NVIDIA AI Funding Deal Has "Shades of Enron" & EY Speeds Audits 125%+

0:05David Leary: AI is auditing's biggest disruption since the corporate failures that led to the PCOB's creation, which was Enron, and the separation of audit and consulting work. It's the biggest thing since Enron.

0:18Blake Oliver: Coming to you weekly from the OnPay Recording Studio.

0:25David Leary: Hello, and welcome back to the Accounting Podcast, your weekly roundup of news in the profession. I'm Blake Oliver. And I'm David Leary. And David, today, lots of news to cover. I've been tracking NVIDIA, the AI, stock market bubble, and Enron came up in the news in regard to NVIDIA. Michael Burry, who predicted the financial crisis, the mortgage-backed securities crisis, says that NVIDIA's new$500 billion AI funding deal has shades of Enron. And I want to talk to you about that because we've been talking about the cyclical financing arrangements on this show, and there's a lot there.

1:04Blake Oliver: And you can't ever say Enron and not think accounting. They're forever tied as the same thing.

1:11David Leary: Oh, it's like the number one case study that you learn in accounting when it comes to financial fraud and manipulation of accounting standards and all that.

1:21Blake Oliver: And half the things that have to occur compliance-wise are because of that event.

1:26David Leary: Right. All the SOX compliance they have to do, all of that. The PCOB even existing, right, is because of that.

1:30Blake Oliver: That's right.

1:31David Leary: That's right. So the fact that this looks like that, little sketch. EY is saying that they have over doubled their productivity for audits. So audits are now 125 % to 150 % faster, but they're not having to cut fees. We've got a case of ancient tax fraud in ancient Rome. You've got coverage of the PCOB inspection reports from 2025. It's gotten better. FinCEN ending BOI reporting. Tether finally got a full audit. And QuickBooks Live is dead. And we're going to try to get to all of that in this episode. But first, David, let's thank our sponsors.

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3:25David Leary: You might not know the name Michael Burry, but I guarantee you know who he is if you saw the movie The Big Short, or you heard about that.

3:33Blake Oliver: He's the drummer, right? The guy who's drumming. Oh, yeah.

3:36David Leary: That's how he got out his frustration. Yes. Well, he's the guy who predicted the financial crisis, was it decades ago now? And he bet against the market a lot of money and took an enormous risk to do that, and it paid off. He won that. I mean, nobody won, but he predicted it and made a ton of money and did it. So when he speaks, people listen. And he is criticizing NVIDIA's new$500 billion AI funding deal. Now, what is this deal? It is Apollo, BlackRock, Blackstone, Brookfield, Goldman Sachs, and KKR. KKR, David, we talked about on the show before. big private equity with one bank, Goldman Sachs, getting together to create a massive fund, $500 billion to invest in AI data centers to fuel all this demand for compute power.

4:37David Leary: And NVIDIA, which makes the AI chips, needs these data centers to get built because it needs a place.

4:44Blake Oliver: where if I sell them chips and they have no place for them to work, they're not going to buy my chips. So I have a vested interest in data centers now.

4:53David Leary: And this money would go to buying the chips and building the data centers. And so it's a way for NVIDIA to keep getting its customers to pay. It's giving money to its customers so its customers can buy its products. and the way they're going to do this is it's looking like they're going to use special purpose vehicles these spvs which are separate entities that would then own the data centers and buy the chips and build the data centers those entities would then lease computing power to NVIDIA's customers, right? So it would lease computing power to Anthropic or ChatGPT, OpenAI, these AI companies.

5:41David Leary: And the loans to build these data centers, all that debt would be secured by compute. So if the customer doesn't pay, the debt would be secured, meaning that these private equity companies would own the compute and they could lease it to somebody else, right? That's how they're going to be secured. And NVIDIA is going to guarantee, it sounds like 25 % of the debt. So think about this, right? You've got the manufacturer of the AI chips guaranteeing a portion of the debt to build the data centers. So money is being loaned to these entities to buy chips from NVIDIA, NVIDIA is going to guarantee a certain portion of the debt that is used to buy the chips.

6:31David Leary: And so Michael Burry is a little bit skeptical of this, right? Because this is what Enron did, right? To keep debt off balance sheet, they created other entities that controlled assets. And so NVIDIA, they could do this themselves. They could build their own data centers if they wanted to, but they're not doing it. Why? Because they want to actually book the revenue by selling the chips to these other entities. If they built the data centers

6:59Blake Oliver: themselves and put in the chips - They have all these expenses and all this capital.

7:04David Leary: Exactly. So they don't get to book the revenue until they actually sell the compute. But now this way they get to do it upfront. So he has increased his short positions. Michael Burry has increased his short positions against major AI companies, although we don't know what ones those are. The quote about Enron is that this structure has, quote, shades of Enron's effort to make wholesale power an investable class. Enron, for those who may be too young to remember, went bankrupt in 2001. And they used opaque funds to keep billions in toxic debt away from their main balance sheet. And they created all these complex products linked to energy contracts to inflate prices.

7:44David Leary: And when it went bankrupt, its$60 billion collapse was the largest U.S. bankruptcy. Burry described NVIDIA's financing as a potential attempt to use, quote, unnatural credits to prolong momentum late in the bull phase, unquote, calling it a, quote, sign of desperation.

8:01Blake Oliver: So, yeah, because you have to keep exceeding the previous quarter, and then you get to the point where this is going to stop unless we creatively come up with some way to keep our revenue increasing.

8:12David Leary: Yeah. So this all goes to that circular financing, the money flowing around in a circle that we've all been following, where the AI startups, which are now huge, Anthropic and OpenAI, spend money with owners of data centers, uh amazon google what have you and then those companies then invest back into uh anthropic and open ai so the money just goes in a circle and it books revenue on both sides but there was you know the money's just moving around the circle and revenue's going up so that's the circular that's the circular uh revenue i forget what you call it exactly right That's how the revenue gets created with the circular arrangement.

9:02David Leary: And then this is a way to then keep that going with off-balance sheet financing. Because one of the issues that these big public companies have is that these AI chips, the useful life of them is very short. And they've already been pushing that up from an accounting standpoint. Estimates are that these chips are only good for two to three years because everything's changing so fast. They're going to have to swap them all out, but they've been pushing them up to like five or six years, which allows them to have less depreciation each year, which increases profits. So we're already playing accounting tricks to stretch this out.

9:42David Leary: And these special purpose vehicles might just be another way to continue that.

9:46Blake Oliver: What do you think the accounting impact of this is going to be? So obviously this could completely crash the stock market. It might put our economy into deep depression. Who knows, right? But what do you foresee like an accounting thing occurring here? Is it going to be tied to a firm? Is it going to be tied to all the big firms?

10:04David Leary: Well, there's no fraud happening here. This is all happening in plain sight.

10:09Blake Oliver: So we might have regulation change and rules or gap, right?

10:15David Leary: Maybe. Maybe. The problem is that gap allows this, right? That's the ad. Anyone can do this. This is not, they're not, they're not doing anything wrong. They're allowed to. So yeah, maybe it would result in an accounting change. Would it result in a recession? I mean, who knows? It's like, just think about it. These big tech companies, the FAANG, right? Facebook and Amazon and Google and NVIDIA and who else? I'm not thinking of anybody else at the moment. Meta. Meta. Facebook, Meta. They are powering the growth in the stock market. Those stocks have just skyrocketed. And part of the reason is because they've got these investments now in the AI companies that the public can't invest in.

11:02David Leary: So if you buy Amazon stock, you're getting a piece of Anthropic. And so the stock market, like the S &P 500, is heavily weighted toward these big companies. It's been what's been driving the stock market growth. And so, yeah, if the bubble pops, a lot of people are invested in index funds that just track the market. And if those companies are heavily weighted in those funds, when the bubble pops, a lot of regular people, average Americans, are going to lose a lot of money.

11:34Blake Oliver: And if these bubble pops and some of these companies go away, other corporations that were now dependent on these AI tools, they're not going to get the efficiencies that they thought they were getting, which is kind of the second headline, right? How hard it's being sped up.

11:49David Leary: And before we move on, I just want to say that I think that the reason that OpenAI wants to go public as quickly as possible is because they see it coming. And if they can go public, then all of the founders and investors up to this point can cash out at least enough of their position to have booked the gains. and then they just have all upside with no risk.

12:15Blake Oliver: Then it's the streets problem.

12:17David Leary: And it's the public that then take on the risks, the small investors and then the institutional investors. So I will be tracking this. David, what was the second story you want to tie into that?

12:29Blake Oliver: Oh, the second headline. So this ties into these AI efficiencies, right? right like um ewise like they're claiming what you said 125 to 150 increases in throughput or

12:44David Leary: efficiency when it comes to audits yeah and they're also saying that clients aren't asking

12:48Blake Oliver: for lower fees but tying this back to the the other article if all the AI companies go under now EYs just lost all those efficiencies well the AI companies aren't going to go under right it's

13:01David Leary: just what's going to happen is that their stock price is going to plummet when they can't deliver on the results, the future projected results, the profits that are -

13:11Blake Oliver: Well, that's the thing. If the profits don't happen and the circular money stops, they're not just going to get free power. Somebody's going to pull the plug. These are - Well, no, they're not going to pull the plug.

13:21David Leary: They're going to raise the price. So all of these tokens are going to become way more expensive. It's all being funded or what's word discounted it's it's this subsidized subsidized like uber by the vcs when used to take uber rides for six bucks yeah here's another thing that's interesting ey's been putting ai in getting all these efficiencies cutting hours on routine tasks they just posted their best pcob inspection ever five percent that's down from 28 the year before and they're attributing it to

13:59Blake Oliver: this work to the billion dollars they've invested in people and technology and AI. They're claiming that's the reason why. Now, I'm not sure I buy that fully because like PCAOB fines are so teeny. Who spends a billion dollars to avoid paying some fines to PCAOB? I'm not sure I fully buy into this.

14:18David Leary: Well, you know what I think it could be is that this is just my theory, right? So PCAOB, as I understand it, their inspections are really difficult because you have to have checked all the boxes when you do that audit. It's not really about the quality of the audit. It's about having done everything you're supposed to do, gotten all the sign-offs, checked everything, right? As long as you did that, as long as you followed procedure, that's what matters, right? And that is getting a lot easier because what is AI really good at? It's helping you check all those boxes, not necessarily getting the right answer.

14:58David Leary: It can create outputs that look really, really solid and sophisticated, but they can be wrong. And so it should be easier in a world of AI and audit to pass a PCOB inspection because the AI will make sure that you didn't miss any of the steps along the way. It's really good at that.

15:20Blake Oliver: Well, I kind of agree with you a little bit on this, but I'm going to play devil's advocate and tie into the next story. So the reason this is in the news as well is PCAOB just released its annual inspection reports for the big six. And guess what? All of them improved. Some of them dramatically improved. Deloitte and EY posted their best results ever. PwC improved. They're down to a 9 % deficiency rate. That's down 16%. Where'd the BDO number go? BDO improved from 60 % to 34%. Grant Thornton dropped from 48 to 33 KPMG cut it almost in half. Right now, am I supposed to believe that this just because of AI, like all six firms all got better.

16:08Blake Oliver: Think about this. You've worked for big companies, organizational changes, hard, right? Changing a whole, and these accounting firms are gigantic and that's a big ship to steer. So changing the culture and having that much of improvement to me seems a little ridiculous. I'm not buying it. So maybe, just maybe, it's because the PCAOB is transitioning from an inspection and report to focus more on the overall quality control systems of a firm. So the bar has been lowered. So they're going to find less.

16:37David Leary: Because you just have to have a good quality control system. The individual audits are not being inspected as much.

16:43Blake Oliver: Exactly. But in theory, with AI, shouldn't the PCAOB be using AI themselves to inspect tons of individual audits and finding even more audit deficiencies? I just I found it kind of ironic, right? We have this entire industry that was worried about lowering the bar for individual CPAs Now wants the bar basically lowered for themselves on how they're gonna be tested and judge I just I just don't buy that I just don't think it's possible for all six to get better in one year because of Internal controls and internal process improvement. I think the measuring changed

17:18David Leary: I'm gonna let you read this comment from Frank that I just put up on the screen and then I am gonna to thank our next sponsor.

17:24Blake Oliver: Okay. EY has standardized, oh, this is from Frank. EY has standardized a lot of workflows to reduce inspection findings. Lots of checking the boxes. I audit private credit funds, but we don't follow the real risk, the AI bubble software insurance exposure. All right.

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18:47David Leary: That's accountingpodcast.promo.onpay. Where do we go from here, David? Do you want to talk about FinCEN and BOI? Yeah.

18:58Blake Oliver: So BOI is officially done, done, done, done, done. It's really done this time. So in March of 2025, they had the interim rule. Well, that's finalized and now permanent. Essentially, all U.S. businesses will not have to participate in providing this, all your beneficial ownership information to the database anymore. And it looks like based on the National Federation of Independent Businesses, they say that this is going to save small businesses for more than $128 billion in regulatory and compliance costs. So it's a big deal. It's a big win for small businesses. It's a big win for accountants and your clients.

19:37And it really is just,

19:40Blake Oliver: it never made sense right like to like the criminals are not going to fill this out it just it just punished the honest people so it's it's official now it's gone gone forever i saw a stat from gartner from a webinar they did they did a webinar for audit pros 743 responded

20:00David Leary: to a poll and they found that 93 are reporting some level of ai use only 7 are not using ai at all. But then the question is, how do they use the technology? It's isolated right now. Engagement pre-planning, drafting audit issues, reviewing drafts, it's not across the whole cycle yet. Only 30%, so just about a third, are using AI for audit testing, which is interesting because that seems to me like to be the fastest way to increase productivity, is to have AI do the testing. Only 12 % are doing it for quality assurance reviews. And another, one more stat here, 38 % of those audit leaders have an AI strategy, only 38%.

20:51David Leary: So basically the situation in audit right now in general is that everybody's using it, but they're only using it in narrow ways. And And they're not even using it for testing. Like only 30 % are using it for testing. And I also wanted to talk about this article by Jack Castengay. So we've had Jack on the show before. He is a professor, an accounting professor at Hofstra University and a CPA. and he wrote an opinion piece for Bloomberg Tax arguing that AI is auditing's biggest disruption since the corporate failures that led to the PCOB's creation, which was Enron, and the separation of audit and consulting work.

21:39David Leary: It's the biggest thing since Enron. And he's writing this piece in response to the PCOB asking for comment on whether it should pursue AI-related research and standard setting. And Castingay is saying that the board should already be doing this. They don't need to ask. I think that's actually really funny that the PCOB is wasting time asking whether or not it should do this. Like talk about bureaucracy, right? It's like, don't ask whether you should do it, just go do it. That's your job.

22:07Blake Oliver: Especially when it's something this obvious, right?

22:09David Leary: Yes. They've got an inspections modernization council that they've put together. And And Castengay is saying that what the PCOB is doing right now is going to be insufficient because they are taking existing standards and applying them to a fundamentally new operating model. So, for example, if an AI hallucinates audit evidence or if auditors fail to review and supervise AI agents, they're gathering and analyzing evidence, what happens to that audit report? AI-related audit failure may have already occurred. And that goes back to that PCOB inspection finding. Maybe the way the PCOB is inspecting these audits is not going to find AI hallucinations because it's not designed for it.

23:05David Leary: Their whole process...

23:07Blake Oliver: It's going to test. So it's really checking all the box ticking. It's not stepping back and looking at the bigger picture of the audit.

23:15David Leary: And if we just look at how audits are conducted right now, it doesn't make sense in the new world. Sampling. Let's take sampling as an example. I mentioned that 30 % of auditors are now using AI for some kind of testing. And when you do testing, you do sampling. meaning that you grab a smaller selection of the whole population because you in the past you couldn't test the whole population you couldn't check every invoice i mean that's what the pcob

23:44Blake Oliver: does they only check you know 60 of bdo's audits right they only sample a portion right yeah so

23:52David Leary: traditional standards emphasize sampling because we could only do a we could only look at a small fraction of a large company's revenue or expense transaction historically speaking physically that's all that could be done it was just impossible but now with ai now with ai we can do it for every transaction across billions of dollars so you we could have 100 visibility when we do that audit and the standards are not built for that so the question is how often and to what extent does a human auditor have to remain in the loop when an AI can process the full population? Because if the standards now require that an auditor is in the loop, it doesn't matter if we can test everything with AI, we still have to have the human there and they're the bottleneck.

24:38David Leary: Here's an independence concern that the PCOB should consider from Jack. An AI-enabled ERP system could be audited using an AI platform trained on the same underlying data, potentially compromising output validity without the auditor recognizing the conflict. So you've got an AI ERP audited with an AI platform. They are both trained on the same data. That's like an independence conflict, right? That's like if the same person was creating the financial accounting system and auditing it. That shouldn't be the case, right? The two minds, the minds have to be different, right and they have to have otherwise you have like you're you're auditing yourself here's a hypothetical risk an ai agent conceals a subsequently discovered error to avoid being

25:29Blake Oliver: recoded or just or just fix changes the data like oh this is wrong and just changes to what i think

25:37David Leary: it should be so jack is saying that we shouldn't restrict these ai tools but the pcobs should establish standards for acceptable use human oversight evidence reliability agent supervision and independence while supporting innovation?

25:53Blake Oliver: So since we're talking about all this public company stuff, SEC's proposal to not do quarterly reporting anymore. Switch to biannual? To switch to biannual or semi-annual updates. Semi-annual. They opened this up in August and they've had public comments. 225 ,000 public comments about this. And they range all over the place from we support it, no internal systems won't change. There's audit quality concerns. But if you really step back and think about it, it's a massive amount of comments. We only have 4 ,000 or so public companies and each company probably has what? One CFO and one CEO. In theory, that would be two comments per company.

26:36Blake Oliver: They got 60 comments on average per public company. And so it makes me wonder, you had a story last week or the week before that the IRS was getting flooded with fake AI bot comments. Did this happen again with this? But then I'm also like stepping back. How many did you say it was? 250 ,000 comments.

26:55David Leary: Okay. So I just have to throw this in here because you brought this up. So the PCOB asked for comments on what they should be working on, what we were just talking about, right? And this is Adrian Gonzalez reported this in Going Concern. apparently during that comment period pcov only got 33 which is probably more realistic i think

27:17Blake Oliver: that's probably realistic like how 225 000 comments about quarterly reporting like nobody's

27:23David Leary: even paying attention to this well but but maybe it's realistic and i mean maybe some of those could be ai generated right but there's a lot of investors in the world yeah and they investors i mean this is this is really going to affect them right because if you are a diligent investor if a day trader if you if you just do this for fun if you're a professional those quarterly reports are what you rely on that's that's all day trader no i mean if you're doing it the right way if you know if you're like warren buffett you know and actually reading the financials if you're not we're not talking about like the the gambling on the um robin hood and all that stuff right and options so like that's really important to them so but you know just for perspective of how many people care about audits?

28:09David Leary: Only 33 comment letters were received. Received, yeah.

28:14Blake Oliver: So I'm glad you brought up how Jack thinks we have to change, right? And that's kind of in my head that I put a comment on this to myself. I said, in theory, right, because of AI and technology, we're headed to a never close or an instant close, correct?

28:30David Leary: Continuous close, perhaps. Continuous close, right?

28:32Blake Oliver: So then if we, following that logic, in theory, could we get to the point where we have automated instant daily reporting?

28:39David Leary: Why not?

28:40Blake Oliver: So then we have 250 ,000 public comments arguing about something that may not even matter in three to five years. Shouldn't the discussion be, we should just skip this? Should we get rid of quarterly and be like, should we move to daily? We should just jump right in because that's what's -

28:55David Leary: The accountants don't need to sleep. Code the transactions during the day and then do your reporting at night. Perfect. Yeah.

29:08Blake Oliver: It's an overwhelming amount of opinions on this, public comments. How do they even go through all that? They have to use, obviously, AI to sort these and rank them.

29:18David Leary: So Tether got an audit, David.

29:21Blake Oliver: Oh, finally. Yeah.

29:24David Leary: They're saying they did anyway. Let's see. Where is it here? Why don't I see it on my list? You've got the story up? I have the story here. Okay.

29:31Blake Oliver: So after years of dodging the issue, Tether finally got what the crypto world has been demanding, a full audit from KPMG. And now let's go back in history a little bit. If you remember that Tether settled with the New York State Attorney General's office in 2021 because of allegations that are lying about the reserves, reserves and commingling funds. And they also paid a$42 million fine to the CFTC. Sorry, I don't know what government department it is, if that's even US-based.

30:06David Leary: It is.

30:07Blake Oliver: It is. Okay. But see, what's happening is they want to go public now.

30:13David Leary: Oh.

30:13Blake Oliver: If they want to go public at a$500 billion valuation, they need to get some real audits done. Now, what's weird is Tether used to claim that the big four firms were too scared of the reputational damage. because they can't actually audit these non-standard crypto rules and ledgers. So that's why they couldn't get audited. But now what they said, they announced the completion, but they haven't actually published the report.

30:42David Leary: They haven't published the audit report? Yeah. So Tether said they got an unqualified opinion for 2025, and KPMG US confirmed that they issued the unqualified opinion. but the auditor report has not been released. Why is this important? Because Tether is the world's largest stablecoin issuer and its tokens are used as a substitute for US dollars in crypto transactions, which are a huge part of the global economy now. And so the fact that they got in trouble because they were apparently not maintaining the reserves that they said they were is a big deal because that would be like a bank not maintaining the reserves that it says it will.

31:34David Leary: And if your bank is, you know, if there's no money in the vault at the bank, that's going to create a run on the bank someday.

31:42Blake Oliver: Well, I think that happened with one of the crypto companies. There was, like, they're issuing more than they actually had in reserves. And that started all this in the mid-2021.

31:54David Leary: So Tether is trying to raise, or at least they previously were trying to raise as much as$20 billion at a$500 billion valuation. And the investors had balked because they hadn't been independently audited. So, hey, there, that's it. The investors wouldn't invest in Tether because they hadn't been independently audited. Somebody cares.

32:14Blake Oliver: And up to that point, it was always that, what do firms do for some easy income, but doesn't mean anything? The expectation reports or something?

32:22David Leary: Well, yeah, that's what Tether was doing was these quarterly attestation reports, which are, it sounded like to me, like agreed upon procedures engagements, but those are essentially useless reports because all the firm is doing is like one specific thing and like looking at the reserves at a specific point in time. And as we discussed on the show, as you said, David, like they could just be moving the money out and moving it back in. If you don't do a full audit, all that funny business could be going on very easily.

32:52Blake Oliver: And then what's happening is they were exploiting the big firms by trying to give, hey, look, I'm legit. We've been auditing. They were using the word we got audited by, and they would put the firm right up on the top of the website. So they were exploiting the firms never actually doing a real audit. So now they've done it, but if they don't publish the reports, did they really do it? Like they got to show it. So we'll probably be picking this up here. We'll look at it once the report comes out and see what it means.

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34:45David Leary: It helps them know that you heard about them on our show and it helps us. So thank you.

34:53Blake Oliver: What do you want to go next here?

34:55David Leary: I've got a story about real ways small firms are using AI. I always love actual examples. That was in the journal of accountancy. We spent all the

35:04Blake Oliver: first half of the show talking about the big firms and yeah let's talk about small small firms but

35:08David Leary: but first i want to do this uh ancient rome tax fraud story okay because you know it's like it's always nice when you can bring in a little history and accounting you know might be well you know they always say prostitution is the oldest profession right but it might be accounting honestly. So like they might share that hashtag in ancient Rome, hashtag accounting.

35:35Blake Oliver: Like forever, I'm an accountant. Hashtag accountant has just meant the same thing since forever.

35:40David Leary: Well, because remember we played that video that Basis made, which was so wonderful because it laid out the history of accounting. And like the beginning of writing was accounting. The very first writing we have is actually symbols put on clay tablets that indicate a count of grain or livestock. And then that morphed into the symbols that became letters and hieroglyphics and all that. And that's how language developed. So anyway, I love the history part. And the story here is that archaeologists in Western Turkey have discovered late antiquity stone tablets that were initially believed to contain funerary odes.

36:25David Leary: I guess for RIP on the tombstone kind of thing.

36:29Blake Oliver: Okay.

36:30David Leary: And instead, they realized that the inscriptions were missing details about a widespread tax fraud case that lasted more than a decade and implicated the estate of Placidia, the daughter of Emperor Valentinian III. So here's the scheme, the ancient fraud scheme. In or around 465 CE, tax officials in Western Asia Minor started issuing payment receipts without recording specific amounts collected. So these are the receipts that you would get when you paid your taxes to the tax collector.

37:08Blake Oliver: Okay, this is like when you go to the Goodwill and you donate something and they give you a receipt, but there's no numbers on it. You just fill it out yourself.

37:14David Leary: Well, these tax officials were issuing payment receipts for nothing. They weren't getting the taxes. They weren't collecting.

37:23Blake Oliver: They were issuing the receipts and not even collecting anything?

37:25David Leary: Well, they were collecting taxes, but they were issuing extra payment receipts for taxes they didn't collect. Why would they do that? It's because that allowed them to report lower totals to the Imperial Treasury in Constantinople, and they could pocket the difference. So they collect$100 in taxes, and then they say, well, payment receipts, right? So what would the payment receipts have been for? Anyway, it deducted...

37:56Blake Oliver: You just say, I only collected 70. Right.

37:59David Leary: So they're basically reporting that they collected less tax, or they're deducting some payments that would have reduced the amount that they owed to the treasury that they were supposed to have collected. And so then they're not remitting enough. It took 15 years for Rome to figure out how to handle this. And then in, I guess, in 480 CE, Praetorian Prefect Flavius Illus Poussais Dionysius Wait, I'm going to say that again. Flavius Illus Poussais Dionysius threatened to strip the estate from his special envoy if the envoy failed to resolve the corruption. And he also declared that anyone convicted of the tax scheme would be put to death.

38:45David Leary: Death for tax fraud. Why the severity? Well, if you think about it, what was imperial authority back during that time? It was basically pay your taxes, pay your tithe, pay your tribute to us, or we will come and destroy you with our army. So that was power, right? That was everything. If you didn't pay your taxes, you were denying the authority of Rome. There you go. That's the historical tax case there.

39:14Blake Oliver: I could talk about a current fraud if you want.

39:17David Leary: Let's do it. First, I want to read this comment from Tate in the YouTube live stream. Tate says, my clients are driving me nuts with AI-generated requests they can't afford. Everyone wants me to create a dashboard link to their CRM payroll, but they can't pay for it. It's frustrating. So they want you to use AI to do work. They don't want to pay you for it. Oh, yeah.

39:38Blake Oliver: Did you talk about the small firm's AI?

39:40David Leary: No, no. I have to do that. That's a reminder.

39:42Blake Oliver: This is perfect. It's Tate's small firm. Let's see how it works. Okay.

39:48David Leary: Real life ways small firms use AI. This was published in the Journal of Accountancy by Anita Dennis. and it profiles four firms with fewer 10 employees that are using AI to build real workflows, delivering faster tax research, an improvement in conversions on sales, cheaper client monitoring, more capacity without hiring. The four firms are One Stop CPA, Agate CPA, Public Trust CPA, and I was pleased to see High Rock Accounting owned by my friend Liz Mason, CPA. So what is One Stop CPA using it for? They're using it for faster, complex tax research. Brian Davis has a fully digital firm with four accountants and three non-accountants, and they serve doctors, real estate investors, and entrepreneurs.

40:39David Leary: They are using BlueJ for sighted source-backed tax analysis. Then they apply their own judgment and use ChatGPT Enterprise to organize research into memos, slides, roadmaps, infographics, meeting recaps, and PDFs. So for an M &A client changing states, the firm used that tech to develop an answer in two hours covering transaction and residency tax implications without increasing their workload. They keep reusable prompts in Google Docs templates, and that's it. That's pretty simple, right? But that's a pretty great result, two hours to give an answer on a complex M &A, multi-state question. Yeah, it adds up, right?

41:22David Leary: Agate CPA is a six-person firm, and they used Lovable to build a better website intake form and then Claude to help embed it after vendors struggled to deliver what the partners wanted. So if your website developer can't give you what you want, these days you can build it yourself, right? David, you've played around with tools like this.

41:43Blake Oliver: I mean, Xero is betting on this, that accountants are going to build tools for themselves and clients. And I believe that's the direction we're headed.

41:52David Leary: The responses on that website flow through APIs and automations into ClickUp so they can track it in that task management system. They say the project costs hardly any money and increased their conversion rate by about 25 % while reducing unproductive sales calls. Public Trust CPA. Sheryl Hannafin of Public Trust CPA used Microsoft Power Automate with assistance from Copilot and ChatGPT to improve invoice approvals for non-profit clients. Vendor invoices get sent to a dedicated email address, and that triggers an Adobe Sign approval request. Once approved, a QuickBooks bill is created and the sign documentation is attached to the bill in QuickBooks, producing a complete audit trail.

42:44David Leary: So for your nonprofit clients or any kind of client where you have to have like an actual sign off, an approval on a bill, you could, she did that with Adobe sign and a workflow. And the attachment -

42:58Blake Oliver: Which eliminates an entire app like approval match or something, right? You just -

43:02David Leary: And the best part is there's no new logins, subscriptions, software training. It's all just via email through a secure signing platform. It's brilliant. Last one, High Rock Accounting. They are an eight-person CAS, CFO, and tax advisory firm, and they used Claude and Claude Code to replace costly client satisfaction and net promoter score tools. Ashley Rodin, the COO there, built a customized app integrating with Carbon in four or five hours. It updates the active client list, requests feedback after major projects or monthly, depending on scores, and feeds results back into the firm's system.

43:42David Leary: So they are now getting client satisfaction scores automatically through the system every time there's a major project or monthly.

43:54Blake Oliver: So that's just part of their firm DNA constantly happening instead of, hey, we should survey our customers. And you do this project and you do it once and then a year later, maybe you do it again. Now it's just, this is part of their systems and processes.

44:06David Leary: iRock now holds an AI happy hour to identify repetitive tasks, workflow roadblocks, and software that the firm might replace itself. They are using a Claude team account to do this. One of their tax leaders, Susan Ozena, despite having no tech background, built a working onboarding and tax organizer prototype in a few hours using Claude and Claude code. Pretty neat. Real world examples. David, should we thank our last sponsor before we finish up? Yeah. And that is Cloud Accountant Staffing. I'll put up the banner here.

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45:50David Leary: Tino on YouTube says, I use Claude for government to help with research GAO findings, various federal acquisition regulations, and approving purchase order requests to ensure proper general ledger recording. Tate says that his clients are asking all these AI-generated questions, and from their angle, they are saying it's stuff I should be doing for them and insight they should get from their business. AI is not going to get rid of accountants. AI is increasing the expectations gap clients are expecting a lot right now. Tino says, totally agree. it's definitely requiring accountants to step up their game.

46:26David Leary: Yeah, I agree. And so going back to that EY story, EY has doubled the speed of their audits. I wonder if clients are going to start asking for more from them, or maybe it's just because audit is such a shoehorn thing that audit actually is going to be the best place to be in the sense that the fee gets fixed and the efficiency goes way, way up. And so now the margins are incredible.

46:53Blake Oliver: The margins are going to get better.

46:54David Leary: And the clients don't care because the audit fee is a percentage of, it's just a fixed kind of cost for them now.

47:00Blake Oliver: And there's not a lot of competition at the big four.

47:05David Leary: It's just big four, right? So there's not going to be price competition for them unless none of them

47:11Blake Oliver: are going to lower it. Like, why would they lower it?

47:13David Leary: Right. They all know each other too. They wouldn't do that. So it's like a cabal. But maybe the top 100 firms, like the 96 below, could eat some of their business by coming in at lower prices, but delivering the exact same product. And this has, I don't know, echoes of what happened in client accounting services and bookkeeping when firms like mine used the efficiencies that we got from cloud accounting to increase our margins and then lower our prices so that we were way more competitive than the bigger firms that were charging like 80, 90 bucks an hour for bookkeepers to key transactions into QuickBooks, right?

47:53David Leary: And we just crushed them. We just took their business, you know? And then they had to buy us in order to get our talent and technology. And I wonder if that could happen with audit. Like the regional firms eating the big firms business, and then the small firms eating the regional firms business. That's what technology allows.

48:13Blake Oliver: Yeah, it's disruption. So I think the disruption is coming.

48:17David Leary: But right now, the big four are really probably enjoying the profits they're going to see. I don't know. See what happens. Will the profits flow to the partners? Will it flow to the staff and the managers? Will the clients start to demand fee reductions? Where will this all end up? So I might have a story here that maybe indicates accounting AI is not even close to where we think it is yet.

48:44Blake Oliver: And it's a pretty big story. If you go back to, like, rewind, back in February 12th of 2019, episode 59 of this show, we broke the QuickBooks Live story. Remember they put up the little test. We were the first people to talk about QuickBooks Live.

49:01David Leary: Yeah, Intuit is going to be competing with accountants to do accounting services.

49:06Blake Oliver: Offering bookkeeping services.

49:08David Leary: Yeah.

49:08Blake Oliver: Well, they just killed QuickBooks Live. Well, I don't know if Quill is the right word. It's being shut down slash rebranded, modified into a new offering. The new offering is going to be referred to as Intuit Experts Bookkeeping. and they're changing up the offering from like some of it will be a setup. Some will be just like somebody you could talk to. But the thing that caught my eye is what's not included anymore. Invoicing, bill pay, inventory management, AR, AP, payroll, tax filing, or 1099 preparation. Wait, wait. What's left? Exactly. The business has to handle those themselves. Like you're just getting monthly cleanup and like, you know, an advisor.

49:52Blake Oliver: But I'm looking at that list of things that are not included, and I'm like, that's all the stuff AI is supposed to be doing in QuickBooks. So does this tell me, like, Intuit, like, the AI can't do these jobs? Because if it could do them, you would just roll them part of your QuickBooks Live service, right? You'd be really good at it.

50:12David Leary: It can do it, but it still needs a human to review it. And that's the expensive part. That's the expensive part. It can't be fully automated yet.

50:21Blake Oliver: so what i recommend is if you want to listen to an hour all about this rebrand or the death of quickbooks live the unofficial quickbooks accountants podcast episode 154 i'll put in the comments right now or the chat somebody can get to that they have a good uh coverage of it the whole

50:40David Leary: hour talking about it and episodes you can earn free cpe for listening to the unofficial quickbooks Accountants podcast, just like ours. Get the free Earmark app on the App Store. Search for Earmark CPE or go to earmark.app in your web browser. Sign up for free. Earn one free CPE per week. Subscribe for unlimited for the low price of$200 per year. It's the best deal in on-demand CPE where you actually learn something and you can do it anytime, anywhere. David, I'd like to close out with an instagram reel i saw all right i'll let you do that reel and then we also i caught

51:17Blake Oliver: up with valerie at onpay okay great you so we can play that video after your video perfect so this is from uh uh jakey cho in taiwan and it's a video about receipts and taxes and i think our i i think i think you'll enjoy this this is called the uniform invoice lottery and It wasn't designed just for fun. It was designed to stop businesses from hiding income and dodging taxes. So now, regular people become auditors. Everybody wants a receipt because this might hit. Think about that. A government that said, instead of chasing fraud, let's incentivize honesty and turn everyday life essentially into a scratch lotto.

52:04Blake Oliver: You know what I mean? Where buying tea or coffee could change your week. And maybe that's the bigger idea that sometimes systems don't work until you make people actually want to participate. You know what I mean? Yo, did you know that in Taiwan, the government basically turned every receipt into a lottery ticket? Like you buy a coffee or tea at a 7-Eleven or a small boutique coffee shop like the one behind me. And boom, this receipt right here could win you thousands, sometimes even millions in Taiwanese dollars. This is called the uniform invoice lottery.

52:42David Leary: And I started it in the middle, so that's why it looped back around. But yeah, every receipt is a lottery ticket in Taiwan.

52:51Blake Oliver: And they did that because businesses would not issue receipts because they would not record their sales. And then they wouldn't pay taxes. And this is the way for them to accomplish that.

53:01David Leary: And I love this because it employs psychology and the behavior of people to get the desired result as opposed to enforcement. So our method is not to require something like that. Our method is to hit businesses with audits and then audit them. So we're scaring them into reporting all of their revenue. In addition to, you know, hopefully people are ethical, right? But that's the enforcement mechanism. It's punishment. and audits but here they they create a system where everybody wants a receipt and you and when you scan the receipt to see if you won it sends the information to the government so the sale the record so like you said the individuals the people that become the auditors and that's what we need to think about when we design taxation systems auditing systems regulations is how can we do this in a way that's less about punishment and audits and more about incentivizing the right behavior?

54:02Blake Oliver: And it's super disruptive because I think like some countries are going to start doing like instant sales tax calculations and they want instant collections. And I think companies like Avalara are in that space a little bit. So basically when an invoice is created and sales tax is calculated, it instantly reports to the government and the these transactions pulled out. And so essentially, instead of having to get a third party out, third party company, the government can just have the citizens do this on their behalf by doing all the work. Now, is every receipt going to get scanned? Probably not, but there's almost zero investment to make this happen.

54:38Blake Oliver: It's just the citizens are doing it.

54:40David Leary: All right, David, let's hear from Valerie at OnPay. You talked with her and recorded us.

54:47Blake Oliver: OnPay's launching, they're launching their enhanced employee benefits experience. And I just said, Valerie, come on, tell us about it. Thank you so much for having me back. And congratulations, by the way, congratulations on 500 episodes. I think that I've probably listened to like 420 of those, maybe, maybe. I've been a listener for a long time. That's amazing. And I'm glad you're on because I want to personally thank OnPay for being a big part of our history. OnPay really enabled us to take that next step, go full time on this. And OnPay has been heavily involved in at least 450, 460, maybe 470 of these episodes.

55:31Blake Oliver: And let's talk about us in the accounting podcast, our 500th episode. I really want to talk about, I have a press release here. So OnPay recently launched enhanced employee benefits. What is that? like what is the enhanced employee benefits experience what does that mean it's if they get the press release a little broad but i want you to clarify for me what this is sure sure so uh for those who don't know on pay is a full service payroll an hr and benefits platform and uh we've had an in-house insurance team an in-house benefits team uh for a long time but a lot of what you did to work with them was happening over the phone happening through emails um we have enhanced the experience outside of the product.

56:13Blake Oliver: So if you are shopping for benefits, if you're utilizing benefits with us, or if you'd like us to be the benefits administrator, so say that you come to OnPay, you've got a plan already, and you want us to be the broker record, we can work with you. So we have that great expert team of licensed agents that can help you. I'm saying you, but it could be you or it could be your clients, of course, um probably your clients right uh we can help them shop for benefits and then do all of the pieces along the way for getting employees set up open enrollment etc so there's more tools inside of on pay you still get to work with our great team um and really continuing to enhance how we sync all of that with payroll and the administration over time um you've you've done a little bit of looking at our benefits.

57:06Blake Oliver: Yeah, we've started shopping, but I'm getting the old experience, which is I just get handed off to an email and everything's an email and a couple of Zoom calls and it's completely out of the app. Like there's no, I'm not clicking or doing anything in the app. So you're saying now you can start shopping, start that process, see your progress on that process all in the app. So the enhanced part is for the small businesses or the account sign up their clients. That's the enhanced part. But what about features? Like, is there new things for the employees or new benefits? So we work with top carriers.

57:39Blake Oliver: We can do a whole lot beyond just health benefits. So if clients have, you know, the need for different voluntary products, like, you know, life insurance and hospital and critical illness and all those types of things, we can help with that as well. So yeah, continuing to expand that out. So you're still getting that hands on support with us. But now there's even more that you can do kind of inside of the program itself. So is this additional fees? Is this part of a different tier? Great question. So what's awesome with OnPay is we are incredibly transparent about our pricing. So we have our base plan and then anything extra you do with us is an add-on.

58:18Blake Oliver: So you can add on our HR toolbox. You can add on benefits. You can add on time tracking. So the benefits admin, And what's awesome is that you're just paying the premiums. We don't charge you extra for the administration itself. And we don't have any employee limits for that. So there's a lot of payroll providers out there that got to have 20 employees or something for them to do that. We will work with employers of all sizes. So if I have smaller clients, five, six, seven people, I can still use OnPay to get health insurance for those clients. Because a lot of the brokers out there don't necessarily pay attention to the little guys, right?

58:56Blake Oliver: They're chasing after the deals that have hundreds of employees. Our team, we focus on very small businesses all the time. And we even will help them navigate some opportunities that might be available to them for cost savings, like special enrollment opportunities, different things that they can get through, maybe associations that they're involved with. So our team is used to really supporting the little guys and your bigger and midsize clients as well. So where does the accountant fit in this benefits workflow, I guess? Like payroll is obvious. Like my accountant is going to calculate payroll, make sure all my tax forms get done.

59:36Blake Oliver: Without OnPay, they would manually calculate the paychecks. They'd cut the paychecks. They'd file the 941s, 943s, et cetera, W-2s. Obviously OnPay is doing all that, but it still makes sense for the accountant to be involved in that process. But where, like, is the accountant just start this process, then hand it off to the small business owner and say, hey, finish it? Like, where do they fit in? I'm trying to understand that. Sure. Good news for you. We are doing a webinar at the end of August on Earmark on this very topic. I know you're asking outside of that. But yes, we're having a how to talk to your clients about benefits webinar and earmark, where our VP of insurance, who has been in the space for a really long time, is going to go through the different nuances of like what you can and cannot do as a if you're not a licensed broker in that in that setup, in that equation.

1:00:28Blake Oliver: The short story is I think that a lot of clients are looking towards their accountants for some places to be pointed to for this, especially if they've run into some of those experiences I was just talking about, right, where they don't feel like they're getting attention or they have opportunities or they're going to pay a ton of fees or something or they're getting pushed towards a PO or something that's out of budget. it. We can work with the accountant, bring them into those conversations. And then, of course, our team can handle the stuff that you really need to be a licensed agent to advise on and discuss with business owners.

1:01:04Blake Oliver: So pretty much, if I'm hearing things fairly, if you're big enough to justify having payroll on OnPay, you're big enough to possibly get health insurance and other benefits. Yeah. I mean, we can set up benefits if somebody's, you know, one employee, right? They can be very small. And it's a great, you know, small businesses aren't required to offer benefits. Right. There are some state mandates and things for retirement and other stuff, but like health benefits. Right. And but it can be it can be a really great way to attract and retain talent to show that you care for your employees. So, yes.

1:01:42Blake Oliver: And I think that that is an area that accountants can take a proactive approach to, at least saying, hey, you've got your payroll on on pay. You can check this out or the moving clients like, oh, we could switch them to be a broker of record and then they can handle the admin pieces without additional costs. So I think there's a couple of different lanes where accountants can enter the conversation for sure. So health insurance, obviously, vision. Yep. Vision, dental, life insurance, the various kind of add-ons to health insurance, right? Like there's cancer insurance, there's hospital insurance, there's like ambulance transportation.

1:02:22Blake Oliver: There's all sorts of things out there. Wellness programs, right? Like things that people can navigate. And then retirement plans, you guys are handling that stuff too? Yeah. So we have partnerships with Betterment and Vestwell for retirement. And then we've also got some options if you're using something outside of those two, you know, to be able to like transfer the funds and stuff. All right, enough about benefits. If people want to meet you face-to-face because you're one of our favorite people in the space, how do people meet the OnPay team? Where are you going to be the rest of the summer?

1:02:55Blake Oliver: Where are you going to be in the fall? You know, we're almost in like fall conference season. I mean, it's August right now, but it's getting close. I know, I know. It is getting close. Yes, I'm so excited that your audience might have the opportunity to meet us this year, please, please come and say hello to me and my team. Our next stop is ZeroCon in Denver this August, a couple of weeks from now. Depending on when you're listening to this, it might be right around the corner. And the pre-con is happening at ZeroCon with Ignition. There's a party before. So even if you're not going to ZeroCon, if you're in the Denver area, just look up Ignition, Pre-Con and come and hang with us.

1:03:38Blake Oliver: We're co-sponsors of that event. And then Zerocon itself should be great. We are also going on tour with the Advisory Amplified Tour. I'll be speaking at all six cities. And you should definitely check that out. It's a one-day event, hands-on, very workshop-style activities throughout the day to really work on a variety of things inside of your firm. So that's putting AI into action, building out advisory for teams, like figuring out how to help your team navigate that transition and a whole lot more. And I'm actually speaking on the kind of navigating and driving your team through change when it comes to software implementations and other types of changes you might be implementing in your firm.

1:04:29Blake Oliver: So that'll be a great tour. And that's going to be Raleigh, North Carolina, Nashville, Tennessee, Minneapolis, Boulder, Phoenix, and Seattle. So if you're in any of those cities, check out the Advisory Amplified Tour. And then the follow up to that. So we recently joined the Aprio Alliance. So we've got some folks on the team going to their big event for their firms in Dallas at the end of October, which happens to overlap with Intuit Connect. I'll be going to Intuit Connect. My teammates are going to go to the Apreal Alliance events. If you're part of the Alliance or you're thinking about joining one, check that out.

1:05:09Blake Oliver: And then Intuit Connect, we're doing the Ignition pre-con there as well. So come hang with us. And I will be around. I have one more question regarding more logistics of like mid-year setup versus first year setup. like if i want to move my clients obviously we just missed the july 1st quarter right so should i like try if i'm going to put move clients or transition from a different payroll system on pay should i be shooting for like a september 1st or does it matter could we do an october 1st rollout should i wait till january 1st like what how much lead up time do i need to prep a client for how does this you know what's the logistics on this is it something that's a snap of a finger and on pages handles it for me how does this work for me yeah yeah great question great question so uh So when you're switching payroll providers with OnPay, we do a ton of the heavy lifting.

1:06:00Blake Oliver: So we will put all of the payroll history for the year in, we'll get the employee profile set up, we'll give you the checklist of everything we need from you to do the tax setup and all of that is really handled by an onboarding coordinator with OnPay. So you can switch clients whenever you want. And we're going to do a lot of that work. Now, that being said, from a communication standpoint with your clients and with their employees and making sure that everybody's kind of on the same page of this, a lot of accountants and bookkeepers will tell you the end of a quarter is a good time to make a switch.

1:06:36Blake Oliver: Or some will say, no, no, no, never during the year, only January. I would say that that was true five years ago, 10 years ago, definitely um that you know waiting till january is probably the best time because you can do the line in the sand but we've gotten so much better at getting prior payroll history i've been working on payroll on and off since 2011 and it used to be a grind to get payroll history put into a software and make a switch and it was like multiple weeks to implement something now it can be a pretty quick turnaround depending on how frequently they run payroll and the timing like if you've got a client with weekly payroll, right?

1:07:14Blake Oliver: We'll work with you to figure out the timing, but typically it just takes a few business days to turn it around. I like saying, you know, give everybody a week, especially if the client is engaged and they're going to get you everything you need to facilitate that if you're going to be part of the transition. But yeah, you could switch them now. I mean, it's August, you know, only seven months of payroll, depending on the client, what they've got going on, it's not a big deal. People switch mid quarter or at quarter breaks all the time. In fact, I don't particularly love a January switch because people are out of the office for the holidays.

1:07:53Blake Oliver: And if you've got to get employees to go in and put their direct deposit info in and check things, it can be a real burden. Yeah. You almost want to roll it out and have them set up their employee profiles, make things ready. So you just run the first payroll on January 1. Right. But you have everything else done before the January 1. Yeah, yeah. So ideally, you time it out. But what inevitably happens is people wait, and then they're trying to do it. I remember talking to a friend of mine who was like, their, their employer didn't tell them that they were switching payroll providers, and they had to get their whole team to like enter, this wasn't an on pay, it was in a different payroll system, but like entering data, you know, on on Christmas Eve.

1:08:37Blake Oliver: And then they were concerned that if they didn't do something by a certain time, their first paycheck of the year would be late. Nobody wants that. You've got holiday credit card bills to pay, right? So I'd say, depending on the client, definitely think through the considerations of the timing, but know that if you're working with us, we've got your back for getting it all up and running. Sounds like a great plan. Hopefully, we'll cross paths and we can toast to 500 episodes. Yeah. And again, thank you, OnPay, for supporting us. It's been really a privilege and an honor in having you guys to support us.

1:09:12Blake Oliver: It's just made this dream come true for everybody. I mean, none of this happens without support from OnPay, ultimately.

1:09:19David Leary: All right, David, that's all the time we have for this week. Thanks to everyone who joined us live. If you haven't seen us live, go to YouTube, search for The Accounting Podcast, follow us, subscribe, hit that notification bell icon. Also go to earmark.app to get your free CPE for listening. Bye, everybody.

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