So here's a company valued at over $1 billion with a few thousand clients. They were on. Let's see. You get. Says that pilot hit 27 million in revenue and a thousand customers in 2024. Oh, and they say funding is 118 million. So maybe my 200 million number is wrong. But even just taking that right, 118 million divide that by 27 million in revenue or no. Um, yeah. I'm not I mean, their valuation. Oh, the valuation was 1.8 billion, right. So, you know, 1.8 billion divided by 27 million. That's 66 times revenue. You look very thoughtful. David Leary: [00:55:26] I was I was just kind of thinking about like, the money they raised per the amount of customers they have. Right? Blake Oliver: [00:55:33] Yeah. Uh, so. David Leary: [00:55:34] So 100 that out. That's about $60,000 a customer per year. Blake Oliver: [00:55:41] So if they have if they have, how many customers? 2500. David Leary: [00:55:44] 500. Blake Oliver: [00:55:45] So 118 million divided by 2500 is uh, 47,200. Is that right? David Leary: [00:55:54] Say it again. Blake Oliver: [00:55:55] 47,200. David Leary: [00:55:58] Yeah. Blake Oliver: [00:55:58] Yeah. Well. David Leary: [00:56:00] Because the math just doesn't make sense. Like, even on their custom plan. Yeah. So. Blake Oliver: [00:56:06] So here's what this tells me. Okay. David Leary: [00:56:08] The hundred on your most expensive plan, which is $5,000. Blake Oliver: [00:56:11] The fact that they've launched a partner program, to me, indicates that they are trying to take this labor cost and push it out of the company so that they can be a software company. And what didn't this happen with, um, what was the other startup that was trying to do? David Leary: [00:56:30] Well. Blake Oliver: [00:56:30] Jessica moss, Jessica moss. David Leary: [00:56:32] Started. Blake Oliver: [00:56:33] What was Jessica moss company? David Leary: [00:56:34] Oh, that, um, scale factor? Yeah. Blake Oliver: [00:56:37] No, no, that was a different one. David Leary: [00:56:39] That's another one. Blake Oliver: [00:56:40] In De Niro. David Leary: [00:56:41] In De Niro, yeah. Blake Oliver: [00:56:42] Yeah. So De Niro started out doing all the stuff and then tried to pivot to just being software that accountants would use. And why do they do this? It's because all of these companies are founded by tech people who think that you can automate the work of bookkeeping without people, and then they find out, oh, it's actually a lot more complicated than we thought, and we can't get rid of the people, and we need the people. And so then they try to just pivot back to being software. David Leary: [00:57:08] Yeah. So how do we do this without our own employees and we just make it software that accountants on the street could use and then. Blake Oliver: [00:57:15] Exactly. David Leary: [00:57:16] Yeah. Right. Because they're coming straight after the QuickBooks ProAdvisor. I mean, one of the the photos here are the headline says tired of endless QuickBooks updates breaking your workflow. That is like the number one complaint right now. Even I had this complaint this week because I got I finally got the new QuickBooks online UI and I'm like, stop this. Right. So they're marketing directly at the Brex ProAdvisor and their marketing out accountants to use pilot instead of QuickBooks, ultimately. But the weird thing is, is pilot uses QuickBooks. This doesn't make any sense to me. Really. Still. And let me share my screen. I'll share this because this is kind of so ridiculous. Blake Oliver: [00:57:53] Okay. David Leary: [00:57:54] Um, share screen window. All right, so this is the local become a local their client local partner page. Scroll down a little bit. They have this headline. Tired of endless QuickBooks updates breaking your workflow. You can see this, right? Blake Oliver: [00:58:10] Well, it's really narrow. You gotta you got to make the window. David Leary: [00:58:13] To my other monitor. How's this? Blake Oliver: [00:58:14] There we go. Now you can see it now it's. David Leary: [00:58:16] Oh, but they got a weird scroll behind thing going on. Okay. How's that? You can see it. Blake Oliver: [00:58:21] I see it, yes. Yeah. David Leary: [00:58:23] Tired of endless QuickBooks updates? Break your workflow. Now scroll to have an image of a dashboard with some graph. Then you scroll down. It shows all the apps they connect to and what's the very first app they list here? Blake Oliver: [00:58:32] Quickbooks. David Leary: [00:58:33] Quickbooks like it's built on QuickBooks. Like, I don't know how if I'm going to be using QuickBooks as pilot, how that's going to eliminate the QuickBooks updates from breaking workflows. None of it, none of this makes any sense. And I don't know why they didn't call it an accountants program. Local partner sounds so weird. Just call it accountants program so people can find it. Blake Oliver: [00:58:58] David, it's been a pleasure talking with you. As always. Thanks to everyone who joined us. Live. Earn free continuing professional education credits Nasbe approved CPE for listening to this show and many other fine accounting and tax podcasts. Get the free earmark app on the App Store or go to Earmark app in your web browser. Create your free account. Earn a free CPE every week. Subscribe to support the work that we do to make CPE accessible and entertaining and educational. David I'll see you around here next week. Bye everyone!