Latest / The Accounting Podcast / Fake AI Receipt Fraud Soars & Big Firms Losing Power

Transcript

Fake AI Receipt Fraud Soars & Big Firms Losing Power · 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] 60% of respondents now use AI for tax research, at least weekly. More than half. That's compared with 33% in 2025. So in one year, we went from one third of tax professionals using AI for tax research at least weekly to 60%. David Leary: [00:00:23] Coming to you weekly from the OnPay Recording Studio. Blake Oliver: [00:00:29] Hello and welcome back to the Accounting Podcast, your weekly roundup of news in the profession. I'm Blake Oliver. David Leary: [00:00:35] I'm David Leary. Blake Oliver: [00:00:37] And David, our lead story today is all about how AI receipt fraud is soaring. People are using AI to create fake receipts. We've got a couple of surveys on this really distressing something controllers and accountants need to be paying attention to. We will get into that right after we thank our sponsors. David Leary: [00:00:55] Our sponsors. This week we have Cloud Accountant Staffing, Value Builder their systems and on pay. Blake Oliver: [00:01:01] Are you tired of the endless search for qualified accounting talent? You're not alone. Growing accounting firms are struggling to find available and affordable team members when they need them most. Cloud accounting staffing has the solution with their revolutionary candidate portal. Unlike traditional staffing agencies that waste your time with sales calls, paperwork, and deposits, Cloud Accountant Staffing Candidate Portal gives you instant access to highly vetted, qualified accounting professionals. No waiting, no hassle. Just top talent right now. What makes this different? Speed and simplicity. While other firms make you wait weeks or months with Cloud Accountant staffing, you could interview someone as soon as tomorrow. Their boutique support ensures you're getting quality talent that's both available and affordable. Exactly what growing firms need. The candidate portal puts you in control. Browse live candidates, make selections on your timeline, and build your offshore team without the traditional headaches. To find, review and book interviews with potential team members, all in less than ten minutes. Head over to The Accounting Podcast dot promo slash CAS, that's Accounting Today dot promo forward slash CAS. And now, David, I'm going to let you start with this story. We both saw this AI fake receipts. What are the numbers? What are we what are we talking about? How bad is this? David Leary: [00:02:19] Yeah. So before we jump into the numbers, a new term bubbled up in one of these articles that caught my eye. And it's the term of revenge spending. Blake Oliver: [00:02:27] Revenge spending. David Leary: [00:02:28] So revenge spending, that is when employees think AI is going to replace their jobs. So they use the company provided AI tools to create fake AI generated receipts and expense reports. Blake Oliver: [00:02:40] And then they put these in and get reimbursed for fake expenses. It's, uh, it's sort of like the modern equivalent of like stealing office supplies. Sounds like. David Leary: [00:02:49] Pens. They're taking pens. Yeah. Blake Oliver: [00:02:51] Well, so what is this like? Yeah. How bad is it? David Leary: [00:02:53] It didn't exist. Think about it. Um, March of 2025, I think sometime in February 2025. I think even on the show we live created like a fake Walmart receipt. Yes we did. Yeah, it looked good enough. It wasn't great, but so it went from zero people doing this to 70% of fraud. Flags now are popping up. So it just in 14, a little 14 months, it's exploded as a big issue for um, accounting departments. Now the numbers are even crazy based on these surveys. So these were two surveys from uh, one is the APN expense management app app Zen. And then another one is inverse who's also a travel expense solution provider. So they had their own data. Um, so one of the crazy ones is 40% of US workers admit using AI to generate fake receipts. Blake Oliver: [00:03:46] 40%. That's wild. David Leary: [00:03:48] And 40% of those said they use their employee employer funded AI tools to do it. Wow. You're not even like trying to take it offline, just doing it at your desk, using the computer and the tools the company provided you. Blake Oliver: [00:04:01] Now, these are not like enormous amounts. According to that Amazon survey, AI generated fake receipts averaged about $100 each, with a median around $32. And the older template based fake receipts that people used to make averaged $182 each. So it looks like we're getting more fraud, but smaller dollar amounts. David Leary: [00:04:25] And the reason they're doing the smaller dollar amounts is because all these apps ramp, etc., have all these tools to auto approve stuff, and you have AI routing things around. So if you can make your receipts not hit that threshold, it'll just automatically get pushed through the system. Blake Oliver: [00:04:41] Mhm. But now what about these tools that, you know, ramp is adding in other other spend platforms? They're adding in. I know ramp is doing it that will detect fake AI receipts because you can detect them. David Leary: [00:04:53] And that's what's happening, right? It's being, you know, that's up 70% the detection of these. Blake Oliver: [00:04:57] Oh, that's the stat you mentioned 70%. David Leary: [00:04:59] I almost feel like it's, it's similar to, um, spam, right? There's AI and technology makes it easier than ever for people to send you millions of spam messages. But then on your side, you're using all these AI tools to detect the spam messages and move them to your trash. It's kind of like that. The AI, on one hand, is making it very easy for employees to cheat and create fake receipts. But the at the other hand, it's hopefully helping you catch them. So there's no benefit to using AI. I guess it's a wash at the end of the day, right? Blake Oliver: [00:05:31] And it's not that employees are necessarily creating totally fake expenses that is happening, but there's a variety of different kinds. And the inverse survey detailed this. So inverse found a few different types of misuse. 19% of their respondents who admitted to creating fake expenses said they had used AI to invent a purchase entirely, so about 1 in 5 15% said they used it to inflate the value of a real purchase. So real purchase, but they just increased the dollar amount. 6% said they used it to recreate a loss receipt for a legitimate purpose. David Leary: [00:06:07] I was going to do that this week. David. David. I'm going to do this. Blake Oliver: [00:06:11] Don't do that to me. And, and then, um, like you said, 40% said they used AI tools paid for by their employer to do this. And then 9% said they built their own tools for this purpose. David Leary: [00:06:25] Like they intend to do it to build your own tool to do this means it's going to you plan on doing it a lot. That's a big commitment. Blake Oliver: [00:06:32] Well or not, David, because you have a story about how it's getting easier and easier to build your own software. You spotted this zero YouTube series, I think it's called Is Everyone a Developer now? Tell me about this. David Leary: [00:06:49] I lost the story one second. Blake Oliver: [00:06:51] And we've been talking about this on the show before, where it's getting easier and easier with AI now, not just to do complex spreadsheets and work papers that we couldn't do before, but you can actually make your own apps. And I'm really glad you brought this to the show, David, because I just did a webinar this week with Mackenzie Toda from Hash Basis, who has an accounting firm that specializes in crypto. And she walked me through in the webinar on earmark webinars, how she's using AI to make custom apps. She uses perplexity computer, and she can build an app that she publishes on a website through perplexity, not using any other tools. And it can do really cool things like access the transaction history of a blockchain wallet, and then export that history into a CSV file that she can import into QuickBooks. And this is something that she used to have to use specialized tools and pay a lot of money for it. And now she can just do it herself. And this, what you're going to talk about kind of sounds like that. David Leary: [00:07:47] And the conversation I think has shifted. It used to be, I mean, I've seen this happen, growing this this momentum over the last 12 to 18 months. I've I've coded a replacement for QuickBooks. I built my own accounting thing, but there were always in like Reddit chat rooms, kind of these one offs. They were never really a story story. But now I think it's going mainstream. And so the intuitive, intuitive. That's a habit of me saying because I've worked for Intuit Developer. So it just comes out. The Xero developer team, they have a new YouTube series. It's called is Everyone a Developer now? And essentially the developer evangelist at zero, the three of them get on and they vibe code a solution or an app. And I mean, to some extent an old idea. This is what your job as a developer evangelist, you would show the APIs of your app and show some cool thing you built on the APIs to get other developers excited to code more. So instead of them chasing a small pool of developers to build apps by having. Showing people how to code. They basically now have opened up millions of accountants that could actually create apps, and this hopefully would lead to more apps in the App Store, etc.. David Leary: [00:08:58] So in their latest episode, and I recommend everybody watch this and check it out because it'll give you a feel. Don't get hung up in the code details, but you'll get a feel of the thought process behind this, where you use one AI to kind of create your plan and what your strategy is going to be. And then after you design it with the one AI, it gives you the prompt to paste into cloud code to go code the whole thing. And essentially that's what they do. So in an hour and 15 minutes, they coded up their own monthly close tool. And each episode they do different tools like they did use lovable once a fully hosted platform. Now they use cloud code in this one. Um, now it's only like halfway to be a production ready app. Like you couldn't vibe code this and then instantly share it with other people. But that's just, you know, a couple more weeks of iteration on the idea, but for to build an in-house tool. Hour and 15 minutes. Blake Oliver: [00:09:54] So you said close month. I'm thinking a month end close. David Leary: [00:09:58] Checklist. Blake Oliver: [00:09:58] Type tool. David Leary: [00:09:59] So it connects to zero figures out if things have been reconciled. Here's your open invoices, here's your open bills, here's your balance sheet, blah, blah, blah. Blake Oliver: [00:10:08] So you can walk through. David Leary: [00:10:09] That and has a UI and it's connected to zero and you see it doing the work and it's for an hour and 15 minutes. It's pretty impressive. Blake Oliver: [00:10:17] Yeah. Well, I believe it. Um, I actually used cloud Co-work this week for another new task. I've been having so much fun with it, and I can't wait to tell you all about it. David. Uh, we'll save that, uh, for a little bit later in the program, but just a little preview is that, you know, at earmark, we've been, um, running our books on a cash basis because we're a small startup and it just hasn't been worth it to me to spend the time to do the revenue recognition. So we've just been recording our deposits from the app stores, from our subscriptions on a cash basis. They come in through startup. They come in, they come into the bank account, they hit the bank. And, you know, just that's, that's how we code the income, right? And that's all we've cared about. That's all we needed for taxes. But, you know, to get a real idea of like how we're doing, we need to actually properly recognize that revenue on an accrual basis as GAAP demands. And so doing that in the past, I've just always procrastinated doing that because I didn't want to do it myself. And we don't want to hire a controller at this point. And it would mean making this giant spreadsheet, right, a waterfall spreadsheet for every month and showing the revenue recognition and all that stuff. And I was actually able to do this with Claude Cowork. I built the whole work paper and, um, I'll, I want to talk about like how I did it. I just sort of like asked it what I needed and stuff. Blake Oliver: [00:11:42] So anyway, later in the episode when we get to the app news section, we can talk about that. It's super cool. Um, I think first though, David, I want to talk about Nasba. We have some follow up from our Nasba adventure. Listeners may remember that we received a demand letter from Nasba back in April regarding an educational session that I delivered at the AICPA Learning and Development Conference earlier this year, where I showed the attendees the learning and development professionals from large firms how to use AI to create on demand self-study courses like we do at earmark and showing them how to use AI wasn't the problem that Nasba had. The issue that Nasba had was that I described Nasba as pedagogical methods as as backward, and I, I criticized their their course development methodology and criticize some of the problems with CPE that you and I have discussed many times, David. That webinar polling questions are just a often just a check the box activity. We have so many people in webinars not really paying attention, doing their email on the side, people sleeping through in-person sessions. Right? I that came up in the Q&A, those sorts of things. And Nasba had somebody there and didn't like it and they sent me this demand letter. And so I obviously didn't really enjoy that because, you know, I like to speak my mind. Right. I am a proponent of free speech in the First Amendment. And I thought that Nasba was overstepping their bounds when they sent me that letter, telling me what I could and couldn't say. David Leary: [00:13:31] They lost the context in the audience. The context and audience is very important when you're talking, and if you take it out of that situation of the audience who you're talking to in the context. Yes, that sentence sounds bad. Naspa has it backwards. Sounds bad. Blake Oliver: [00:13:48] Well, and but beyond that, David, even just beyond the context, like I felt that it was, uh, wrong, unconstitutional for an organization like the National Association of State Boards of Accountancy to tell a sponsor of CPE, a CPA, a professional educator, what they may and may not say about Naspa. And they referred to the sponsor agreement that we sign every year. And they said that I was in violation of it, and I was in violation of it because I had agreed to, quote, conduct learning programs and operations surrounding learning programs in a professional, appropriate, and ethical manner that respects the rights and worth of the individual served and in a manner that reflects favorably on Nasba and the National Registry of CPE sponsors. And they had taken what I said to be unfavorable, and they immediately directed me to cease making any unfavorable, unprofessional, or inappropriate comments about Nasba or the National Registry of CPE sponsors, and to review our internal practices and communications to ensure full compliance with the ethical and professional standards outlined in my sponsor agreement, and take appropriate corrective action to prevent any recurrence of such conduct. And I took exception to this. David Leary: [00:15:04] We said Blake is not allowed to talk anymore. Blake Oliver: [00:15:08] Uh, we did not. I wrote a response, uh, basically pushing back on this. And I said that my, uh, my speech, my session was not intended. My comments were not intended to reflect unfavorably on nasba. And that, in fact, I am a big proponent of continuing professional education. And they were intended to help to push the profession forward, to make CPE better. And so I pushed back on that and I said, uh, that I needed clarification on what specifically would constitute a violation, since the terms unfavorable and inappropriate are not defined in the sponsor agreement. And I was waiting for a response and we finally have received a response. June 22nd, I received a response from Amy Itonga, the Director of Compliance Services. Mr. Oliver, thank you for your April 30th response and taking the time to address the matters raised in our April 16th correspondence. We appreciate your clarification regarding your intent and your commitment to continue operating in accordance with the Statement on Standards for Continuing Professional Education and the Sponsor Agreement. Nasba welcomes constructive professional dialog regarding continuing professional education and the future learning and competency. The future of learning and competency development. Based on your response and subsequent discussions, Nasba considers this matter resolved. No further action is required. We appreciate your continued participation in the National Registry of CPE sponsors and look forward to future dialog regarding the future of continuing professional education. So there you have it. We are off the hook. Earmark is safe. We continue to be a sponsor. David Leary: [00:16:51] So that last letter was from a compliance. What was her title? Blake Oliver: [00:16:57] She is Amy Towngate and she is the director of Compliance services at Nasba. David Leary: [00:17:02] So she's the she basically is an account manager for companies like us that are nasba sponsors. Blake Oliver: [00:17:09] For to make sure that we are compliant, compliant. The standards. David Leary: [00:17:11] So then the first letter, though, came from legal counsel. Right. Blake Oliver: [00:17:14] Uh, the first letter came from, from her as well. Yes. David Leary: [00:17:19] Oh it did. Blake Oliver: [00:17:20] Yeah. Okay. David Leary: [00:17:21] Interesting. So as soon as she had context, they kind of, um, pulled back a little bit and now they consider it resolved. That's good. We're on the same page. Blake Oliver: [00:17:30] So just wanted to let you all know that that is addressed. So if you are an earmark user you have no need to worry. We continue to be a sponsor. And if you haven't checked out earmark yet, you can earn free continuing professional education for listening to this podcast and many others such as oh my fraud and federal Tax Updates and Tax in Action and the unofficial QuickBooks accountants podcast. And she counts and many, many more. David Leary: [00:17:53] And a new show we're launching just launched this week called Audit Fundamentals. So if you need those audit CPE, we now have a show for that. Blake Oliver: [00:18:01] We've been listening to you, our listeners and our earmark users and customers and subscribers, and we heard that you want more content for your younger team members. So we started this audit fundamentals course and it teaches the basics how to sample. Uh, many other things are coming. That's the first episode. And we're also going to be doing courses on standards updates. So more technical content for you to, uh, to consume that will keep you up to date. And so if you are an earmark user, uh, if you're in the live stream here by any chance, and there's certain types of content, certain types of education that you want on earmark that we don't have. We want to know. So you can let us know. You can send us an email me and David at The Accounting Podcast at earmark.me and tell us what you would like to hear on earmark. And now, David, let's go ahead and thank our next sponsor of this episode. And that is Value Builder Systems. David Leary: [00:18:59] Are you ready? Go for it. Okay. If you run an accounting firm, you've probably watched this happen. A client sells their business. They call their wealth advisor. They call their attorney, they call their consultant. And you find out about the find out about the deal when the k-1's hit your desk. It's happening more than you think. 12% of business owners got a written offer to buy their company in the last year. When that offer lands, it kicks off a wave of high margin advisory work, tax planning, estate work, succession planning, quality of earnings engagements that can often run into six figures. But to most of your clients, you are the tax pro. So the work goes someplace else. Value builders and exit readiness platform built for accounting firms. We give you the tools and certification to start the end game conversation with your business owner or client before someone else does, and typically a 2 or 3 partner firm. Our data shows a hidden million dollars in advisory fees sitting inside your existing client base. To see how Value Builder helps you move from five figure compliance fees to six figure advisory engagements, head over to The Accounting Podcast dot ProAdvisor value that is Accounting Today dot pro forward slash VALUE. Blake Oliver: [00:20:09] We've got a lot of app news to cover this week. David Intuit did a virtual summit type activity where Sasan Goodarzi talked about how accountants are into its customer, not channel. It seems like you like to say the pendulum is swinging back again toward accountants over there. We've also. David Leary: [00:20:31] So last week, right, I talked about how Intuit hired a new. This marketing company to help them make Intuit QuickBooks AI efforts seem more human. And I made a joke last week. Like maybe they'll start with the CEO and didn't take long. The CEO has made some new comments. So at this event, which was like a virtual conference showing off all the new things they're doing at QuickBooks, the new accountants program, uh, the new functionality, the AI, etc. he actually made the comment that he declared that accountants are now the customer, not a channel and not just said it. They have actual changes. Now, this change is kind of the tricky one because I feel like it's been said before, Intuit will stop marketing QuickBooks Live bookkeeping in similar services to any business that already works with an accountant. Now, I do feel like that's been said over and over and over again. So that's why I'm using the word pendulum, because now we're now the promise is there and it'll they'll do really good at it, right? And they'll stop doing it. And then what I, what I think kind of happens is you get a new VP wants to make an impression. They come in, well, it's all right, let's do this. And they don't because they don't understand the long term relationship with the accountants. And then the pendulum swings the other way and they start marketing services to your clients. And this is not going to be the third or fourth or fifth time we're going to see this happen. It's happened ten times in the past and it's going to continue to happen. Um, some of the other announcements that went on there. So they, uh, they're talking about how QuickBooks has had some performance boosts. The homepage loads 18% faster now, and bank feed categorization has moved from 77% or 78% to 88%. Now. Blake Oliver: [00:22:17] Did they did they say anything about the navigation? I'm not a I'm not a big QuickBooks user, David. But the one biggest gripe that I hear from people is that is about that like sidebar navigation, where you have to hover over to get to the submenus. David Leary: [00:22:33] It can expand. Yeah. I guess. Blake Oliver: [00:22:35] Because if you if you actually move your mouse. Blake Oliver: [00:22:37] Off of the off of the navigation, then you lose it and you have to go back to the main nav. I never understood that why they do that. David Leary: [00:22:44] It's true. Like if you know where you're going, you don't notice it because you're just like dragging your mouse down the path and it just expands those out. But if you're hunting for something, having menus pop up and vanish could be an issue. I could see that, but nothing as far as the any of that. Um. Blake Oliver: [00:23:02] Do you want to continue on with app news now? I got a story here about AI adoption in tax. Bluejay and cpe.com released in their second annual AI Tax Research Solution Outlook report. This is a survey of more than a thousand US tax professionals. And it argues that AI is no longer just being tested by firms. It is becoming part of standard tax workflows and broader transformation strategies. Here's the headline number 60% of respondents now use AI for tax research, at least weekly. More than half. That's compared with 33% in 2025. So in one year, we went from one third of tax professionals using AI for tax research at least weekly to 60%. Still seems slow to me. Still seems low because it's so easy to do this. But I mean, there we are. David Leary: [00:23:56] Well, I mean, if you Google something now, it gives you an AI answer first. If you search for an answer, where are you getting these these other 40%, where are you getting your answers? Where are you researching at? How are you? Blake Oliver: [00:24:06] Probably the traditional way, right, with traditional tax research tools is what I'm guessing. Um, AI is most commonly used in advisory projects. 44% are using it for that tax planning, 40% compliance research, 39%. Then document analysis and drafting. The report also says that 84% of respondents believe AI saves time. Yeah. No shit. Sherlock. Uh, they 50% say it improves client response and delivery timelines. Supports work life balance. That's 47% delivering higher quality advice. Less than half actually think that 46%. Anyway, the news is that we've doubled in in adoption on a weekly basis. David Leary: [00:24:51] And it's expected to go up higher. Because I don't know if you saw this week the IRS Advisory Council recommended that tax preparers have to should be disclosing when they use AI tools to prepare returns. Blake Oliver: [00:25:03] Oh, this is a big story. I'm glad you brought this up, David, because there's also another big point in that. So these these are the first AI guidelines for tax preparers. The IRS has been completely silent up to now. On to how tax pros should use AI in tax practice. They didn't create new rules, but they explained how existing standards already apply when firms use AI tools and the core message is that AI can't. It may improve efficiency, but it can't reduce your ethical, legal, or billing responsibilities. And the billing part is interesting. So practitioners are not allowed to charge clients for work time that was not actually spent. Bill manual labor rates for AI assisted tasks are effectively double bill for work performed by both staff and software. Speaker 3: [00:25:59] So basically. David Leary: [00:26:00] The. So you can't like value bill for tax returns like you have to charge. Blake Oliver: [00:26:06] You can't. But if you're. Blake Oliver: [00:26:07] Charging for time and you get more efficient, you have to pass the cost savings on to the taxpayer, the client. David Leary: [00:26:15] You're right. That is the hidden part of this story. That's crazy. Blake Oliver: [00:26:18] Yeah, yeah. So basically this is the nail in the coffin of hourly billing because the I mean, you are in violation of your ethical responsibilities and professional responsibilities. If you bill hourly and you don't pass on the time savings. If you bill hourly, which, you know, this is nothing new, right? You can't lie on your timesheets. You can't pad your timesheets. You're not supposed to do that. This has always been the rule, but the IRS is clarifying that. And that's why I think that hourly billing is going to completely die. But the thing is, there really aren't that many firms actually doing hourly billing anymore. Ignition released a study about hourly billing in accounting firms. And it's a bit skewed because, um, it's a bit skewed because, you know, the survey was done of ignition customers. This is the proposed online proposal management software. Speaker 3: [00:27:23] Tend. David Leary: [00:27:23] To be a more forward thinking firms. The whole point of using ignition is so that you are getting your customers to prepay. You're not paying them the hour. Yeah. So it is a skewed survey, I agree- Blake Oliver: [00:27:33] It's a skewed survey. And they found, uh, among firms that are customers of ignition, only 5% of tax prep firms are billing hourly. Most are on fixed fees value pricing, minimum fees, plus complexity, set fees by form, schedule or other alternatives. Um, and I found that this holds up actually among other surveys. So for instance, uh, the National Society of Accountants, they found that it's a little more, but it's still, it's still like a minority. So hourly among on their latest survey that I found was like 24%. So 24% among more traditional firms and 5% among the leading firms that are using like online proposal software. That sounds about right. But the vast majority of firms are doing fixed fees by um, they're doing, let's see, 37% are doing fixed fees and by form is 35%. So a lot of firms are still charging per form. Like there's a fixed fee per form to fill out. David Leary: [00:28:41] Can't you get around this IRS thing by just raising your rate? Like, oh, my hourly rate is now this much. And then if you double your hourly rate, and if it takes you half time to do the return, your revenue stays the same when you're charging, the customer stays the same. Blake Oliver: [00:28:54] Yeah. But the customers aren't going to be happy with that, right? Like that, that. David Leary: [00:28:58] Well, if their bill doesn't actually change. Blake Oliver: [00:29:01] Well, if their bill doesn't even change, then why not just fix their fee? That's true. Why, why, why even do this hourly billing thing anyway? Um. David Leary: [00:29:11] And at what point is it like, like, is it going to flip to where you, maybe you should have to disclose when you're not using AI or technology tools. Blake Oliver: [00:29:19] When you're not. David Leary: [00:29:20] Going to have to disclose this when in theory, everybody's going to be using them. You kind of want it disclosed when somebody's like, oh yeah, I manually looked in these paper booklets to manually calculate all these things. That's those are the that's the ones you want disclosed. Blake Oliver: [00:29:37] I want to go ahead and thank our sponsor. But first, I want to address this comment here from Timothy in the live stream. Timothy says, technically, Nasba is not a government entity. The government can't filter the people. But does the First Amendment really prevent the people from filtering the people? So it's an interesting question, and I think it's one that would have to be tested in court. My view is that the National Association of State Boards of Accountancy is acting as an agent of the state boards of accountancy. It's providing services on their behalf. It's servicing them, servicing CPAs. David Leary: [00:30:15] It's a representation of these government bodies because state boards are government bodies, right? Blake Oliver: [00:30:21] Exactly. So the state boards are government bodies, and if a state board of accountancy tried to do what Nasba tried to do with that demand letter, that would be unconstitutional. A state board cannot tell a licensed professional like a CPA what they can and cannot say about the state Board of accountancy. That would be a violation of the First Amendment free speech issue. So the question is whether or not the state boards can set up a private company, a nonprofit that then acts on their behalf and suppresses the speech of CPAs. And I would be willing to bet that they can't. And that would be something that would be struck down. And I think that's why the National Association of State Boards of Accountancy ultimately did not pursue that with us. But I also hope that it was my offer to help that also, you know, and explanation that like, I do not mean this unfavorably. I want to help the nasba. Um, and, you know, one way I think that we can help nasba is the problem is that they just like, ah, to be honest, not talking to the right people. The way Nasba creates its standards and the way that it, um, the way that it gets information from the profession, our opinions is by creating these advisory committees. The advisory committees are a relatively small sample of the CPA community, and it tends to be people who are really far along in their careers and are therefore out of touch. David Leary: [00:31:55] This is this is what I fundamentally say about accounting firms, right? Like nobody focuses on the customer experience and to some extent, us as a CPE sponsor, the people who have to do CPA or CPE, the L and D people at firms, they're all the customer and nobody listens to them, right? Everybody's solving the standards are that, well, we have these laws, we have to do. So we're going to create standards that makes us efficient. We have our own internal processes, our own internal internal approvals, but not what is the experience. And because if you're not paying attention to what's happening, out with customers eating the dog food, if you want, like somebody at NASA should go attend randomly a 200 webinars a month. And they would quickly realize this is a broken learning model. Blake Oliver: [00:32:42] Well, I think the issue is, David, that Nasba, like Intuit has in the past with accountants. It doesn't view accountants as its customer. Yeah, it views itself as a regulator. So Nasba acts like a regulator. But it's. David Leary: [00:32:59] Not. You must follow my rules. I create the rules. The rules are its rules driven innovation instead of customer driven innovation. Blake Oliver: [00:33:07] And there's multiple problems here, right? One is it creates a bad experience for the end user, the CPA. Um, but also like Nasba is not a regulator. The state boards of accountancy are the regulators. They created nasba for administrative reasons, to make it easier to maintain a system of licensure across all 50 states and provide all these services in a, in a, in a, a more efficient way, because it doesn't make sense for every state to do all of these things themselves. A lot of these smaller states outsource their administrative functions to Nasba. So Nasba is and should be an administrator, not a regulator. And it should not be acting like the state boards of accountancy, you know, and when it does, like when it acts, it should it should really be acting as an agent of them. And I think this is the this is the problem. So I mean, that's just that's just my personal view. And, and I think, though, that taking a more customer focused approach would be great. Like when it provides services on behalf of the state boards of accountancy two CPAs like renewal and all that stuff. It should really view the CPAs as its customer. I think that would be great customer focused approach. And same thing with like these score reporting to the colleges and universities, like really view them as your customer and you'll get better, better, better results, right? Like accurate results, that sort of thing. Blake Oliver: [00:34:37] Anyway, we got more to talk about, David. And we also need to thank our next sponsor and that is on pay. And I'll take this one. Are you tired of payroll headaches getting in the way of the client experience? You want to deliver manual workflows, creating bottlenecks, compliance, nightmares, and endless support calls that go nowhere. There's a better way for your team and your clients on pay is the payroll partner that accountants and bookkeepers actually love. Why? Because it's easy to use, packed with value, and backed by support that actually supports you. Their team gets rave reviews for being fast, expert, and actually reachable when you need them on pay handles the heavy lifting. You get a dedicated onboarding coordinator who sets up worker profiles and transfers year to date data from previous providers, all at no extra cost. Their seamless QuickBooks and Xero integrations eliminate manual journal entries, and they support any type of business you serve farms, restaurants, nonprofits, you name it. On pay can handle unique requirements without adding complexity on pay keeps pricing simple to everything your clients expect, from multi-state filing to off cycle pay runs. It's included no hidden fees and no surprises. To book a demo, head over to The Accounting Podcast dot com slash pay. That's The Accounting Podcast dot promo forward slash ONPAY. David Leary: [00:35:53] I have two app news stories that tie really back to that those the Xero developer team creating closed software. Blake Oliver: [00:36:00] Tell me about it. David Leary: [00:36:00] So one of them is pilot. So pilot we've spoken about for years. They've had the billion dollar valuation. All the big investments from Jeff Bezos, right. Pilot essentially was building an accounting firm with engineers, you want to call it that? Well, Pilate just rolled off a piece of their product as a standalone product called Meridian. It is an AI platform that claims to handle the entire month end close process from start to finish. And so they've been using this internally at pilot since 2017, obviously iterating and building on it. They did 187,000 months of books for more than 8000 businesses. And you think about all the money they raised and what they spent and engineer time to build this. And then in an hour and 15 minutes, somebody can vibe code it like in the same another app just launched called kinter.ai. And that is AI agents that do the attack, the closed process as well. They can take your 15, 10 to 15 day closed cycle down dramatically, closed cycle down dramatically, the time spent, 70% time savings, etc.. Um, again, like they've had big investments from A16, Bain Capital Ventures, Y Combinator. So imagine like you're investing in these companies who've been heads down, working hard for four years to get software to a finish line that now you could vibe code and like, are we going to, I think this is just going to happen more and more and more, especially if like zero is basically by doing these videos, they're blessing accountants to go build your own software. Is the app ecosystem the way it's traditionally been just going away now? Blake Oliver: [00:37:38] Well, I think all the point solutions, those apps that are features and not products, those are going to be apps that we just build ourselves. So the example that we did on the show is just invoice processing. I built my own Receipt Bank my own decks before. Yeah, right. And I just forward a PDF invoice to an AI agent, a Zapier email address, and it goes and enters it into my accounting software, and it does it with incredible accuracy line item detail. It can go and research how I previously coded it. If it doesn't know, this is all doable now. David Leary: [00:38:12] And now you're just built a piece of software. That's right. A bunch of standalone apps you'd have to buy. Blake Oliver: [00:38:17] Yeah. And like, I mean, this is pretty incredible. David, I want to tell you about like what I did here. Oh, by the way, I also have an agent that's doing, you know, cash flow forecasting for me, like building out 12 month cash forecasts on a drop of a hat, just pulling the trial balance information from zero. And, you know, I've created like a, you know, historical PNL 25 month history, PNL, and then it can go and project the next 12. It can, it creates a financial model with assumptions tab. Then I can change the assumptions. I mean, wild stuff, right? David Leary: [00:38:57] And this used to be I mean, at one time you worked for giraffe, which was a standalone FPA software. Yeah. And I remember doing a webinar or demo with you one time. And you have to like click in every single field. Blake Oliver: [00:39:09] Oh, it's a lot of work to build it next month. David Leary: [00:39:11] Click, click click. What's that? Click click click. It's just a lot of work to do these things. Blake Oliver: [00:39:15] Yeah. So that's one thing. I'll have to talk about that at some point. But I guess the one I want to highlight is this rev rec thing. So my initial prompt was in cloud work. I've been doing the books for Earmark Inc in zero on a cash basis. Revenue for the app stores is recorded when the deposit hits our bank account. Help me make the ages to get this on an accrual basis. What information or access do you need for me to figure this out? Let's make a plan before we do the work. And then Claude came back to me with a analysis of the situation and what we need to do to get this to an accrual that we need to recognize revenue in the period the sales were actually earned with reconciling items. Right? We've got the timing, the deferred revenue, the gross versus net, right, which we don't get right now. We have to gross up the deposit and take out the App store fee, right? The 15% that Apple charges us and Google charges us. Oh, and for stripe, we've got to take out the processing fees and all that stuff, right? So it basically told me what it needed, that it needed the Apple sales data, where to get it, the Google sales data, the deposits from zero, right on the on a cash basis. Blake Oliver: [00:40:23] And then we had to figure out, you know, like when we're going to set this up, do we have to do an opening balance kind of entry to get this deferred revenue account set up? Because we had an acquisition and all this and, and I'm walking through with it basically answering questions. We, it, it helps me figure out, should we do a half month versus full month convention? So when you've got monthly cohorts of subscribers and you just want to group them all together, you're not going to, you know, we're not going to go to the individual subscriber detail level, right? Of, of water falling out, all this revenue. We're just going to do the whole month. So then we decide if we want to do half month or full month and half month is more accurate. Right. Because it just we're assuming everybody subscribed on the 15th of the month instead of like the first or the, you know, because it's spread out, that sort of thing. So you've got to change how much revenue you recognize in the first and the last month. And we're going through all that. We're talking about, you know, how to do this. David Leary: [00:41:16] I like how you're like, we're talking about. Blake Oliver: [00:41:18] Yeah. Blake Oliver: [00:41:18] I'm having a conversation with Claude. Right? David Leary: [00:41:20] Yeah. Blake Oliver: [00:41:21] And so then we go through collecting all this information so I can have it open up the web browser and go into the Apple Store and Google Play Store reports and download the ones it needs. And if it gets stuck or something's blocked, I help it. And once it has all the info, it starts to build the work paper. And you know, it built this beautiful waterfall table, which I've only had to do a few times myself. And from experience, I know, you know, it takes a lot of work, right when I was doing it in my accounting practice, you know, we had some clients there. We had to do the rev rec for them. And, and so, you know, like, I just, I can show you what this looks like. David Leary: [00:42:01] Yeah, there's a whole category of rev rec apps that exist who have been funded with 40, 50, $60 million. Blake Oliver: [00:42:08] Yeah. Blake Oliver: [00:42:08] So it's and basically now simple stuff. I mean, I, you know, simple stuff you can do pretty easily. So, you know, here's my excel, right? And so this is for Apple and it's going back to when we first started, um, charging for subscriptions. And what you can see here is that, you know, you have the source and we've grossed it up. We've got gross bookings. Oh, this is a, I've traced a cell here. That's why you see this arrow, right? So you've got the gross bookings and the platform fee. And then what you see is that it spreads it out over 12 months, right? And you have to do this. Each row is a different month and it starts in a different column. And this is called a waterfall. And so then you sum up each column and you that tells you how much revenue to recognize for that month. And then we can basically compute that for Google and Stripe. And then we've got a whole reconciliation tab. We've got the deferred revenue roll forward and then we've got the ag schedule, right. So for each month, starting in the in the month when Earmark Inc. was incorporated, we've got the columns for each of the entries, and we've got a check to make sure that the debits and credits balance. Now I have to go through and double check all these numbers. But this is the right template. This is the right format for me to have done this manually. I just, I can't, I don't even know how many days it would have taken me to put this together. David Leary: [00:43:37] You'd have tons of spreadsheet exports, imports linked spreadsheets. Yeah. I mean, I mean, I've seen what the revenue rec apps, everybody who's built those apps used to have to do this by hand. Like they're highly motivated to not doing this by hand. Blake Oliver: [00:43:51] Yeah. Blake Oliver: [00:43:52] So it's just a beautiful thing. And, and this, here's how this ties back to all these financial close agents that everyone's been building is that once I get this set up, I can create like a skill in Claude and have it recur on a monthly basis, where it asks me for the latest sales information or goes out and gets it itself if it can. David Leary: [00:44:17] That'd be perfect. Blake Oliver: [00:44:17] And then it updates the work paper and posts the adjusting entry into zero. And this is totally doable for basically any type of work paper situation where you've got this is this is pretty much doable. Can you hear me, David? Am I still here? David Leary: [00:44:35] Yeah, I can hear you kind of froze up. Blake Oliver: [00:44:37] So no worries. So anyway, that's my story about using cloud work to do rev rec. I mean, I'm just discovering all sorts of month end close stuff all the time. David Leary: [00:44:47] Should we talk about how, uh, Ed Bailey had a private equity investment? Blake Oliver: [00:44:52] Yeah. I'd Bailey latest of the big firms to take private equity. What is the deal here? David Leary: [00:45:00] Did you. I could not find how much they're getting. Apparently it's set to close there. They're going to get what's referred to as a major private equity infusion from Reverence Capital and a deal set to close in Q3 2026. I didn't see the amount anywhere. I don't know, did did you see anything? Blake Oliver: [00:45:18] I mean, often that is not um oh, here it is. It's a one. Well, it's a deal that values the firm at 1.8 billion and it's a majority stake. So roughly 2.1 times revenue for a majority stake. I don't see where it says like just what that stake is. But majority more than 50%. That's a big deal. David Leary: [00:45:43] So reverence capital, they tend to play in the financial services space. And one of the things they do do is own banks. They own some banks or invested in banks. I wouldn't say owned banks. Right. And banks are actually one of Bailey's largest and deepest industry verticals. So, you know, I've kind of I think there's two ways to think about PE. At one level, the P companies are viewing accounting firms as a way to buy stuff from their other portfolio companies. But another way to think about this is did I really just become the internal accounting firm, accountant controlling firm for this portfolio of companies that reverence capital has? Right. So is that kind of the way like basically an in-house accounting division? Is that the way to kind of think about this when P buys, if P has a huge portfolio of other services and companies that your firm specializes in, you're probably going to be working on those other companies. Are you just now the internal accountant for 50 other companies? Blake Oliver: [00:46:41] The. Yeah, the captive accounting firm. Yeah, yeah. It's an interesting way to think about it. Cpa Trendlines has an interesting chart here of the top 30 US accounting firms. I've got this on the screen. And the shaded firms on this list are carrying outside capital. They're ranked by revenue. And we can see here that the top five Deloitte, PwC, EY, KPMG, RSM. They have not taken it. David Leary: [00:47:02] But that's deceiving on BDO, right, because BDO took a loan from Apollo, which is private equity, to do their ESOP. But that's. Blake Oliver: [00:47:14] A. David Leary: [00:47:14] Huge. Blake Oliver: [00:47:14] Yeah, it's outside capital, but it's a loan and it's an Esop loan. It's not control. Not control. Right. So it's. David Leary: [00:47:20] Not. Blake Oliver: [00:47:20] Control. We've got here. We got number six Baker Tilly eight C biz nine, Grant Thornton 12, Crowe 13, Eisner 15, Cohnreznick Citrin Cooperman, Sherry Baker, Idi Bailey, Arminio Aprio Wipfli. Then we go to 23. Carr, Riggs and Ingram. 24 Pkf. O'connor, Davies. Uh. Sikich. That's a lot. David Leary: [00:47:45] So we're. Blake Oliver: [00:47:46] Let's. David Leary: [00:47:46] See, ten out of the. Blake Oliver: [00:47:47] Top 3456789 1011 1213141516. So a majority of the top 30 firms now have taken private equity money. All right. Let's go ahead. And do we have another sponsor to thank? David Leary: [00:48:03] No more. Blake Oliver: [00:48:03] Sponsors. No more sponsors this week. Um, I, oh, I got to hit on this story that's in the title of this episode about the big firms losing power. So this is a study published in contemporary Accounting research, uh, real nail biter of a publication, contemporary accounting research. It's an article called Losing Control The Erosion of Disciplinary and Pastoral Power in Accounting Firms. And the authors of this study argue that large accounting firms are losing the traditional power they used to shape auditors into the profession's ideal employee. It's based on 31 semi-structured interviews with auditors in Canada, and those interviews were conducted from 2021 to 2023. The authors say firms are struggling to recruit, disciplined, mentor and retain staff in the way that they once did. There has been a major shift in public accounting's labor model in large firms. Instead of producing highly socialized, career committed auditors, firms are increasingly hiring and managing what the authors call, quote, default auditors. These are people who enter under weaker selection standards and engage with the firm more transactionally. There's been a broader erosion of both disciplinary power, which is controlled through surveillance rankings, performance pressure and punishment, and pastoral power, which they describe as control through mentoring, care, guidance and long term career promises. David Leary: [00:49:37] So the Big four is kind of becoming less of a cult, if you want to think about. That's the way you could describe it. Previously, it was like a cult and everybody was in and they were all in, and I'm going to work 80 hours a week and I'm going to wear the swag. And they just that influence isn't there anymore. Blake Oliver: [00:49:54] The overworked norms are weakening And that's what you're talking about there, David. So historically, long hours were normalized through in-person observation, meaning that as a young auditor, you went in and you saw everyone else burning the candle at both ends. And then you learn to do the same thing. Remote and hybrid hybrid work have disrupted this system because staff are no longer physically observing others. Working extreme hours. Logging off at normal times is easier. This we're all in this together busy season ritual thing is is less and less. I guess that would be like, you know, the pizza party. Yeah, the the we stay all night kind of thing. After hours, social expectations are mattering less. So basically firms are losing their ability to make overwork feel natural, admirable or necessary. And it's not just that the firms are losing this in a passive way. The staff are actually pushing back against the old norms. They are setting firmer personal boundaries. They are prioritizing hobbies, family travel and mental well-being. They're rejecting unpaid symbolic rewards tied to overwork. They're openly comparing their compensation and treatment with that of partners and managers, and they're viewing the job more in terms of short term cost benefits than these long term career progression. So they are prioritizing their own welfare over the firm's demands. The firms are also losing the what I would consider the, the bigger, um, and like the, the. Okay, let me step back for a second. If normalizing overwork was the bad things that big firms did was the bad thing. The good thing it did was mentorship. And that's also under strain because of remote work. So it's harder for these firms to create close mentoring relationships and create emotional loyalty to the firm. So what the combination is that staff are less willing to overwork themselves And they don't have as much of a connection to the firm through mentoring. And so the relationship the young auditors have to big firms is becoming more transactional. David Leary: [00:52:04] It sounds like that problem we saw during Covid with the remote workers. And like if your remote employee, did you actually ever work there at all? Right. It feels like it's like a manifestation of that issue that maybe they are working, but it's not the same relationship. Blake Oliver: [00:52:19] Here's the problem for the partners and the managers. They feel trapped. According to this study, partners and managers said that they are responding to this by taking on extra work themselves, reviewing more because they're seeing lower work quality, they're having to offer more flexibility and higher pay to the staff, and it's not working. What they're trying to do is not working. Um, and so they are feeling more exhausted, underappreciated, unable to enforce the old standards and unable to design convincing new ones. So basically the managers and partners, because the system is breaking down, are not getting the relief that they would normally be getting. David Leary: [00:53:01] Yeah. This, this feels like going back to that chart about all the top firms taking P money. It's like, put lipstick on that pig and sell it to somebody else because it's like you've been, you've used it three times. I don't know if you realize during the articles the system is breaking, it's deteriorating. Blake Oliver: [00:53:15] And that's why I'm skeptical of these p e outcomes. So, uh, what was it? So I Bailey just gets a majority investment for 2.1 times earnings. Are they really going to be able to turn it around and sell it for more? David Leary: [00:53:34] If and if and if the culture. Blake Oliver: [00:53:36] Are not willing to buy into the culture. David Leary: [00:53:39] Usually the culture gets worse when p e comes in, right? Very rarely. I have not heard of a p success story like p e came in in our our country became this rah rah great thing. That's true. It gets worse from pee, right? Blake Oliver: [00:53:54] That's funny. All right, David, that's all the time we have this week. Thank you. Everyone who joined us live. Sara, great to see you. Male 22. Awesome to see you too. Male, 22. Says private agencies acting as a proxy for the state is similar to how states prefer not to pass tax hikes. They create a new set of fees since passing new tax hikes requires 67% approval, not 50% plus one. Interesting take there. Sara says regarding building out with AI. My son is interning us, interning for us this summer, and has spent the past week building out similar tools using cloud looking to streamline what you're describing. Great to see you, Steven. Steven says on fake AI receipts. How about one time fax numbers? Ai brings the fax machine back as a check and balance. I've seen someone else put the data packets on a blockchain. Maybe some combo of these two is the answer. David Leary: [00:54:50] Della, what was the fax machine story or too expensive? Blake Oliver: [00:54:54] Maybe like you have to fax in your receipt, right? So you can't AI generate it. David Leary: [00:54:58] Oh, okay. Yes, yes, yes. You said the machine. Blake Oliver: [00:55:01] Della on LinkedIn says, how do I register to receive CPE credit? Well, della, that's easy. Just go to earmark.app in your web browser, or get the free earmark app on the App Store or Google Play Store. Create your free account. All you need is an email and a password. And then go find the accounting podcast. We're right there on the home screen. Tap in and you'll see our previous episodes. If you're watching this live, the course will be available in within a week, and then you can go in and take the quiz. You can mark that you've already watched the live stream and take your five question quiz and get your free CP certificate. And if you want to support the work we do, you can subscribe as we record this on Sunday, June 28th. The price is $170 a year. You can get that if you subscribe before July 1st. It's going up to $200 a year on July 1st, so lock in that $170 price. Hurry and do it. Uh, and, um, we appreciate everyone who has subscribed. We are investing the money that you pay in subscriptions into creating more and more high quality CPE content, like those standards updates I mentioned, like the audit fundamentals series like Tax in Action and this show and many others that we produce. So, um, tell us what you like. You can send us an email. We are the accounting podcast@earmarked.me. That's the The Accounting Podcast at earmarked.me. David and I love to hear from you. We read every single email that you send, and sometimes we even read them on the air. David, go enjoy the rest of your Sunday and I'll see you around here next week. Bye, everyone. David Leary: [00:56:41] Thanks, everybody. Enjoy your weekend.