Latest / The Accounting Podcast / QuickBooks Desktop Is Dead. Long Live Online!

Transcript

QuickBooks Desktop Is Dead. Long Live Online! · 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] The ethical lapses in the accounting profession are widespread and due to a systemic issue, the fines are just hand slaps. So the firms don't really do anything to change because there's really no penalty if they don't. David Leary: [00:00:18] Coming to you weekly from the OnPay Recording Studio. Blake Oliver: [00:00:24] Hello and welcome back to the show. I'm Blake Oliver. David Leary: [00:00:27] And I'm David Leary. Blake Oliver: [00:00:29] And QuickBooks desktop is dead. David Leary: [00:00:33] Yeah. I mean, it's funny because we talk about how, you know, everything's an accounting story. And if you at a high level, all of my news articles this week, there's just accounting stories everywhere, right? The accountants continuing the, uh, testifying at the Trump trial, uh, the Supreme Court could be ruling on a wealth tax this week. The opioid trust that's in Pennsylvania has a controversy based on the accounting firm that was chosen to manage that. The accounting firm based in Co is suing Rudy Giuliani for not paying his accounting bill. Daycares in North Carolina that provide food for children they take care of. Blake Oliver: [00:01:10] Whoa whoa whoa. What what what's all this got to do with accounting? David Leary: [00:01:14] I know they the state botched their statewide rollout of Oracle, and these daycares aren't getting paid properly from the state to feed children. Right. But the biggest accounting news story this week, like you just said, is QuickBooks is killing QuickBooks. Intuit is killing QuickBooks desktop. That's the biggest news. Blake Oliver: [00:01:32] And we're going to dig into that with you all. Thank you to our live stream viewers. Elena. Hello, Amy. Amy says are finally catching the show live. Love your podcast so much. Thank you Amy, great to have you with us. And we've also got TEF, uh, in the live stream chat. So thanks to everyone who's joined us. Don't forget, you can subscribe to us on YouTube and get notified when we go live and chat with us. Let us know what is important to you. Give us your commentary, heckle us whatever you like. So, uh, let's dig right into it. David. Quickbooks desktop is dead. What do we mean by that? David Leary: [00:02:09] So Intuit announced that after July 31st, 2024, Intuit will no longer sell new subscriptions of the following desktop products in the US QuickBooks Desktop Pro Plus, QuickBooks desktop, Premier Plus, QuickBooks desktop, mac plus, QuickBooks Desktop Enhanced Payroll. Now, if you notice, it didn't say enterprise, so that is still there. And what about like. Blake Oliver: [00:02:36] The regular Pro? David Leary: [00:02:38] Because I think that's a plus. Yeah, that's a good question. I think everything has a plus now. I think that's a marketing thing. I don't even know if regular pro exists anymore. I think, okay, I, that I'm definitely not an expert on what QuickBooks desktop products still exist. Um, and essentially existing subscribers, they can keep renewing their subscription after July 31st, 2024. But but essentially, new people cannot go by QuickBooks desktop and become a QuickBooks desktop subscriber. It's only you. So you can still use QuickBooks desktop, but you can't subscribe to new ones. And I thought the the timing was interesting because it was right after QuickBooks connect, right? Because imagine doing that accurate connect. There could have been like, you know, fire and brimstone right happening and people just getting very upset. So it happened after that. But I don't know if you saw Xero came out with their state of the industry report for 2023, and one of the stats was 75% of practices. Surveys surveyed reported an increase in revenue, right? And 73% noted a rise in profit. But the other stat, which was amazing to me practices utilizing cloud technology not only saw higher profit margins of 75% versus 54% for non cloud users. So if you were a cloud firm, yeah, you were seeing 75% margins. Blake Oliver: [00:03:59] As opposed. David Leary: [00:04:00] To a non cloud firm. Blake Oliver: [00:04:02] Which has what margins. David Leary: [00:04:03] Uh 54% which is still 54. Blake Oliver: [00:04:05] But yeah I mean that's a big difference. Welcome Heather. Thanks for joining us. Yeah 25% more is a lot um or additional. Uh, yeah. David Leary: [00:04:14] And the other thing from that survey, they said that cloud adoption correlates with higher staff retention and more effective talent recruitment. So if you're a cloud firm, you're in a much better spot. Now Intuit's just pushing you over the cliff to finally become a cloud firm. Yeah. What's happening? Blake Oliver: [00:04:31] Well, we speculated this would happen when they released ledger, which was the product that was missing in the lineup for all those firms doing write up work on QuickBooks desktop. Yeah. So now it's it's happening. And it's kind of amazing to think back. Like when we started this show, we speculated, I think one of our earliest episodes we were talking about eventually this would happen and five years later it has. David Leary: [00:04:54] I've been waiting longer than that. I feel like you've. Blake Oliver: [00:04:56] Been waiting 20. David Leary: [00:04:57] Years. 20 years. I don't know about 20, but definitely a decade. And honestly, I think it's probably the greatest thing to happen to our industry that it's finally getting killed. And I you know, one reason I was on social media for a decade, accountants and bookkeepers have wasted hours and hours and hours of their life arguing online. Quickbooks desktop versus QuickBooks online. Online. It's just wasted productivity. These arguments about it, it just never ends. So automatically the industry is going to get a productivity boost right there. That's right. We're going to get that. Um, I always felt and feel very strongly that it's always kept Intuit from focusing fully on their online products. So if I want to take a time machine with me. Blake, a decade ago to November 2013, ten years ago, Brad Smith, standing on stage at Sleater Con at the time, comes out and says 90% of our resources are going into QuickBooks online. Only 10% are going into desktop. He kind of he flipped the boat, right? Or not flipped. I turned the boat and. That's fine and all, but if you think about that, that means every year 10% of resources got put into QuickBooks desktop. So after after a decade of that, that's basically one year of QuickBooks online development. That never happened. Right. And I'd argue it maps out different than that because and it probably puts QuickBooks online for 3 to 5 years behind development. David Leary: [00:06:22] Because, you know, if you I mean, you're building an app features kind of stack, right, as you're building things. Or maybe another way to think about this. And we've all had this happen. Intuit adds a feature to QuickBooks, right. Feature X is in QuickBooks. And you you check it out, you're excited, you use it and you're like, oh, it's like 90% done. And then you can't use the feature. You know why? It's 90% done. And they never finish that last little 10% of polish you needed, because they put 10% of that resources into QuickBooks desktop. I've seen this hurt app developers. So an app developer, the new app developer, comes to market. They build a cool app add on for QuickBooks online. They're not finished with it yet, but it's getting some traction. They take some VC money. The VCs are like, hey, look at QuickBooks desktop. There's 3 million users. Go build some features for them. Building for QuickBooks desktop costs a lot more money. It's harder to integrate. It's hard to support. It doesn't get adopted as much as an online. Quickbooks online users use apps more than QuickBooks desktop users. And so what really happens is you, as the app developer, don't build the features you need for your app. David Leary: [00:07:27] So we all hurt. You can't roll out an app to your clients because it's missing a feature. Your client doesn't get the benefit of the app right. It's very similar to the same thing that happens internally to QuickBooks. And then the best part of all is customers will nobody's going to put customers on the wrong products anymore, right? Ultimately, I always felt like people would not put a client on, especially the Vars and people that are getting commissions. They would never put the client on the right product like QuickBooks online. If they could sell a desktop product and get a fat commission. And so this is going to eliminate a lot of small companies from being put on a thousands of dollars product when they could just be on a $60 QuickBooks Online Month subscription. But I would really argue that this is huge, huge, and Intuit should have done it a decade ago. Yeah, easily a decade ago. We'd all be five years ahead right now. Mhm. That's all I got on that I don't know. You, you started I mean emotionally I started on QuickBooks cos I was trained on QuickBooks windows. My whole like it was a very big part of my life. Right. So I don't want to like not recognize this moment you started on it. Right. Blake Oliver: [00:08:30] I have a little bit of nostalgia here. I started bookkeeping on QuickBooks desktop. I've got that ledger entry sound stuck in my brain forever. You know, when you press enter, the bee boop. David Leary: [00:08:42] Had that ready for the for the show, I. Blake Oliver: [00:08:44] Know. Right. Um, yeah. And then, you know, when I discovered online and and moved my client over there and, and then Xero, you know, that totally changed my life. So, you know, it'll be a little sad to see it go, but, I mean, I still remember the day when I had, I had I had issues where, you know, every now and then I'd lose a file. And there was a day when I lost like two days of work because the file got corrupted. And I never have to deal with that again. You know, I feel like people still deal with that crap and they shouldn't have to. David Leary: [00:09:16] So you'd have a floppy disk for each day of the week, and you would back up to the Monday disk. The Tuesday disk. Oh, I never had to do that. Client. Blake Oliver: [00:09:22] No, you got. David Leary: [00:09:23] You were smart. You would do that. You'd have. Blake Oliver: [00:09:24] It is smart. I didn't have a floppy drive at that time. I don't think so. David Leary: [00:09:28] You're not dating. Blake Oliver: [00:09:29] Yourself? Drives? David Leary: [00:09:30] Yeah. Blake Oliver: [00:09:32] Well. So that happened. That happened while I was at the digital CPA conference in Las Vegas. I went over there for a few days, uh, as media to experience the event. We also did our first earmark event at a conference. I think it's our first official event. We did it with right works and account tests, and we took a group of a few dozen accountants out to the sphere, uh, or as my son calls it, the sphere in Las Vegas. You know, that giant marble looking LED screen that's just sitting right behind the Venetian? Uh, that's all lit up and animated. It's really spectacular. It cost over $1 billion. And so I wanted to see what it looked like for myself. So we all went over there, saw a show. They have a show called the Sphere Experience. Experience. The sphere experience. Say that five times fast. David Leary: [00:10:23] I'm not saying that because I always mumble, I screwed that up. Blake Oliver: [00:10:26] Come on, David, try it, try it. David Leary: [00:10:28] The sphere experience. Blake Oliver: [00:10:29] There you go. Good job. Uh, so we went to see that it's like a big Imax nature movie. And that was a lot of fun. And I think everybody should try it. It's like it's insane. The scale of it. It's it's. I don't even know how what resolution the screen is, but it's like beyond anything I've ever seen in my life, they had to make a special camera just to shoot footage for it. David Leary: [00:10:50] So is there any accounting related stories with that? Is there? Uh, well, like from a business model, I think somebody, somebody jokingly said they spent like $1 billion to build this, to serve hot dogs. Like, it's it's like sporting good foods or whatever, right? Yeah. Blake Oliver: [00:11:06] I mean, it's really nice. The lobby is beautiful. And, um, you can get craft beer there. You can get food there. I mean, it's really nice. Um, it's so steep. The seating is so steep that you feel like you're going to fall over when you're walking to your seat. Uh, so if you have vertigo, don't go. Uh, but I want to talk about the actual event, because I did go up in time to catch the keynote. Barry Melanson did his usual state of the industry keynote, and, uh, he said something that that I learned something new from his keynote. He said that if the United States had a balance sheet, student loan debt receivable would be its largest asset. Even more than all the aircraft carriers we have. David Leary: [00:11:51] Okay, I saw you. Okay, so I did see that go by on my feed from you on LinkedIn, but I had no idea that this was said at the conference. I thought maybe, like, stumbled across a news article or something. Blake Oliver: [00:12:01] He called it out. He was talking about the debt. And I guess that was part of his discussion of like the state of our country. And Barry Melanson's, the president of the or the CEO of the AICPA or president of the AICPA, he's the he's in charge. And and so he said that student loan debt receivable. So all the money that all those ex students, former students or current students owe to the federal government is our largest asset. If we had a balance sheet and then I thought, oh, great, he's going to connect this to the talent crisis. David Leary: [00:12:35] I was just going to ask you how much of that debt is people that had to finance their 30 hours. Yes. Blake Oliver: [00:12:41] Yeah. Right. And but he didn't. So anyway, I wrote a LinkedIn post about this. I said, this is this is crazy. This is unsustainable. And it's a perfect example of why the accounting profession needs to change. We got to get rid of this 150 hour requirement, make it optional, give people the ability to do four years. But even more than that, we probably need to figure out how to get people accounting degrees in three years, because you can do that elsewhere in the world. You don't have to go to school for four years. You can do it for three and get your degree. Why can't we do that here? You know, why can't. David Leary: [00:13:15] A decade of three years? That's like getting, you know, an extra four year person every. It's like, don't. Blake Oliver: [00:13:23] Don't try to. David Leary: [00:13:24] Do math on the. Blake Oliver: [00:13:25] Show. Don't math on the show. David Leary: [00:13:26] But there's a multiple here. Yes. I don't do the math. Blake Oliver: [00:13:28] Yeah. So so, you know, that's what my post was about is, is we've got to we've got to get rid of this. Requirement for five years. I just cannot comprehend why we think that people sitting in classrooms for more years makes for better accountants. It just makes no sense at all. It's measuring inputs, not outputs, and we also need to get rid of these. This is something nobody's talking about. Get rid of all these specific accounting course requirements you have to take to sit for the exam. Because even if you do have 150 hours, you a lot of those hours have to be in specific courses like business law or accounting courses. And you have to go back to school and earn those. I'm one of those people. Even though I already had way more credits than I needed, I still had to go get those credits. So we should simplify it, streamline it, let people sit for the exam and prove their knowledge that way. And we shouldn't be adding to this student loan debt thing with our profession. David Leary: [00:14:24] And you're not alone in these thoughts. Cpa Journal again had an article out two account. These are two accounting professors PhDs CPAs. They penned an article on CPA Journal. Read bold. Read big bold highlight in the middle of the article, the authors believe the best way to help mitigate the accounting crisis would be to eliminate the 150 hour requirement. We're starting to see professors who have a vested interest in getting paid by having people be in school, starting to take a stand to get rid of 150 hour rule. I think we're starting to hit. Are we hitting a whole new tipping point here, Blake? Like, what was the vibe of the people on the the attendees of the conference? Blake Oliver: [00:15:02] What's the. Oh, well, I'm sorry to say that you take a look around the room at digital CPA, and I had to make a direct comparison to QuickBooks connect because I was just at QuickBooks connect with you last month. And digital CPA is smaller. It's a lot wider and a lot older. I mean, it's like it's basically a bunch of guys that look like me in 20 years. Okay. That's it is it's and some women too. But it's like I mean, it is. You want to see the the difference in our profession. Go to QuickBooks connect, see the diversity, see the youth. And then you know, you go to digital CPA. And it's just it's that that is the profession. And that's the innovative side of the profession. That's the sad part. So you know I honestly don't know what's going to happen. I've kind of thrown up my hands at a certain point. I can't help but say what I think, uh, on social media. But I don't really think that the will exists within any of these organizations to actually make meaningful change. We're probably going to have to go off a cliff in terms of CPAs before anything happens. The leadership has to change, I think. I mean, I just saw another article about how accounting needs a facelift. That was the headline on CPA trendlines. And the argument is like we need to improve the image of accounting. At a certain point, plastic surgery doesn't work anymore. David Leary: [00:16:18] That's true. Yeah. It gets worse, you know. Blake Oliver: [00:16:21] You shouldn't be getting a facelift when you're average age of your CPAs is like, you know, 70 years old. It's not going to work. You know, you're not going to fool anybody. So. On a lighter note, did you know that they're making an accountant? Two the movie The Accountant with Ben Affleck? David Leary: [00:16:39] I've been loosely watching that because I was I was like, when it premieres, I want to have a party. We'll do a, like a, we'll all go to the theater at the same time. We'll live stream, we'll do something. Blake Oliver: [00:16:47] Yeah. We should have like a get together. Right? Like I'm so excited. Um, here it is. I'm sharing my screen right now. You can see a very, very aggressive Ben Affleck holding his rifle with a scope on it. The headline on Movieweb is The Accountant two is a done deal. Ben Affleck and Joe, uh, Bernthal. Bernthal will both return, uh, and it's going to be directed by O'Connor. Who's. Oh, Gavin O'Connor I wonder. David Leary: [00:17:17] Wonder is going to be like, maybe he maybe. Maybe there's a bunch of accountants, like hidden in a cave somewhere and he has to save them. And then that solves the accounting shortage, like so. Blake Oliver: [00:17:28] Ben Affleck and Jon Bernthal will return to reprise their roles from the first movie. There apparently will be a third installment as well. That's what they're planning. The creator of the show said that the third one is going to be Rain Man on steroids. It's going to be a buddy. Picture the third one. So I wonder when this is going to come out. Obviously, if they're just announcing it now, it's going to be a few years. I'm excited. David Leary: [00:17:54] Maybe we could get some of the, uh, SEO action on this, because it's the accountant and we're the accounting podcast. We can tweak things up a little bit and trick the bots and drive more traffic to the show. Blake Oliver: [00:18:07] All right. What else is news in the world of accounting? I was traveling, um, have we recorded since I was in Lexington? David Leary: [00:18:16] No. That's right. Oh, you traveled twice. Blake Oliver: [00:18:19] I also well, I also went to Lexington, Kentucky to do a keynote at Dean Dorton, which is, uh, very a large accounting firm in Kentucky and now Cincinnati, and they're in Raleigh as well. They're really expanding. Uh, they just made a big acquisition. And so I was talking about artificial intelligence, and I could not pass up the opportunity to go to Kentucky because I love bourbon. So I got to go to Woodford. After that, I went to Woodford Reserve, and I got to stand in a warehouse that was built in 1890, the original one where they aged bourbon and they still use it and, uh, went to Four Roses as well. I really like Four Roses. It's a good it's a good bourbon. David Leary: [00:19:02] You saw a ledger, right? Blake Oliver: [00:19:03] Yeah. And at the Four Roses Distillery, they actually had a cash receipts book from like the, the earliest days when it wasn't even called Four Roses. It was something else. And it's individual names and apparently they had like a subscription. It looked like where each month you'd get a certain amount of, of bourbon and you'd come and collect it and pay your, your fee. It was like a, it was like a they would carry you membership. David Leary: [00:19:27] Yeah. Could you imagine you could get alcohol and then pay after the fact. Like. Blake Oliver: [00:19:33] I mean you know, it's on credit. Buy on credit. Yeah. Um. What else is new? David Leary: [00:19:42] The this is it feels like we're talking about a story like this every week, but I'll bring it up. So the PCAOB sanctioned three China based firms. And guess what? Hundreds of individuals at PwC China and PwC Hong Kong were doing. Blake Oliver: [00:19:58] Cheating on ethics exams. David Leary: [00:20:00] Well, they weren't ethics exams, but some sort of exam training. Yes, they were sharing a fantastic. From 2018 to 2020, a thousand individuals, um, from PwC Hong Kong and hundreds from China. And the improper answer sharing, either providing or receiving access to answers through two unauthorized software applications. So they so they somebody two different applications. It's so common that two apps were built or two databases or, you know, word docs or something were built to give access to the answers. It's. And then another firm called Hawksin, Hao Xin, um, apparently they had audits and they just didn't do it. They just used the old work, draft work papers from the previous auditor, and they just, hey, it's good enough. We don't need to actually do. They didn't do the audit. Blake Oliver: [00:20:48] Basically they took the fee and didn't audit. David Leary: [00:20:50] Yeah. So that's essentially like now. Now it's good. Like I feel like, you know, it's good that the PCAOB is addressing this. Right. And they're finding these these companies. But it makes me wonder like how widespread this is. Right. And going back to you're old enough to remember the 1988 Olympics, maybe I think it's the 88 Olympics. Ben Johnson, he wins like the gold medal for the 100 meter. He's a Canadian I think wins the 100 meter dash. Wins it. But then they stripped him of the medal because he tested positive for steroids. And my understanding is they were all on steroids, but he was just a little bit worse than the other. Every other, like every single competitor in the race, was on steroids. Right. And so is that kind of where we are? Is this is this the exception that keeps getting caught, or is this the common behavior. Like what's your $0.02 on this? Blake Oliver: [00:21:36] I don't we don't know. But my gut says that it's yeah some people are getting caught. And that means so many people are getting caught that it's widespread. And and the ethical lapses in the accounting profession are widespread and due to a systemic issue. And until we fix that, we're it's going to keep happening. But it's also there's just these, you know, fines the fines are just hand slaps. So the firms don't really do anything to change because there's really no penalty if they don't. David Leary: [00:22:04] 7.9 million. Yeah. Blake Oliver: [00:22:06] But in the context of firms that are making billions and billions of dollars. Yeah. David Leary: [00:22:10] Right. And that was the total fine across three firms mind you. Blake Oliver: [00:22:13] Oh that's the total fine. Yeah. Yeah. Well it's just like the PCAOB has been tooting their horn, saying that they have issued the most fines in the history of the PCAOB. And you look at it and it's like, what, like $10 million or something like that against an audit industry profession that is, you know, billions or billions and billions of dollars. So it's it's really small. It's speeding tickets. Uh, Allison, thanks for joining us. Allison said the IRS is sending 20,000 letters to businesses regarding IRC claims. Thank you for bringing up this story, Allison. I saw this as well. This is another situation though, where like my take is it's 20,000, which sounds like a lot, right? But how many businesses actually filed IRC claims now? David Leary: [00:22:59] What are these 20,000 letters? Are these ones that are denying or what are these? Blake Oliver: [00:23:03] So Kelly Phillips Erb covered this on Forbes and said that these letters, these 20,000 letters are targeted to taxpayers the IRS believes are not eligible and who have applied for but have not yet received the credit. It doesn't say exactly why. Uh, here's the two categories. Got it. Here's the two categories. Taxpayers who received this letter fall into two categories. Their entity did not exist during the IRC time frame. Oops. David Leary: [00:23:33] That's God. Blake Oliver: [00:23:35] Or they did not have employees for the time period when the credit was claimed. Because if you have employees, you're supposed to pay payroll taxes, right? So these are these are things that are pretty easy for the IRS to. David Leary: [00:23:48] Well, at least they're stopping those ones. But but there's still hundreds of thousands of others I imagine, just out there. Blake Oliver: [00:23:54] Yeah. So the IRS has received 3.6 million claims for the credit. So 20,000 divided by 3.6 million I don't know what percentage that is. David Leary: [00:24:10] And these are the most 005. And yeah, they're stopping the most obvious moronic frauds that hopefully would have never been approved anyways. Blake Oliver: [00:24:19] But. Right. David Leary: [00:24:20] Yeah. Blake Oliver: [00:24:21] Yeah. So I guess as long as you haven't been filing IRC claims for your clients where the client didn't exist or didn't have employees, you don't have to worry yet. One of our live stream viewers, TEF seven, said if PCAOB fines of 10 million are a slap on the hand, what is the CAA and Z 50 K fined to PwC? A tickle with a feather. Oh yeah, that's a good one. Um, one of our listeners emailed me this, uh, and this is that fine to PwC for the this wasn't the ethics cheating. This was the government consulting. Oh, right. Or is that a different I'm getting I'm getting all the there's too many unethical. David Leary: [00:25:05] There's too many unethical accounting firm stuff now that we can't even keep track of them. It really sad. Blake Oliver: [00:25:10] But yeah, there was so there was a recent fine of $50,000, right? Like, are you kidding? That's a joke, right? I think that's part of the problem here. Um, Heather says that the, uh, CA anz fine was the maximum they could issue. So these regulators have their hands tied simply by the fact that they are only able to issue fines up to a certain amount. And Heather says, yes, it was. The government consulting could have. David Leary: [00:25:33] Issued multiple fines, though for. Speaker3: [00:25:37] Well. Blake Oliver: [00:25:38] Who knows? But in general, none of these fines are big enough to make a real difference, is my point. So you're not going to change behavior, right? As long as the speeding tickets, you know, I imagine. Imagine if speeding tickets were $5. I'd speed every day, right? I mean, no, I wouldn't, I don't I don't mean I think a lot of people would, right. They wouldn't care. So you got to fix that. David Leary: [00:26:06] I think people get punished more, especially like I've heard stories about this daycares, I mean, oh, yeah. Blake Oliver: [00:26:12] You leave your kid at daycare. David Leary: [00:26:13] And you're a minute late and they start charging you per minute, like, it's. Blake Oliver: [00:26:16] Like $25, $10 a minute. David Leary: [00:26:19] Those are harsher penalties than you being an accounting firm cheating on ethics exams. Blake Oliver: [00:26:26] Mad man Dan says cost of doing business. Yep. And that's the other thing too, is if let's say you're getting fined for doing shoddy audits, you can actually do the math right and you can say, okay, well, if I did a real audit, it's going to cost me this in terms of staff. And if I do a shoddy audit, it's going to cost me this in terms of staff. Oh look, I'm going to save a lot of money. In terms of costs and the fines not going to be a big deal. I'll take my chances, I believe that. David Leary: [00:26:55] I think car manufacturers make those decisions if they want to fix a recall, a piece of a car, how many people are going to die? Are we going to get sued for how much they make those calls? Blake Oliver: [00:27:05] Okay, here's a story. I just lost it. I had a story here called The Easy Standard for accounting. Great headline. So Yeezy is Kanye West's brand of shoes. I think it's I think it's beyond shoes. I apologize to the any Kanye West fans listening because I am not knowledgeable about this, but I did read an article on Financial Times about the fallout between Kanye West and Adidas. So Adidas sold Yeezy shoes, and Adidas ended its partnership with West following anti-Semitic remarks. Earlier this year. David Leary: [00:27:46] And we see Podchaser this is like billions of dollars. Like this is a real well. Blake Oliver: [00:27:50] And that's why that's why it made it into the Financial Times. So Adidas had a huge hit. They took a huge hit to their share price after this deal ended because it was one of their biggest lines. Right. And after this we now know because they had to disclose it, that it represented more than 5% of the overall revenue and a quarter of total operating profit for Adidas, just that one line of sneakers. But that information was not disclosed to investors until after the partnership ended. So the question is, how much should companies like Adidas disclose about the profitability of specific products, regions and brands in. David Leary: [00:28:37] The footnotes footnotes of here's risk of our numbers, that type of a thing. Blake Oliver: [00:28:42] Well, you know, here's our revenue. And in accounting standards it's different under IFRS and and GAAP. But both have varying provisions that say you have to break out your revenue. If it's if it's a big enough line of business, you have to disclose it. And there's certain methodology for doing that. But you can't create a rule for everything. So there is a lot of discretion as well. So under IFRS eight. Companies have a lot of leeway in disclosures and there's inconsistencies between entities. So the question is, you know, should Adidas have disclosed that this relationship, this brand, this deal with Yeezy was so significant to not only its revenue, 5% of revenue, but 25% of operating profit? So. There's not really an answer here, but I think it's a good. It's something to think about. So if you're in a financial reporting position or if you're designing financial reports for your clients, like what is important to be in those reports, whether it's for external users or internal users, how do you break that down? You want them to be aware of the risks, and you want them to be aware of lines of business that are generating significant revenues and profits. And it never occurred to me that a company like Adidas would have Kanye West appearing as a significant line of revenue on their on their income statement, potentially. David Leary: [00:30:13] Yeah. I guess if you're thinking about structuring a chart of accounts for a small business client, and people overcomplicate those sometimes, but maybe you step back and like, what are the accounts that need to be shown so the business owner knows the risks? Blake Oliver: [00:30:26] This is actually the thing that I see screwed up the most. And I screwed it up too, is as a bookkeeper. Because how do you know when to create a new account? When do you put something into travel and when do you break it out into hotels or meals or a zillion other things? And I'm just talking. That's just expenses. But we can also talk about income, right. How detailed do you get? Some people go crazy. I think we've all had the client who decided to create an income account for every customer you know, or an income account for every. I swear their. David Leary: [00:30:59] Expense accounts for each. Employees have seen that. Yeah, yeah, just. Blake Oliver: [00:31:02] Crazy levels of detail. Right. And you have to really sit back and you have to think, well, what's the use of this information and how hard is it going to be to actually do this work to categorize these transactions? And I think the biggest mistake. That accountants make and bookkeepers make is they don't have enough revenue accounts. Everything just gets stuck into one. And you, you want to have more than that, right? You want to represent every line of business. As its own account. So you can see what's my revenue from, from this thing I'm doing. What's my revenue from this type of thing I'm doing? I can't think of any examples off the top of my head, but, um, no, I get. David Leary: [00:31:43] It because most people you get QuickBooks and by default there's an account called Service Income, and everybody just shoves everything into one account and you don't know which service right comes from. Blake Oliver: [00:31:53] Let's say you're a landscaper, right? You could have one for here's my just maintenance subscriptions like lawn care maintenance subscriptions. That's, you know, weed whacker right. What do they say the cut and blow kind of thing. Right. That's it. Just maintenance. And then you could have another one that is, you know, like backyard makeover. David Leary: [00:32:13] Reconstruction or major. Yeah. Yeah. Blake Oliver: [00:32:14] Like I'm going to go and I'm going to buy plants and, you know, put in new plants or something like that. Facelift, the facelift. Yeah. And you want to track that separately. And then on the expense side, like the mistake people make is they just have like a zillion expense accounts and then your reports are insanely long and you can't really figure out anything. You can't see trends. So the rule of thumb is like, if something's less than 1% of your business, don't have a separate expense account for it, right. But that still gives you a ton, then you can still have 100. Potentially. David Leary: [00:32:43] That's a perfect I use case, right? Quickbooks and Xero should be looking at chart of accounts. And as soon as you have a couple of accounts that have less than 1%, it should either be suggesting you merge them or rolling them into a different account. That would be great. Or it should just do that automatically, because everybody, every people, always create a stray account on accident because they didn't see the real account. So they create a second one and like, yeah. Blake Oliver: [00:33:05] And you know what's funny? This is the longer that I own and operate businesses, the fewer accounts I want. Seriously, if something's like less than 10%, I'm questioning whether or not it needs its own account. And if you look at like best practices for SaaS businesses, software businesses, which is what you and I are building with earmark. David. Most investors, they want to see like only five expense accounts. Yeah, right. And you know, you're looking at sales and marketing. You're looking at research and development. You're looking at general and administrative. Right. Like really broad categories. And you just don't need all that detail to actually run a business. And the trick is getting it so that you can do the roll ups and have that like high level one page view, but also get any detail you need. But I think that's why accounting is hard. David Leary: [00:33:56] You had to do that in the paper days, right? If you want to run payroll, you had to have accounts to track the Social Security and Medicare and all this stuff. But now that's just happening. So on your chart of accounts, you can just roll it all into payroll expenses, because the reality is, what good is you knowing the exact number that you paid to Social Security? Yeah, you're not going to make a business decision. You're not going to. Blake Oliver: [00:34:14] Like trend that over time. It doesn't make a difference. Yeah, yeah. Or like, you know, your bank fees versus your merchant fees. And it's like, I guess it's good to track it somehow. But you want to roll it all up, huh? Heather says, can you tell us more about your Mark, CPA? You mentioned you were getting investors interested. I did, and I keep getting asked about this. We keep pushing off the fundraising because actually lots of people are signing up for earmark, which is fantastic because it's providing cash flow to us so we don't have to raise money. So that's not going to happen until 2024, thankfully. Um, I think the current situation is over 700 individual subscribers and so many are coming in every day because it's December, I think there's a chance we might hit a thousand individual subscribers by the end of the year, and then we've got thousands more through deals with associations like Maryland Society of Accounting and Tax Professionals. And of course, that doesn't count all the free users, people who just use earmark for free as much as once a week to earn an hour of CPE. If you're really diligent with your CPE, you don't have to pay it all. And that's just because, well, I want to incentivize ethical. And productive education. And if you learn one hour a week, you're going to learn a lot more than somebody who's cramming it in all at the end. Speaker3: [00:35:31] But we are. David Leary: [00:35:32] Getting the true business owner experience. We're having problem getting an Ein because the government oh, we got that behind oh, Vietnam. But we had to. Blake Oliver: [00:35:39] Fax a form to the IRS like several times. It's just. It's insane. Luckily, actually, this is, uh, this was in the news recently. The IRS is releasing taxpayer business accounts. So now we're going to be able to log in starting in 2024 to the IRS website and actually see and communicate with the IRS. Online. Not with not with facts, not with paper mill. David. It's a huge deal. David Leary: [00:36:05] So it's a portal. You're going to have a portal. Blake Oliver: [00:36:07] Portal and it'll be a few little things to start, like seeing, you know, your balances due and doing a power of attorney, that sort of thing. And it's going to expand over time. So that $80 billion that the IRS has been authorized is, is actually being used. David Leary: [00:36:23] So and hopefully they build it with an accountants use case or an IRS use case. So people can go into that portal on your behalf. You know, it would be a convenient. Blake Oliver: [00:36:33] Here's a story from CFO comm. 61% of finance executives are not using AI yet. Speaker3: [00:36:41] That doesn't surprise the number. Blake Oliver: [00:36:42] The number 61% of finance executives are not using AI yet. David Leary: [00:36:47] So 40% are. Speaker3: [00:36:49] Well, that seems surprising. It says. Blake Oliver: [00:36:53] No. The number that are using it now. Is I lost it. I feel like these surveys are a little bit loose because like people will say like, oh yeah, I'm using AI and that means maybe they like signed up and wrote some like rap lyrics like in high school. David Leary: [00:37:09] Those surveys, they want to see if kids are having sex and everybody says yes on the survey. Teenagers having sex. Speaker3: [00:37:13] Everywhere. Blake Oliver: [00:37:15] Ai is sex, David. There you go. David Leary: [00:37:17] Well, people want to. They want to. They know it's anonymous, but they don't want to be the person. I've never touched AI yet. Speaker3: [00:37:23] You know. David Leary: [00:37:24] It's peer pressure. Speaker3: [00:37:25] Yeah. Blake Oliver: [00:37:26] I wonder if I when I asked people to raise their hands if they've tried AI you know, like is that am I am I distorting the results? Speaker3: [00:37:31] They see their peers. David Leary: [00:37:32] Raising their hands, so they want to raise their. Speaker3: [00:37:33] Hand. Yeah. David Leary: [00:37:35] I saw an eye story about, uh, Big Four consulting. Speaker3: [00:37:39] In, I tell me. David Leary: [00:37:41] And I mean, the premise of the article is about how. Speaker3: [00:37:44] Oh, sorry. Blake Oliver: [00:37:45] Here, before you do that, I found this. Yeah. Speaker3: [00:37:46] No problem. Blake Oliver: [00:37:47] Okay, so it's, um, 9% of finance leaders are using or scaling. I so only I. Speaker3: [00:37:54] That number. Blake Oliver: [00:37:55] And the rest are. I guess the difference is people in the planning stages. Yeah. Uh, full third, almost a full third. Say they have no plans for I implementation. I suppose those are the folks that are going to retire soon. 30% have some plans. And 9% are actively working on it. So I tell I wouldn't be surprised if this was the same in accounting firms like actively doing it. If you are using it now, you are on the cutting edge and if you're not, it's been one year. I would suggest you start playing around with it. Join my webinar. I'm doing a webinar on what day is it? The 15th, December 15th. David Leary: [00:38:35] Well, if you can't remember the date, just go in the earmark app and look up your, uh, earmark webinars. Plus has a channel and you'll see Blake's webinar in there. That's the easiest. Speaker3: [00:38:43] Way. Blake Oliver: [00:38:43] So download the earmark app, look for me and search for Blake. And you'll find a link to my webinar. And it's going to be live. I'm going to do a live demo of I. The whole thing is just me showing you how to use it in different use cases. Speaker3: [00:38:58] It's not. David Leary: [00:38:58] Really Blake, by the. Speaker3: [00:38:59] Way. It's just I. Blake Oliver: [00:39:00] It is really. Speaker3: [00:39:00] Me. Blake Oliver: [00:39:01] And uh, then it will be available for CPE on the earmark app after the fact. David Leary: [00:39:08] Yeah. So I started an article. This was in fortune, and the title of the article said some of the big four consulting giants already think I could trim years off the path of partner. Speaker3: [00:39:17] I thought. Blake Oliver: [00:39:18] This was really. Speaker3: [00:39:18] Funny. David Leary: [00:39:19] And I don't know if it was funny, but the numbers of what partners make in the UK are amazing. If you can become a partner, it's like 900, 900,000 I think. But the what really the premise is, is that grunt grunts right at KPMG can use AI and they also have a law firm example, but you can use the AI and it accelerates your learning curve and your grunt work. And now you can have different conversations with clients, which in theory makes you more valuable to become a partner faster. That's kind of the premise, but the thing that I saw was interesting in the article is the quote that KPMG executives now believe the company can save as much as 15 hours per worker ever, month, every month, with the help of AI. Blake Oliver: [00:40:03] So they're working 5000 hours per month, so. Speaker3: [00:40:08] Oh no. Well, I did. David Leary: [00:40:11] Some math the other way. I was like 145 countries, 265,000 employees based on that. That's like having an extra 22,000 employees if it's 15 hours a month. Speaker3: [00:40:21] Yeah. David Leary: [00:40:22] I'm assuming my math was correct, but that's 15 hours. Okay, so every worker. Blake Oliver: [00:40:27] But back to this idea that AI is going to make the path to partner faster. How does how does that work? Tell me more about that. David Leary: [00:40:34] I can't tell you that. That was the part I couldn't grok. I was more fascinated with this thing about 15 per worker. Speaker3: [00:40:39] Well, okay. Blake Oliver: [00:40:40] So this takes me back to digital CPA and something else that in Barry's keynote, he had a diagram of the traditional CPA firm structure, which is a pyramid. David Leary: [00:40:53] You've talked about this. Blake Oliver: [00:40:54] And he talked about how actually Arthur Andersen went around the country with this diagram showing how an accounting firm should be structured like a. David Leary: [00:41:03] He actually showed a picture of a pyramid. You're not just saying no, no. Blake Oliver: [00:41:06] It was literally a pyramid like so. The pyramid scheme is well established as the traditional accounting firm model. And it has three strata, three layers. You've got the staff on the bottom, you've got the managers in the middle and you've got the partners on the top. And he didn't use those words, but it roughly maps to that. And the chart that he showed was a little different, though. It was a modified pyramid where the bottom corners, the left and right corner had been chopped off and there were little arrows pointing inward. So instead of a pyramid, now we have what looks like a. Pentagon 12345. Sides. Because you've you've sliced the left and right corners inward. Right. Like cut them in an inward direction. Got it. And on the left side it said technology. And on the right side it said offshoring outsourcing. So technology and offshoring and outsourcing are trimming the number of people you need at the bottom of the pyramid. So the new model. That AICPA is promoting is the Pentagon. Business model of accounting firms. But I was looking at this shape. I was thinking to myself, how does this work? When there are fewer staff. From an area standpoint. Now there are fewer staff than managers. So where does. David Leary: [00:42:40] Saying that middle management's the fat. Blake Oliver: [00:42:42] Right. So in the triangle people leave and the people who stay move up. This is also the military model. Right. And and but when you have a pentagon shaped business model, unless you manage to keep all your staff, even if you do, I don't think you have enough people to become managers. And this is the problem with accounting firms right now. They're losing too many staff. Not enough people are staying and becoming the managers. David Leary: [00:43:11] Yeah, it's. I'm just trying to like. It feels like that middle layer should have been cut as well somewhere and inputs that because I think you're pretty naive to not think that offshoring and technology is can't replace middle managers at firms. Blake Oliver: [00:43:27] Well, a little bit a little bit of the cut, you know, hits the managers but not much. It's mostly cutting the need for staff, which if if all you have staff doing is stuff that I can do, which is honestly a lot of it at big firms. Just doing Sally. Same as last year. Rolling forward work papers, adding a new numbers, ticking and tying this stuff doesn't take a lot of intelligence. It's kind of grunt work. David Leary: [00:43:53] Send all emails to Blake. Speaker3: [00:43:55] I. Blake Oliver: [00:43:56] That. Speaker3: [00:43:58] I. Blake Oliver: [00:43:58] Don't think this is controversial. Speaker3: [00:44:00] No. Blake Oliver: [00:44:01] But I don't think the business model works. I think it actually kind of falls over. I don't think the shape is sustainable. That's the problem. So we've identified that this is the future, but I don't know if it's sustainable. David Leary: [00:44:14] Oh, yeah? Yeah. I mean, just, yeah, think about it as a drawing or as a building, right? If that. You can't just build this thing on one little pillar. It's just going to fall over eventually. Yeah. Blake Oliver: [00:44:24] So speaking about I, I like to highlight good use cases of AI that you could use today right now. And I saw a question on Twitter that made me think of one Derek Foote, CPA, said. Hashtag tax Twitter any good plain English way to explain basis. Clients find it hard to grasp without getting technical or drawing it. It's been an issue with losses zero basis and or idle funded distributions. I generally say if they take out more than net income, we may have a problem. So basis, David. You know, what's your grasp of basis? Do you grok basis? David Leary: [00:45:06] I'm not I as a. Blake Oliver: [00:45:08] Non accountant as a non tax person. It's okay if. Speaker3: [00:45:12] You don't accept. David Leary: [00:45:13] My mouth. I'm not going open my mouth because I guarantee you I will not handle this correctly okay. Blake Oliver: [00:45:18] Well so I thought this is actually a really great thing for AI because AI is really good at translating complex concepts. And so I took that question and I, I said, hey, ChatGPT, here's a here's a problem someone posted on Twitter. How would you explain basis? And it did a great job. I'm going to read the answer, and you and our listeners can decide if it makes sense for you. Um, basis in tax accounting can indeed be a complex topic to explain. However, a plain English approach can help your clients understand it better. Here is a simplified explanation. Think of basis as the amount of money you've invested in something like a piece of property or a business. It's like keeping track of the money you've put into a piggy bank. When you buy something, your basis is usually what you paid for it. Buying something. If you buy a piece of property for $100,000, your basis in the property is $100,000. This is like putting $100,000 into your piggy bank. Improvements. Slash additions. If you spend money to improve it, like building a new room that adds to your basis. So if you spend $20,000 on the room, your new basis is $120,000. It's like adding more money to your piggy bank. Depreciation over time. For some properties, like business equipment, the IRS lets you count part of its value as a business expense. Blake Oliver: [00:46:46] This is called depreciation and it reduces your basis. It's like taking some money out of your piggy bank each year. Selling something when you sell the property, the difference between the selling price and your basis is your profit or loss. If you sell it for $150,000 and your basis was 120,000, you made a $30,000 profit. Losses and zero basis. Sometimes you might end up with a zero basis, meaning your piggy bank is empty. This can happen if you've taken out as much as you put in through depreciation or other deductions. If you then sell the property, even for a small amount, it's all considered profit. Since your piggy bank was empty. Idle funded distributions. If you received an economic injury disaster loan idle and used it for your business. This doesn't directly change your basis, but how you use the loan can affect your basis. For example, if you use the loan to buy equipment, that increases your basis more money in your piggy bank. If you use it to cover operating expenses, it doesn't change your basis. By breaking it down into these simple terms and relating it to a piggy bank, clients can more easily understand the concept of basis in tax accounting. So now, David, my question to you is do you understand basis? David Leary: [00:47:57] I understand basis, but I would argue as a client it's starting to get a little long. Right. So I stopped I stopped paying attention actually like to be honest. Blake Oliver: [00:48:08] So so then my prompt to ChatGPT should be like my client David Leary has extremely slow low attention span. Speaker3: [00:48:16] Yes. Blake Oliver: [00:48:17] Please shorten this. But this is I thought this was a great starting point. So when you have complex topics to explain to clients, use tools like ChatGPT to explain them in plain English. David Leary: [00:48:32] Well, or I actually you did this so well, Blake, we should clip this and you put it up on YouTube kind of as its own clip. What is basis and then accountants. When a client asks them, they just send them your clip. Speaker3: [00:48:42] And you send the clip, send the clip. Blake Oliver: [00:48:44] But see you don't want I don't I think it's better to have it just come from you because then you, as the accountant, are adding, first of all, you're basically telling the client, like, I approve of this message and you look like the genius. So this is where ChatGPT can be really cool, because instead of sending people others, instead of sending your clients other people's content, you can actually send them a personal message that was generated by AI that you reviewed and approved. So you seem like the genius. Yeah. When I write stuff now, like I use AI to make myself AI has made me so much more intelligent than I actually am because I can. I can explain concepts more clearly. Speaker3: [00:49:26] Well, and I think. David Leary: [00:49:27] You could do it before, but I just think it's helping you do it faster, doing more, higher volume. Blake Oliver: [00:49:31] Well, thank you, David, but, um. Uh, you give me a lot of credit, but I think, honestly, there's like, for instance, I'm writing. I'm writing a book. Might as well say it. That'll make it happen. Right? How to Build a Sustainable Accounting Firm. And part of the book is all about subscriptions. Why? The subscription economy is where you want to be, how you want to convert your firm to subscriptions. And I do a whole discussion explanation of like subscription metrics SaaS metrics. I try to simplify it. And I really helped me do that a lot better than I would have done myself, because I'm not a SaaS metrics expert. So it can really help you. I don't know, be more accurate. That's the funny thing people talk about I hallucinating. I find that it helps me be a lot more accurate, actually, because the way I might describe something isn't isn't exactly right. Not completely accurate. David Leary: [00:50:28] Yeah. It's having somebody to bounce off. It's like having two brains, like having a second brain. Maybe a 60% brain. But an extra 60% brain is pretty powerful to a human right. If you could have an extra side brain. Um, this ties back to an article. Uh accountingweb. Uh, Thomas Herbert had contribute an article, and I thought it was really good because he's talking about how to kind of smell or detect AI written articles. And the start of the premise is, I think he might be pointing a finger at another accounting media site that has been using AI just to straight up publish. Articles that are 100% written by I. Speaker3: [00:51:08] Who. David Leary: [00:51:09] Uh. He didn't say who. He didn't say who. But if I do remember correctly, we pointed out that Accountingweb at one time had bots posting. They they weren't. They might have been articles written by humans, but they were fake people that were created. I think you detected the photos, these in Google image search because the same person like hit us up on LinkedIn and wrote articles for Accountingweb and they had to pull down an article. I kind of remember that happening. But so he goes on to talk about how because he's he's edited 10,000 human written articles in the past, how you can detect if something's written by AI. One thing is adverbs such as similar, similar, similar, similarly or thereafter is a dead giveaway. And he goes on to say it's clunky, to say, it's clunky to write and clunky to read. Now, AI seems to like using those two words for some reason, but humans don't really use them a lot in writing or in speech. Um, I likes too many bullet points, so that's a good way to detect if. Speaker3: [00:52:06] The AI like bullet. Blake Oliver: [00:52:07] Points a lot. David Leary: [00:52:08] Yeah, um, if the writing is too good, as in like correct terms of spelling, punctuation, grammar, if it sounds like a perfect textbook, it's probably fake. It's probably AI created more than likely if it uses. And this is what you just did to me, or to all of us listeners, if it uses more words than needed. Right. It's like word salad, right? And I've seen that. And that's kind of I feel like you were it was a good point with the piggy bank, but it also kind of went on and on and on. Right. Um, but he has admit he's used AI to write emails in the past to help with emails. And he talks about ties it back to taxes right at the you know, an accountant is not going to type everything into a tax return. You're going to use OCR to do some of it, right. You're going to import something through an import file. Right. And then I think the. In the end, he thinks you may want to provide transparency. Right. So if you, Blake, are going to write your book with the use of some AI, right. You want to disclose that or I think we do it ourselves, right? Our show notes and our show notes are transcripts for our podcasts. We just have a machine created. But we put a disclaimer that says a machine made this transcript. Some parts could be wrong. Speaker3: [00:53:21] That's it. Disclose it. Blake Oliver: [00:53:23] Well, David. That's all the time we have this week. If people want to catch up with you online, where should they go? David Leary: [00:53:29] I'm on all the socials just @DavidLeary. Blake Oliver: [00:53:32] I'm @BlakeTOliver. Connect with me on LinkedIn, download the earmark app, earn free CPE for listening today if you've got your CPE requirement, ending or renewal. Uh, December 31st, we are the place for you. Get CPE for listening to podcasts, and don't sit in front of a computer or in a conference room. I mean, how much better could it get? Thank you, Miguel, for joining us. Shout out from Tucson. Thank you. Yelena Yelena says great show as always. Really appreciate having you here. And David, I will see you next week. Next week. Thanks, everyone. Bye.