Tips to Roll Out AI In Your Firm, AI Squeezing Audit Fees

0:04Blake Oliver: A 39-year-old Connecticut OnlyFans creator just pled guilty to tax evasion after earning over$3 million between 2019 and 2022 without paying a dime to the IRS. Zithra Zim Orr from Stanford didn't just forget to file. She actively tried to hide her income by opening 19 different bank accounts and shuffling money between them.

0:27David Leary: Coming to you weekly from the OnPay Recording Studio.

0:34David Leary: Hey everyone, and welcome back to the Accounting Podcast, your weekly roundup of news in the profession. I'm Blake Oliver.

0:41Blake Oliver: I'm David Leary.

0:42David Leary: David, Halloween's coming up, just a little over a month away. You got your costume picked out yet?

0:49Blake Oliver: Yeah, I was thinking about being the only accountant who lost their job due to AI. I'm like, I'll dress up as like a unemployed accountant and blame AI for it. That'll be the only one.

1:01David Leary: Halloween spending is going to reach a 13.5 billion this year. It's like$115 a person. So that's your budget. That's your budget for your Halloween costume. Plus your candy. I wanted to, I'm trying to come up with some like good Halloween costume ideas. So I ran them through a Claude and it connected to Canva and gave me some. And I was actually pretty impressed at what it came up with. Let me show you now and our listeners here as well. Can you guess what this one is? This is the ghost of the 150 credit hours. That is so awesome.

1:36Blake Oliver: That is so good. But that is outstanding. That's so great.

1:41David Leary: This is an easy one, right? So it's just a white sheet, obviously, with the holes cut out for your eyes. And it says a little, you know, I actually don't know what is on here. Is that like a tombstone? Well, there's a sign that says the 150 credit hour. And then the ghost is holding a master of accountancy diploma. And yeah, so there's that one. We've also got this one here. This is the private equity CPA firm Flipper. so you know you dress up in a construction outfit with the hard hat and the flannel shirt and some some tools uh interestingly in this photo i just noticed it now he's holding a like a one of those construction hammers but also a uh a spatula he has a flipper he's flipping yeah and he's got a sign on that says uh cpa firm sold sold sold now 14 times ebitda That's great.

2:44David Leary: There's that one. Okay. And here's another one. This is the IRS skeleton crew. So skeleton outfit with an IRS, I don't know, like name tag. Name badge. Yeah. Name badge. And holding like an inbox, like one of those metal wire inboxes that says almost done with a stack of papers in it. And then this is actually a great double costume, right? a couple's costume. The other costume is the revenue agent. It's a robot made out of cardboard boxes. It says revenue agent beta. And it's got the old school, 1950s kind of like robot thing going on with the... I don't know how you describe it. Remember the Cylons from the original Battlestar Galactica?

3:33Blake Oliver: It's dryer tubing for the arms. Yeah.

3:36David Leary: Yeah. Yeah. Yeah. So those are some Halloween costume ideas for our listeners. Let me know if you come up with any good ones. I am looking for something to do at Intuit Connect coming up, which is always the week before Halloween. So there's always a costume party. It's fun to dress up. And if you're going to be at Intuit Connect, let us know as well. We'd love to meet up with you. We will be there. All right, David, we need to get into the news this week. You've got a story about like the AI bubble. I get a scary story.

4:09Blake Oliver: Yeah.

4:10David Leary: And you've got some tips for rolling out AI in your firm. Practical tips are always helpful. Mercury has launched a GL and an OnlyFans model who didn't pay$1.1 million in taxes. That might be the largest I've ever seen in terms of a tax bill that somebody didn't pay, just like an individual, right? Not a company.

4:34Blake Oliver: Yeah. And not like a billionaire. Not a billionaire.

4:37David Leary: Yeah, this is just, yeah. Well, she did make, what,$3 million, over$3 million. I've got a story about a new adjusted EBITDA metric. Those are always fun. And Christina Ho, the PCOB board member, who we have interviewed on the show about issues with audit and the PCOB, she's got a new AI audit startup and just signed her first audit report. That's cool. And I don't know if we're going to get into any more of it, so I won't tease stuff that we can't get to. So before all of that, David, let's thank our first sponsor.

5:13Blake Oliver: Yeah, so our sponsors today, we have Digits, Thomson Reuters, OnPay, and Cloud Accountant Staffing. Let's be honest, accounting software hasn't changed much in decades. The prices keep going up, but the software still expects you to do all the work. Digits is different. Digits is the world's first AI-native general ledger with built-in AI agents trained on your firm's standards across every client in your book. They code transactions, prepare schedules, reconcile accounts, run quality checks, even chase clients for open items. So your team moves out of prep into reviews, advisory, and the work that actually grows the firm.

5:47Blake Oliver: And because everything runs inside one platform, your ledger, reconciliation, schedules, reporting, bill pay, client collaboration, there's no more stitching six tools together just to close one client's books. Firms on Digits are reporting a 70 % gain and workflow efficiency, shipping annual cleanups in days instead of weeks, and running monthly bookkeeping in one to three hours per client. Accounting software that actually works for your firm. To see why hundreds of firms are making the switch to digits, head over to accountingpodcast.promo slash digits. That is accountingpodcast.promo forward slash D-I-G-I-T-S.

6:24David Leary: And please do use those links when you visit our sponsors' websites. It helps them know that you found them by listening to the podcast. And we really appreciate that. All right, David, let's talk about the AI bubble. Too big to fail, or no, too interconnected to fail.

6:39Blake Oliver: Too interconnected to fail. And I saw that headline and my brain instantly went to too big to fail. And what was that from?

6:46David Leary: That's from the Great Recession. The mortgage crisis. The mortgage crisis. 2027, 2028, right?

6:52Blake Oliver: And we've kind of talked about this before. We've made this comparison into the AI bubble and the interconnectedness of all these AI companies. Well, Sona Asset Management has just released a report, and there's a slide we can share. It's a little dim, but I'm going to still share it anyways. And it really shows the circular, I want to say circularity, but I don't know if that's the correct word. And so you have these companies, you have the hyperscalers, the model developers, chip suppliers, the Neo clouds, and they're all selling to each other. So what they did in this report, there's 255 public companies in the AI ecosystem now worth $50 trillion combined with$6 trillion in debt.

7:38Blake Oliver: And a lot of it is the revenues concentrated. So CoreWeave gets 67 % of its revenue from Microsoft. Applied Digital gets 56 % of its revenue from Oracle and CoreWeave. And so you start seeing this interconnectedness. And we've been stacking this and talking about this over the last couple of weeks, right? Microsoft has$80 billion in accounts receivable. So now the real numbers are coming out. But when I saw the headline, it really set in about 2007, 2008, the mortgage crisis. So I kind of went back to get a feel on the scale. So there were about$1 trillion in subprime mortgages of the$12 trillion U.S.

8:22Blake Oliver: mortgages at the time. So$1 trillion of$12 trillion. So now you have AI company debt is$6 trillion, and half of that debt is circular. $3.6 trillion is interconnected.

8:38David Leary: 3.6 over half of all that debt. So it's about what, half, you said it was 12 trillion in mortgage? Yeah. So that was about just under 10 % was in subprime mortgages. Okay. So you said one out of 12 in this? Okay. Just under 10%. And in this case, we now have, it's like half the total value, but more than half of that is interconnected?

9:06Blake Oliver: Interconnected. Oh, wow.

9:07David Leary: This could be worse than I thought.

9:09Blake Oliver: Yeah. So if you think about how a trillion took out Lehman, just a trillion, and that required government intervention, caused a recession, right? And I see this article and it makes me start thinking like, are we being primed and trained for a government bailout here? And let's step back and let's just, let's pretend they don't all collapse. We don't have the worst case scenario, right? Let's say all they do is pull back on data center construction. right so they pull back on data center construction or maybe worse than that they don't pay

9:40David Leary: construction companies or contractors okay this is going to quickly spread across construction

9:47Blake Oliver: firms electricians hvacq hvac equipment suppliers truckers right they're going to be stuck with unpaid bills construction companies and that's essentially what happened with 2008 construction companies took it first and then it rippled through the economy now we have a very specific example tied to data centers though. Boot, are you familiar with Boot Barn? There's got to be some in Phoenix, right?

10:11David Leary: I've never worn anything other than hiking boots. I've never gone to Boot Barn.

10:16Blake Oliver: So Boot Barn has cowboy boots, but they also have construction boots and they have a commercial construction division for construction clothes. They are tracking data center builds around the country and changing their inventory selection based on, in the stores, based on the ones located to where data centers are being built. And they said that their bulk orders are up from employers that are building data centers, so construction companies. But now, think about this. So now if construction jobs go away, less boots get sold, all this expansion Boot Barn's doing, they're going to owe money. That's going to collapse, but it's worse than that.

10:52Blake Oliver: So I went out to Boot Barn's website and I was looking at their construction shoes. A third to a half, Blake, are made in the USA. So now boot barn, money dries up from the construction companies paying boot barn. Boot barn's money dries up. They can't pay the manufacturers of these boots. U.S. manufacturing jobs, basically boot manufacturing people, are going to lose their jobs, right? And it gets even worse than this. As I saw another article that was in CPA Practice Advisor, and get this headline, 40 % of small businesses lack cash reserves to survive one month of client late payments. So imagine if they can't survive a month of late payments, imagine when no payments come in.

11:32Blake Oliver: We're going to see this domino happen. So then I've been thinking, you were not an accountant in 2008, right? You just graduated?

11:40David Leary: Yeah, I just graduated from college. I couldn't get a job as a musician.

11:45Blake Oliver: So I'm kind of thinking, what does this mean for accountants? I don't know, but I suspect accountants are kind of recession proofs because as the economy goes bad, the value of an accountant increases.

11:56David Leary: There's more need to track your costs, know your numbers, that sort of thing. And that's one of the reasons I got into accounting was because it was a recession proof profession. So today, if you slide your firm, is there room for a product or service that you could

12:13Blake Oliver: be selling your clients right now that's like get recession prep prepared services where there's a suite of things you could be helping our clients with right now today so that way hopefully you prevent them from going under when if this does pop because when this pops you can go all if it pops it's going to affect construction and construction affects everything else in the economy there's no doubt that this is happening i hadn't thought about this from the construction

12:37David Leary: standpoint because like i was thinking about this in terms of the great recession given the size of it. And the mortgage crisis, Great Recession, that impacted people because interest rates spiked, people couldn't afford now the adjustable rate loans that they had, the payments. And so then they had to default on their homes and home prices dropped and people felt poor. And they lost all the equity in their homes and all that stuff. So that really affected the broad economy. It wasn't just like a financial crisis. It became a broad job market economic crisis. It just wasn't the banks,

13:15Blake Oliver: and it's not just gonna be the AI companies. It's gonna ripple through. And then the other crazy thing, I don't know if you saw it, mortgage rates are like all-time highs, 18-year highs right now. So people who are recently buying a house, if they lose their job, so some town's building a data center, construction people move there, they buy houses, they lose their jobs, they don't get paid, these mortgages don't be paid. Like we are, it's very, very slippery, the track we're on here. But I think accountants need to figure out how do you capitalize on this because you're going to be more valuable.

13:47David Leary: I like that. Recession proof your business package of advisory and consulting services. David, you should be in marketing at an accounting firm. Like you should be, you'd be crushing it.

13:58Blake Oliver: There's opportunities everywhere. We just have to stop and like, look at these. I think it's – but, yeah, really, like, what went off for me is when I went to Boot Barn's website and I saw all the boots that were made in the United States, I was like, this is not good. This is a real dilemma.

14:14David Leary: Well, you know, one of the ways to spot a bubble coming or a bubble popping that's a coming bubble pop, one way to spot that is when companies start reporting adjusted earnings numbers, non-GAAP metrics related to whatever it is. And we just got a new one. It's an adjustment to EBITDA for AI savings from a French property company. They added 20 million euros to EBITDA for AI savings that haven't materialized yet. The company's called Amiria SASU, S-A-S-U, and they booked estimated efficiency gains from an agentic AI rollout expected over the next two years, and they counted them in their last 12-month earnings.

15:04David Leary: And of course, anyone who saw this, the investors who are knowledgeable, thought this was ridiculous. Bloomberg wrote a story about it. Why does this matter? Because Emeria is sitting on roughly 3.5 billion euros of debt with maturities coming due. Its leverage is about 8.44 times. And if you strip out the AI adjustment and a few other items worth about 40 million euros, their leverage is like closer to 9.3. And I'm curious if we're going to see more of this, more companies that are trying to strip out their AI investment from earnings using adjusted metrics or add back to earnings, right? Using adjusted metrics so that they can look better on paper.

15:58Blake Oliver: I thought I saw an article fly by through LinkedIn that OpenAI is pulling something like this. They've reinvented EBITDA to kind of their own version. The AI companies are reinventing accounting, if that makes any sense. They're making their own rules.

16:15David Leary: During COVID, we had a trend like this. It was called EBITDA, right? EBITDA with a C at the end, and that was adding back earnings supposedly lost due to COVID. Oh, yeah. That's right.

16:25Blake Oliver: I forgot about that.

16:29David Leary: So anyway, what do you think about that? We'll let our listeners decide. I'll go ahead and thank our next sponsor, David, and you can get ready with your next story. If your tax workflow still feels... No, wait, that's the wrong one. Isn't? No, it is. If your tax workflow still feels like a grind every busy season, you're not alone. We hear from firm owners every week who are buried under disconnected systems, manual data entry, and staff stretched way past their limits. But it doesn't have to be that way. Thomson Reuters built the tax automation suite to solve exactly this headache. It connects SafeSend, SurePrep, and UltraTax CS into a single ecosystem that covers every step with true end-to-end automation, from gathering a client's documents to final delivery.

17:16David Leary: We're talking up to 65 % fewer clicks per return. That is going to really help your finger out. AI-powered data extraction that saves 90 minutes per return, a 58 % increase in capacity with current headcount, and a 55 % improvement in profitability because those time savings go straight to your bottom line. This isn't some patchwork of tools bolted together. It's a purpose-built suite where data flows automatically between every stage. That means no rekeying, no bottlenecks, and no back and forth with clients. Firms using it aren't having to bring on additional staff during peak season while still growing revenue.

17:52David Leary: That's the power of real automation. To see why tax professionals across the country are making the switch to Thomson Reuters, head over to accountingpodcast.promo slash taxautomation. Accountingpodcast.promo forward slash taxautomation.

18:09Blake Oliver: So Blake, before my career, when I was into it those last six years or so, we ran hackathons. Are you familiar with what a hackathon is?

18:18David Leary: Yeah, a bunch of developers get into a room together and lock the doors and bring in lots of snacks and try to build something in like a weekend.

18:27Blake Oliver: Yeah, exactly. So, and I've been on all parts of this, running them and seeing them, commuting in them. And I love it because you really get to go heads down and just build something. And you don't have email. You're not, you know, meetings. You're not building slide decks. You're just building something.

18:41David Leary: And then you present it, right, to the group at the end. And there's like a vote as to like who wins. Yeah, they're kind of a competition.

18:47Blake Oliver: Yeah. So I saw an article in Accounting Web where a firm basically did this. They called it an SOP marathon. So they shut down their firm for only a half a day, but then every department did nothing that day, that half a day, but document their processes. And they did it in a structured format instead of just like, here's an empty document and just start filling it in. So there was a little bit of a plan, but I love the idea of that because we've talked about this. When you want to roll out AI, you have to document. Then you kind of start to embed the documentation into the systems. And then you automate.

19:27Blake Oliver: Then you apply AI. You can't just start applying AI.

19:30David Leary: You can't? Why not?

19:32Blake Oliver: Well, you're going to automate bad processes or undocumented processes, which is even worse.

19:37David Leary: Oh, yeah. Then the AI makes up the process. It doesn't always do the best job. Now, this article is a little bit of a – it might be a sponsored post that was an accounting web, but there's a company called the Profit Pro.

19:49Blake Oliver: And they look like they're an accounting firm coaching company of some type. But if you go out to the article that's in the show notes, they have a link to a document that helps you structure this activity. And you could do this at your own firm. So I think it's just a really good way to jumpstart the documentation process before you try to do AI in your firm. And like you've said, this is the problem most firms have. They haven't documented any processes. None of them are documented. it. And then I saw another article that was in Accounting Today that is the three-phase roadmap for every accounting firm that you need.

20:25Blake Oliver: And so it should have phase zero, which is do the documentation stuff, have your SOP-a-thon. But phase one, you want to focus on quick wins. Can you automate an invoice? Can you create timesheet suggestions for fixes? Do small, fast wins. And then worry about your data, that fundamental foundation, make sure your data is correct. So it's not garbage in garbage out. You're moving data through your firm and then take a step back and then look at. With those wins, now you can help figure out like what is your capabilities and can you do predictive type services once you start winter, other all these layers are in.

21:03Blake Oliver: But I think ultimately the combination of these two articles do the SOP-a-thon. And I would argue is like after you do an SOP-a-thon two weeks later, a month later, do the hackathon where people build AI in your firm or doc, you know, start doing automations.

21:19David Leary: Oh, and I've got a tip just from our experience on how to do this SOP thing. It's incredible. So it is, you don't even have to do a hackathon. You just need to like schedule an hour a day. And all you do is you invite your team that's involved in a particular process, like pick a process that you want to like create the SOP for, create the standard process for, right? Invite anyone involved in that to a meeting. record it. Teams, Zoom, Google Meet, whatever. Record it and turn on the transcription feature. So you've got both the video and the transcript going. And then just ask the team to walk you through in detail exactly how they currently do the process.

22:05David Leary: And you're recording that, you're transcribing it. You can take that transcript and you can drop that into like Claude Cowork, and it will create the SOP as your team presented it. And then you can simply ask, how can we improve this? How can we streamline this process? And Opus 5.5, that's what we got right now. It just came out like a couple of days ago. It will do an incredible job. And then you can ask it to actually build the documentation as it should be. And then you can even ask it to build a workflow in whatever software that you're using if it connects to Claude. So here's the example that we did.

22:47David Leary: So our producer, Zach, he creates short clips from each of our episodes that go out on TikTok and Instagram. If you follow us there, you may have seen them. It's these vertical clips that are like a minute long. and creating those by hand manually in a human way has taken a long time and it's a lot of steps and we never really had a documented process for doing this so it was hard because we had to teach somebody you know and we had to hire like contractors to do this and the quality was always different and whatnot and there's a lot of different moving pieces because our process before

23:26Blake Oliver: just had create the clips and it was like a one-step process exactly it's like do the tax return

23:31David Leary: Yeah, and it got documented because it's like such an art to do the clips. And there's so many steps, right? So we just never did it. And so I felt like we could do this now. So we basically just got together and we worked through it. And then we use ProcessStreet for our standard repeatable workflows. And so what I did is I connected Claude to ProcessStreet. There's now an MCP connector. So Cloud can actually work in Process Street directly, not through Chrome, as if it's a human, like me. It can do everything. And it can create workflow templates. It can update them. It can modify them. It can do all that stuff.

24:12David Leary: And basically, it took our old workflow, and based on what we discussed, it built out the standardized process. And it can also connect AI tools into Process Street to automate stuff that we want to automate that a human is doing, pieces of the workflow. So even if the whole workflow can't be automated, you can start automating little bits of it.

24:33Blake Oliver: And that's the piece I think firms miss. I think everybody tries to like, they look at this big thing and it's too much to handle. Like, how do I automate all this? Just document and automate one sentence, like one step, just one checkbox, right?

24:46David Leary: One checkbox, one task in the whole list. And and just start doing it more and more and more. And this was always so hard. You had to have somebody in your firm that specialized in this, and that was me. That was why I say this is the number one reason why I was able to grow a successful accounting firm with zero experience, is because I was just really good at technology and defining processes, and I've got that mindset. I run my life off of checklists because I can't remember anything. So, you know, like in my firm, I had to do it too because I just couldn't remember how to do stuff. So anyway, that is like so easy now.

25:24David Leary: And that was – anyway, that's just my tip for how I would do it.

25:26Blake Oliver: Yeah, because it's a lot of these tools like that, these process tools, these checklist tools, there's just a lot of clicking to set it up and add logic. And if this happens, show this step. If this doesn't happen, hide these six steps. And that's a lot of clicking and mistake prone.

25:40David Leary: And adding in all the documentation for actually how you do the thing is really tedious. But like Claude, it went into ProcessStreet and it added in all the steps, like what you need to do for the human part. So the human can go and read it and fill out all the forms and do everything. It just builds it. And it builds it in a fraction of the time.

26:01So give it a shot.

26:02David Leary: And you don't have to use something like ProcessStreet. I know that's unusual. You could use any of these like project management tools that connect to Claude or ChatGPT. I would just make sure that they have an MCP server. And if they do, and it's robust and it's got access to everything, I mean, basically, Claude can be like your COO. It can be like your accounting firm's like CTO slash COO role, which is so critical now. And it's really hard to find anybody who can do that. But you can do it.

26:37David Leary: So where do we go from here? That was your tips to roll out AI in your firm, David. let's talk about Christina Ho and her next act. This kind of ties in, right? Because Christina Ho is the PCOB board member who was actually the most critical board member. I think she was the only one, actually, whoever dissented at the PCOB. And she left recently and joined a startup called Oath Verified. It's a software platform and a licensed CPA firm. And she is helping them build its technology and underlying audit methodology. This startup is going to do AI-powered audits and sign off on them as a CPA firm.

27:19David Leary: And Christina Ho just signed her first report. She plans to sign an audit opinion later this month and is going to serve clients during this audit season. So they have actually rolled it out. They're doing it. And they are redefining the audit model. Traditional audits, they'll test a small sample once a year. Ho says that Oath connects directly to client systems and can test 100 % of the data and verify records alongside the monthly close. So it can be a continuous audit that happens every month, not just once a year, which makes a ton of sense because what's the big problem with audit from like a business standpoint?

28:05David Leary: it's that all this work has to happen in just a few months or sometimes even a few weeks every year and it's the workload compression that makes the job painful of an auditor but if you can spread that out over the whole year and use tech to do the sampling and auditing i mean it kind of sounds like a dream i mean i might want to start an audit firm i could just be me you know me and like a bunch of ai bots but the real money is in those fake

28:32Blake Oliver: audits, you know, that's where the real money is.

28:35David Leary: Well, no, I mean, then you can do real audits, but like with the team of a fake auditor, right? You can be a BF Borgers, but actually do a real audit. It's a very profitable, fake audits are very profitable. AI powered audits may be a little less profitable, but Hey, you know, you're not going to get your license. You're not going to go to jail, get your, well, none of them go to jail. That's the sad part. They all just get slaps on the wrist. But anyway, I digress. So yes, audit firms, watch out. You are in trouble if you don't modernize because the AI-powered audit startups, they're coming for financial audits.

29:14David Leary: And I think it's going to be huge. And I've got a little follow-up story about that, or a related story. I spotted this in Financial Times, and the headline is, AI sounds the death knell for audit fee inflation. So audit bills have typically risen 4 % to 5 % annually. They slowed down last year and increased by less than 2%, roughly matching inflation. For years prior to this, we've had steep increases due to tighter regulation, firms passing along the cost of repairing quality controls after audit scandals.

29:55Blake Oliver: Well, it's margin, right? It's just, hey, raise the price every year and keep your margins increasing every year and beat the last year. And that's an easy way to do it, keep raising the price.

30:03David Leary: Yeah, they could justify it, right? Because there's more regulation, more to deal with. The economy's growing. You can outpace inflation and also not enough CPAs. There's no competition. Not enough competition, right? Here's an example of that. This is a Financial Times article. So they're talking about London and UK companies here. Fees paid by top 100 London listed companies rose 75 % in the five years through 2023. 75%, right? In five years. So it's stacked up.

30:38Blake Oliver: Loosely, it's double. I mean, just say double. Basically, they've doubled.

30:45David Leary: Well, a little short of that, but yeah, 75 % more, right? 1.75x, right? And that is slowing down now. And why is that going to happen? I think it's going to happen because of startups or CPA firms, modern audit firms like what Christina Ho is working on, because most of audit work, where the bulk of the hours go, it has nothing to do with judgment and everything to do with following routine processes. David, just like the processes you were just talking about, the ones that are done basically the same every time, but there's a little tiny bit of judgment. And that's why you couldn't automate it with software that was based on rules.

31:32David Leary: But AI can handle those low judgment items and it can sample all the transactions. And so you combine that ability for it to analyze everything in a company, not just a tiny fraction, that overcomes the probabilistic nature of the AI. Because even though it's less reliable in theory than a human, it's sampling all the transactions. And so the ultimate end result is actually a higher quality audit as long as there is a human in the loop watching it and signing off.

32:07Blake Oliver: And so for firms that were hooked on those margins, your motivation now is to figure out how to decrease your cost by using technology and being more efficient and having better processes if you want to keep those margins. Because the option of raising prices is not there anymore. It's no longer on the table.

32:21David Leary: So I think it's going to be an audit, the same thing that happened in client accounting services when I entered the market with my firm, you know, what, 15 years ago or something. it's that you had these traditional firms that were doing it with human bookkeepers like manually entering transactions i was able to cut the labor cost by a factor of five so i had you know uh i was able to take it down 20 and that's where most of your uh margin it gets eaten up right in an accounting firm it's labor and so if you can cut your labor cost the time do more with fewer people you can lower your prices significantly and you can still make more money.

33:05David Leary: And so those audit firms that embrace the tech and do more audits for less money with fewer people, just like I did with the accounting we were doing, you're going to be able to take significant market share from traditional firms. And it's going to put price pressure on those traditional firms. And I think that it will enable regional firms to compete with the big four for the first time for real. And I think that it will enable small firms to compete with the regional firms. And I think it will enable individual CPAs to actually run audit practices that compete with small firms. So it's going to push everyone to do better.

33:44David Leary: And actually, the solo CPA audit firm, that could be extremely, extremely lucrative.

33:52Blake Oliver: That's really an interesting concept.

33:56David Leary: because I'm thinking to myself, I could basically build an audit team. That's a bunch of sub agents that each has a particular role. I've got them plugged into some, uh, some software that like has a rigorous, you know, a methodology. I take the audit methodology and I build it all out into a checklist and the agents are all plugged in. Like they are actual users in the software and they are working together to do the audit and they all have different roles. You just basically build that human team, but as AI agents. And then I'm overseeing them. They're asking me questions. I'm the partner on the engagement.

34:36David Leary: And my gut tells me that based on where we are now with like Opus 5.5 or whatever the ChatGPT one is, Terra, I forget what it is. We're at the point now where it's good enough where you could do that. and I could be like signing an audit opinion like every week and be doing a very little work like just checking in you know an hour or two a day or something like that like a partner to send your emails but yeah well you know it's like I could work as much as I want and sign as many audit opinions as I want and if I got enough insurance and I was confident enough in the system that I'm overseeing, I mean, you know, that could be generating basically the same amount of revenue as like a small audit firm.

35:25David Leary: So it could be like millions. So who loses in this model?

35:27Blake Oliver: Like the big four partners, the big four, because they're going to lose business and then that's going to affect them. Because obviously you're just redistributing the pie of what's spent on audit across different size firms.

35:43David Leary: So there's going to be more demand potentially, because when you lower the cost, there's more demand at the lower end, right?

35:50Blake Oliver: So I, I, you got to explain to me, because maybe I just don't even understand how it works. I thought audit, like, it's just, you have to do it. It's not, I don't have the option not to do all of it.

35:59David Leary: Like it's, it's well, at the low end, it's the same, right? Well, at the low end, it's like, um, a lot of companies won't get a, won't get an audit because it would help if they did, right? To get financing, to get...

36:12Blake Oliver: Oh, okay. Gotcha, gotcha, okay.

36:13David Leary: And then they do a compilation instead or whatever. They do whatever they have to do either to... It's for investors, right? It's either because you want to raise money and you need to get investors and a bank is not going to give you money without some sort of audit-related thing, right? A compilation, an audit, whatever. Or maybe it's because, oh, you have investors now and you have to do the audit. But let's set that aside, right? Let's just say the market is fixed. The big four, they are so big because these, you know, global companies are so large and have so many entities. It just takes a massive workforce to do those audits.

36:55David Leary: That probably won't change. They've got that, like, wrapped up, right? That's still going to be a people problem. And it's also a relationship thing. the regional firms so the ones that are you know auditing mid-sized businesses you know maybe like a business with like i don't know a thousand employees or something like that you know a few thousand um a hundred few hundred to few thousand those audits i think could then be done by a smaller firm leveraging tech so that's going to put pressure on those firms and then same thing with the small firms, a few dozen, a handful of partners, a few dozen employees, that sort of thing.

37:40David Leary: I think a much smaller firm, an individual CPA could take audit work from them, potentially, that they couldn't do before. I mean, I don't know if there are any, I don't know how many audit firms there are, where it's just like one CPA. But that's where I think the growth opportunity would be. Because previously doing that, we were very limited in what you could do, because you had to do all of the fieldwork yourself, all the sampling yourself, right?

38:02Blake Oliver: You need a team of employees. You had no choice.

38:04David Leary: You need a team of employees to do it. And now you potentially don't need that. Or maybe you just need some administrative staff that can help the bots do the human stuff that the bots can't do. This is not just hype. I really believe that this could be done. I mean, I guess Christina Ho kind of is proving it, right? Like she's doing it. She's an expert. So basically it's the same thing. The same thing that happened in client accounting services is going to happen in audit when it comes to the financial impact of tech. It just never happened before because the tech that helped turbocharge client accounting services didn't really apply to audit.

38:41David Leary: And now it does actually even more because it's funny how everyone's saying like AI does not replace professional judgment, but it kind of does. I mean, that's really what it does, right? AI is actually really good at making judgments. as long as all the criteria and the process is laid out for how to do it. And it makes sense because cloud accounting really made

39:12Blake Oliver: CAS bookkeeping 90 % more efficient than it used to be. So AI is only going to make a teeny bump on CAS at this point. But audit, which basically has had no innovation for God knows when, the benefit, it's just going to be such a change. It's going to basically feel like what happened to cloud accounting. Yeah. It's going to feel the same way.

39:31David Leary: And that was, what an enormous opportunity that was, right? We have friends that over the last, you know, 10, 20 years grew practices from essentially zero to valued at a hundred million dollars or more. That has happened. That could, you could do that. Like if you started now, you could build that a hundred million dollar exit and you could do it in like 10, 20 years.

39:58Blake Oliver: All the cloud accountants. As an audit firm. All you needed was an internet connection and a Starbucks and a laptop. Yeah. And you could start a cash practice. But now you're saying you could do the same for an audit practice now.

40:10David Leary: And I think you could get to a million in five years. And I think you could potentially get to 10 million in between five and 15. Imagine that, right? Like those are, those are like the type of exits that you would not normally get from starting an accounting firm. It would be way slower. Okay. I've talked enough about this.

40:30Blake Oliver: I encourage our listeners to do it. I do not encourage you to do it big.

40:35David Leary: David, I really want to.

40:36Blake Oliver: Don't leave me and start an audit firm. Do you want to read the next ad? Actually, we'll back to back them. If you read the on pay ad, I'll read the next ad after that.

40:45David Leary: You got it. Are you tired of the payroll headaches getting in the way of the client experience you want to deliver? Manual workflows creating bottlenecks,

40:53Blake Oliver: compliance nightmares, and endless support calls that go nowhere?

40:56David Leary: There's a better way for your team and your clients. OnPay is the payroll partner that accountants and bookkeepers actually love, including me. 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. OnPay 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.

41:32David Leary: Farms, restaurants, non-profits, you name it. OnPay can handle unique requirements without adding complexity. OnPay, they keep pricing simple too. Everything your clients expect from multi-state filing to off-cycle pay runs is included. There's no hidden fees and no surprises. To book a demo, Go to accountingpodcast.promo.com. That's accountingpodcast.promo.com. Forward slash O-N-P-A-Y.

42:00Blake Oliver: Are you tired of the endless search for qualified accounting talent? You're not alone. Growing accounting firms are struggling to find available and affordable team members when they need them most. Cloud Accountant Staffing has a solution with the revolutionary candidate portal. Unlike traditional staffing agencies that waste your time with sales calls, paperwork, deposits, the Cloud Accountant Staffing 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.

42:37Blake Oliver: Their boutique support ensures you're getting quality talent that's both available and affordable, exactly what a growing firm needs. The Candidate Portal puts you in control. you can 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 10 minutes, head over to accountingpodcast.promo.cas. That is accountingpodcast.promo.cas.

43:04David Leary: A Tennessee farmer got a$20 ,000 refund from the IRS by mistake way back in 2022. He knew it wasn't his money. So he's an honest guy. He worked with his accountant and tried to give it back. And years later, he is still fighting the IRS over it. His name is Wilson Perry Kirby, 76 years old. And after he returned the money, it did not end. Instead, the IRS sent him notices and hit him with interest charges. They withheld his 2025 refund. In July, he got another notice demanding thousands in interest and warning about collections actions. He didn't make the mistake. His accountant didn't make the mistake.

43:49David Leary: The IRS accidentally mailed him a$20 ,000 check. He contacted government officials. He met with the IRS Taxpayer Advocate Service in Nashville. Still no fix. All he wants is one person assigned to the case who can actually end this. This was in CPA practice advisor. And I'm trying to figure out how this happened. I guess what they did is they sent him the$20 ,000. He tried to return it. They didn't credit his account properly. And now they're charging him interest on the$20 ,000 that they sent him.

44:17Blake Oliver: They think they paid him 20 grand. They have no record of getting it back.

44:23David Leary: Just an amazing example of when you try to do a good deed.

44:29Blake Oliver: Yeah, just cash the check and move on. Just keep the money. I have an IRS story. So a 39-year-old Connecticut OnlyFans creator just pled guilty to tax evasion after earning over$3 million between 2019 and 2022 without paying a dime to the IRS. Zithra Zim Orr from Stanford didn't just forget to file. She actively tried to hide her income by opening 19 different bank accounts and shuffling money between them. So she had 11 business accounts and eight personal and just kept moving the money around to obscure the income. And during that time, she got spent too much on rent, luxury vehicles,$110 ,000 in jewelry.

45:11Blake Oliver: I actually believe that the IRS is probably auditing luxury vehicle resellers and jewelry stores and working backwards on who they should audit from those types of purchases.

45:23David Leary: Oh, no, there's an even faster way to do it. They just monitor TikTok and Instagram.

45:28Blake Oliver: Oh, it didn't work from that direction. Okay, that's true.

45:30David Leary: Right? People go out.

45:31Blake Oliver: People brag about it. They brag about it.

45:32David Leary: They buy these things. And then you just trace them back to, oh, this person didn't file a tax return. I don't understand why people think that they can get away with this by just opening up multiple bank accounts. It's just so stupid.

45:44Blake Oliver: So 1.1 million is owed to the IRS and she must pay 476 ,000 in restitution with the final amount determined at sentencing. So she pled guilty. but the thing about this is this is going to get the headlines and the attention, right? And people should be like, hey, I got to pay taxes. But the real people that are owing the IRS tens of millions, where are those news articles? I've always felt like this with banks, right? If some schmuck walks into a bank with a gun and steals$2 ,200 at gunpoint, that's going to be all over the news. But if some hackers backdoor into a bank through a security gap, security gap and hack in online and steal$10 million.

46:30Blake Oliver: That will not be on the news because people will be deathly scared. It's like, so this girl's being made an example of, yes, you need to pay your taxes. This is crap that went on. But like, how about this, getting the people that owe$10 million, $100 million tax frauds, where are they pleading guilty? Where are those articles? Where's that coverage?

46:51David Leary: So I've been watching Narcos, David, for the first time. I never watched that show when it came out. Oh my God, it's so good. You ever see it?

46:58Blake Oliver: I've not watched it, but it's like Pablo.

47:00David Leary: It starts out, the first two seasons are about Pablo Escobar and the hunt for him. And it's like, you know, him and the DEA and Colombian military and the politicians, the whole story. It's incredible. And then the third season is about the Cali cartel. And, you know, just watching this, right i'm like thinking about uh especially in the third season i'm thinking about like the cali cartel uh you know because one thing that made them different than pablo escobar is you know he was a narco terrorist and a monster and like he was a really uh you know he bombed his own he bombed the people of colombia because when he didn't get what he wanted stuff like that cali cartel they were businessmen you know they were like respected in the community as long as you didn't cross them.

47:45David Leary: They weren't going to, you know, they weren't going to hurt you, right? Like they were, they were basically business people running an illegal business, but still operating like responsible business people. That's the closest, you know, compared to Pablo Escobar, let's just say, right? And I was thinking about this, like, okay, you know, if you are involved in that kind of crime, like, you know, you know, cocaine cartel or whatever, and you get caught, right you're going to go to jail for you know decades decades and if you are a financial fraudster and you're you're making similar kind of money let's say right you know those guys are making billions but let's say you know let's even it out right let's say you take a a a drug dealer who is uh you know making the same amount from their criminal activity as a financial fraudster who is making the same amount.

48:41David Leary: We punish that fraudster way, way less than the drug dealer. But if you think about it, it makes no sense because the fraudster is a thief. The fraudster is stealing money out of people's pockets. They are not contributing anything to the economy. Yeah, you could argue that drug dealers are meeting a demand that's in the marketplace. They're entrepreneurs. They happen to be running illegal businesses, but they're creating a product. They're selling it. People are buying it willingly. They're making jobs. And so arguably, we're business owners ourselves. We are the agents of business owners. We support the economy.

49:29David Leary: We underpin it all. Well, we should argue that basically we should be punishing, my argument is we should be punishing financial crime more than we punish drug crime.

49:41Blake Oliver: You have a TED Talk. I'd say work with ChatGPT, write this up. You have a TED Talk right here. This is, yes, I can see this being a TED Talk and people will clap for you and people in the audience who are probably doing financial crimes will pay thousands of dollars to see you speak at this ticket. Should we jump into app news?

50:02David Leary: Real quick, we've got a few minutes left. Let's talk about Mercury and this new GL. I really want to hear about that.

50:08Blake Oliver: Yeah, so Mercury launched what they're calling is Mercury Books. And then everybody claims they're first. It's the first AI-powered accounting software built directly into a banking platform. And so looking at their FAQs on this, well, first I Googled it. And obviously I might be the first person that Googled it because nobody at Mercury Googled it. If you Google Mercury Books, you know how Google Maps gives you like a hit on the side of a map of a business? Mercury Books is the adult entertainment store in San Diego, California. Did nobody like, nobody Googled this first before they named their product?

50:48Blake Oliver: So get over that. But I was looking at the FAQs. What is Mercury Books? Mercury Books is a full double entry accounting software built directly in your Mercury account. It automatically captures your banking, card, invoicing, and bill pay activity, categorizes it, and reconciles it in real time, gives you an always current view of where your business stands, no imports, exports, or manual entry. Does Mercury Books replace QuickBooks? Yes, Mercury Books is a complete accounting system, not an add-on or integration layer for another platform. If you currently are using QuickBooks or another accounting tool, Books is built to replace it, not sync with it.

51:22Blake Oliver: Do I need a Mercury account to use books? Yes, Mercury Books is only available to Mercury account holders. If you don't have an account, you can apply here, blah, blah, blah. How much does it cost? For the rest of 2026, it's free. That is not the Mercury Books, Blake.

51:36David Leary: Oh, yeah. I've got Mercury Books up here on the screen in San Diego. They've got 3.9 stars with 16 reviews. Oh, yeah, that's the wrong one. Sorry, David. That's the wrong one. I meant to put up this one here, this tab instead. There we go.

51:50Blake Oliver: And then it's going to be available for$35 a month. Apparently you can invite your bookkeeper accountant into this.

52:00Blake Oliver: Now, A, first off, my two cents, we kind of predicted this when they hired Ian Crosby, formerly of Bench, the Bench founder. He got hired at Mercury, what, 18 months ago? I don't even know if he's still there or not, but you knew that this was probably in their plans to build the GL. So I'm not surprised by this. But I'm not sure it's going to make a dent on anything. But let's just say Chase or Bank of America decide, hey, we want to buy Mercury. Now look at Chase or American Express, Bank of America, Chase, then Intuit has a real problem on its hands. Because now you have somebody, it's this massive company with massive reach pushing in the GL.

52:43David Leary: I don't understand why those big banks have not built some sort of general ledger product already. It makes no sense. They should totally do it.

52:52Blake Oliver: So I've been to, what's it called? FinCent. I've been to financial conferences for banks back in the day when I was at Intuit. And people have been building stuff like this, these products for personal finances and business finances for banks that embed and run on their own bank's website for decades. But I just don't think the banks get traction on this. And I think the main reason why, and this happened - It's because their websites suck. it's because some of it's their website sack but then also if you really think about these these traditional banks they are they're set up for consumer they really are they're not set up for business and if you think and we ran into this problem i remember i was at intuit they were going to have payroll be sold through bank of america and it just wouldn't get the legs it looked good on side decks but it never got the legs because if you think about a bank of america physical branch yeah you go in there and there's somebody kind of at that front front counter at the time, 45 people in a row are going to come in with problems and questions about their personal banking.

53:54Blake Oliver: Maybe one business owner might come in. So if you're the, if you're the employees of Bank of America, you're not going to pay attention to what business services you offer. And that's the ultimate problem. Like these, they, their focus is on consumer so much that obviously this is why Mercury and Relay, these companies exist because the big, the big banks don't focus on business at all. But American Express is interesting. If they gobbled them up, I could see American Express who has a decent small business focus wanting to offer a GL. That's where this guy kind of gets really, really interesting.

54:28David Leary: So$35 a month with unlimited accountant users, flat. I mean that's – I watched the video and I'm not super impressed.

54:38Blake Oliver: And what I mean by that, I think we're kind of at the point now with like Claude or Claude Cowork. I could just be like, access my bank account through the browser and go make me a P &L from last month's data. That's essentially what it's doing, but it's built into recruit. But I feel like AI out of the box could just do this now is my gut.

54:59David Leary: Well, you can build a GL, kind of like app pretty easily now. I think the issue is just like all the stuff that you need to do. with like so a lot of people like why do people buy quickbooks like what do they do with it what is that business and are actually doing with it on a day-to-day basis they are invoicing clients invoicing getting paid and then all the other stuff is the reporting you know that happens around that and the tracking you know that's not that you still have the mercury website open um i can get it mercury books mercury mercury books okay uh opening it up what do you have to

55:43Blake Oliver: say about that but if you but if you look at who mercury is targeting they're targeting startups biotech companies people that just have lots of cash and just spending right and i was thinking about this i was like do they do invoicing and i clicked around yeah they do invoicing and things like that but a real business i'm gonna say a real business a plumber a plumber that's gonna install a toilet. And that's like a build or an assembly. You need the toilet. You need the, the valve you're going to put in the wall, the pipe that goes from the wall to the toilet. You need the wax ring. You have to put on the ground before you mount the toilet.

56:15Blake Oliver: And you would have, and you just have an item in QuickBooks or whatever called toilet, install toilet. And all the parts and labor would be rolled up into that. I don't, that's, that's real business stuff. I don't think these, these companies can handle that kind of stuff. Like it's in its startup bookkeeping, bank feed bookkeeping. I have no income. I just have cash that I'm spending and you're tracking the spend.

56:37David Leary: David, you still haven't figured out your notifications on that new phone.

56:41Blake Oliver: We ran late. That was the problem there. We ran late, which is great. All right. Well, that's good. That's our sign that we need to

56:45David Leary: wrap it up. Thank you everyone who joined us live today. Follow the accounting podcast on YouTube. Subscribe, I should say, and hit that notification bell icon to get notified when we go live, you can then join us live. Earn free CPE for listening to this episode and our whole, almost our whole back catalog, including many other fine accounting and tax podcasts. Listen to an episode, take a quick quiz, get your CPE. You can do that at earmark.app, earmark.app in your web browser, or get the free earmark CPE app on the app store, create a free account, earn one CPE for free per week and upgrade to unlimited for the low price of $199.99 annually.

57:28David Leary: And do all your CPE listening to podcasts. David, I will see you around here back on Friday. Doing a double episode week to catch up. Thanks everyone. Bye.

57:48Blake Oliver: Time for the classifieds.

57:54Blake Oliver: Can you defend your client's Shopify margin number? ProfitRoot turns a Shopify orders export into a reconciled margin report. Every figure traces back to the source file. Every coverage gap is named and nothing is estimated to fill a hole. There's no sign up to try it. Walk the preloaded sample store or upload an export and the first report is free. Built for accountants and fractional CFOs. Try it at tryprofitroot.com.

58:24Blake Oliver: here's a chance to learn directly from the firms already leading the advisory shift and bring your whole team to do it advisory amplified is back this fall showing up in six cities raleigh nashville minneapolis boulder phoenix and seattle september 22nd through october 9th ga tickets are just 199 the whole day is cpe eligible and this is an event built for firm leaders and their teams to support them in transitioning to more profitable advisory work? Go to advisoryamplified.com to find your city and get your ticket today.

58:59Blake Oliver: Want to get the word out about your newsletter, webinar, party, Facebook group, podcast, ebook, job posting, or that fancy Excel macro you just created? Why not let the listeners of the Cloud Accounting Podcast know by running a classified ad? Hit the show notes for the link to get more info.

59:20you