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Blake and David examine the evolving landscape of remote work, discussing recent trends and their impact on productivity and employee well-being. They also explore the commercial real estate market's challenges due to the shift towards remote work and its potential implications for the banking sector. Moving on, they take a look at recent audit failures, particularly the FTX case and discuss the controversial Beneficial Ownership Information reporting requirements and some potential issues for small businesses.
Chapters
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Chapters
- (00:49) - Blake's Fitness Journey with Apple Watch
- (03:16) - Impact of Remote Work on Health and Productivity
- (06:25) - Amazon's Return to Office Policy
- (11:36) - CEO Perspectives on Remote Work
- (24:14) - Commercial Real Estate Crisis
- (28:07) - Accounting Standards and Bank Balance Sheets
- (31:25) - Listener Questions and Comments
- (45:06) - The Sunk Cost Fallacy in Real Estate
- (45:41) - The Looming Commercial Real Estate Bust
- (47:51) - The Role of Intangible Assets in Modern Accounting
- (51:24) - The CPA Journey: Is It Worth It?
- (52:09) - The Kenneth CPA Hack
- (01:01:54) - The BOI Reporting Controversy
Show Notes
How Remote Work Is Impacting Accounting Firms
2024 KPMG U.S. CEO Outlook Pulse Survey
Amazon tells employees to return to office five days a week
Wells Fargo employee found dead at her desk days after she last clocked into work, authorities say
Eric Schmidt Calls Remote Work a Mistake for Google in Disappearing Video
Audit Firm Prager Metis Settles SEC Charges for Negligence in FTX Audits and for Violating Auditor Independence Requirements
Beneficial Ownership Reporting Outreach and Education Toolkit
BOI requirements roll along despite concerns about too little outreach
Property Fraud Allegations Snowball as Commercial Real Estate Values Fall
Nearly a Quarter of Office Space in the U.S. Will Be Empty by 2026
Big Banks are Taking Hits from Commercial Real Estate
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Transcripts
The full transcript for this episode is available by clicking on the Transcript tab at the top of this page
Creators & Guests
What is The Accounting Podcast?
The Accounting Podcast (formerly the Cloud Accounting Podcast) is the world's #1 accounting, bookkeeping, and tax podcast! Join us weekly for a roundup of accounting news, analysis, and interviews. Plus, earn free NASBA-approved CPE credits for listening with the Earmark app. Learn more at https://earmarkcpe.com.
Attention: This is a machine-generated transcript. As such, there may be spelling, grammar, and accuracy errors throughout. Thank you for your understanding!
Blake Oliver: [00:00:04] 99% of accounting firms surveyed by CPA trendlines have adopted remote or hybrid work options. 99% and productivity levels have largely remained stable, with 59% of firms reporting unchanged productivity since the pandemic.
David Leary: [00:00:23] Coming to you weekly from the OnPay Recording Studio.
Blake Oliver: [00:00:29] Hello and welcome back to the Accounting Podcast, the number one podcast for accountants in the world. I'm Blake Oliver.
David Leary: [00:00:36] I'm David Leary Blake. I saw you posted on LinkedIn that you spent your whole weekend looking at all your iWatch data for the year.
Blake Oliver: [00:00:43] My, uh, my Apple Watch. Yes. Apple watch.
David Leary: [00:00:45] Okay.
Blake Oliver: [00:00:47] Uh, fruit watch, whatever you want to call it. Uh, as you know, as many of our listeners know, I've been on a fitness kick the last year. And so I took a look back at the last 12 months and I love my Apple Watch because it tracks like a crazy amount of data about my health, and I was able to compile that and analyze it, you know, like a good accountant does. And I noticed something really interesting. So over the last year, I lost my own post. Now I can't find it. Here it is. Over the last year, I was able to increase my daily exercise by 21 minutes per day, so I went from a little over an hour, 67 minutes to just under an hour and a half. And that small amount of time, 21 minutes per day, increased my active energy burn by 15%. Right? Uh, and my I lost 13% of my body weight, which is 22 pounds, so 31% increase in exercise led to a 15% increase in active calorie burn, which led to a 13% loss in body weight.
David Leary: [00:02:07] So what's 20 minutes out of 24 hour a day? It's under a third of a percent of the day, maybe.
Blake Oliver: [00:02:13] Don't ask me to do math on this show.
David Leary: [00:02:14] David. So so so.
Blake Oliver: [00:02:15] So, you know, that's like rule number one, no math on the show.
David Leary: [00:02:18] Let's just pretend it's 1 or 2%. So let's say you spent 2% of your of your day to get 15% increased results.
Blake Oliver: [00:02:25] Yeah. Right. And I feel like this is a lesson in business. And this is what accountants can do in businesses. If we measure the right things and we help a business marginally improve. Like you said, take a small percentage of the time in your day and do it on this productive activity. You can have big results. I basically had a 15%, you know, increase in, I don't know, like what would the what would be the accounting equivalent of the weight loss. It's like increase in shareholder value or retained earnings or something like that, right. It's a humongous change. So I posted about that. And I've also been seeing a lot of stories in the news about remote work and people getting called back to the office, and my fitness journey really started when I stopped commuting to the office. What was it 2015 2016? I was working at a large public accounting firm in Los Angeles. I was commuting 12 miles, but it took me an hour to an hour and a half, sometimes each way.
David Leary: [00:03:30] Still in.
Blake Oliver: [00:03:30] La? Yeah, I was in LA commuting down the 405, and I had this beautiful corner office. I could see Santa Monica beach, and I never went there. And I would spend, you know, 45 minutes to an hour and a half each way in traffic. And on average, it was probably something like an hour and a half, two hours a day. Right? Because I would try to leave early or leave late, that sort of thing. But thinking about this, I finally am in shape. I've really never been in great physical shape in my whole life. I ran a little bit in college. I lost some weight, but I was never like, you know, muscular. I never had that sort of, like feeling of being super fit where I like, felt good in my clothes, that sort of thing. And I've been able to do it, but only because I have that 90 minutes extra in my day that I'm not commuting anymore. So when I hear these stories about Amazon pulling everyone back to the office or accounting firms saying, you all got to go back to the office for five days a week, it makes me really sad because remote workers can use that time for a lot of things, but one of the best things you can use it for is just to be physically healthy and fit. And I feel like this is something that executives and managing partners don't understand because they don't have long commutes.
Blake Oliver: [00:04:55] They can afford to live close to the office, and so they also don't have to pay their workers for the commute time. So it's this cost that is borne by the workers, by the staff, and the executives don't have to pay for it, and they don't care or they're just not aware of it. Um, and that's really the number one reason why people don't want to go back to the office. You look at studies of why people want to work from home, and it's the commute. In a lot of cases, the average commute in this country is 30 minutes each way. But it gets worse in major metros in New York. The average commute is 40 minutes, and that includes people who live in the city. If you live out in the suburbs like I did, add 50% to 100% to that. So in a place like New York, you're probably commuting an hour to an hour and a half one way, Even if you're on the train. And then if you're in a city like LA, you know, it's not much better than that. Maybe, uh, an hour. Hour 15. Hour 30. So, like, this is meaningful amounts of time, right? And the news that I saw on remote work this week was Amazon pulling everybody back to the office five days a week. Did you see that? Like in.
David Leary: [00:06:15] January. Right.
Blake Oliver: [00:06:16] Yeah. They're announcing it now. And in January they're going to say you have to come back to the office. Uh, but I don't think that's going to really happen. And you know why? Because I was at a PTO event here in my neighborhood, and one of the moms works for Amazon. Works remotely because she has an exemption. So Amazon apparently has all these workers who have not even been going in part time to the office because they have full time remote work exemptions. And if you have one of these exemptions, you're not going to be pulled back into the office. And how do you get one of these exemptions? Well, you're a high performer, so the high performers are going to continue to work from home. And then anybody who's not a junior employees are going to get pulled back into the office and they're going to have to do these crazy commutes. You know, it makes me sad because, like, I believe there are definitely positive benefits to working in an office. But at a big company like that, you end up going into the office, as we've talked about on the show before, and you just end up sitting on zoom calls in your cubicle with other people in other offices. Right? You experience that, add into it.
David Leary: [00:07:20] Yeah. I would travel up to the Bay area, and you never want to go on a Friday because nobody be in the office or the campuses. Some of these companies are so big that walking to the next meeting, you don't have time. So you just jump into the zoom call because it takes too long to walk to the next building. Like, I kind of feel like what the motivation here is, is the theory, is it really to squeeze people out the non-performers? Because I just don't see bringing them in house, making them work in the office. It's going to increase their performance. Unless these are people that just they're not capable of working at home. They get distracted. They they turn on Netflix and they just can't get their work done. And for them, maybe being in the office is a more structured environment for them. But I just don't see it on the the mass scale. Yeah.
Blake Oliver: [00:08:05] I don't think this is really about productivity because studies are mixed on this. So even if we balance out all the studies, it's probably a net zero effect. People are about as productive as they are at home as they are in the office. The only difference is they don't have this commute. And so that that can't really be it, because Amazon is supposedly a data driven company. And John McBride on Twitter made an interesting post about this. He said he's a former AWS employee, Amazon Web Services. And his take is that it comes down to taxes and economics. So this could actually be a tax story, David. It's also might just be that Amazon overhired during the during Covid, like a lot of these tech companies, they just hired and hired and hired money was cheap, easy to do it. And now pulling people back to the office is just a way to get them to quit. So you don't have to do layoffs, which has been proven over.
David Leary: [00:09:04] A couple of companies have done this. Now, we've talked.
Blake Oliver: [00:09:05] About this in the past. Right. That's that's very that's very clear that companies are doing this. You don't have to pay severance. You know, it's better in the press. But why could Amazon be doing this. So this Twitter poster John McBride, he says that Amazon gets tax breaks for having offices. You know all over the country in these in in these metro areas. Right. And so they need people to keep coming into the office to get the tax breaks. And so if they don't have people coming back in, they will lose those tax breaks. And he says, basically, Amazon Web Services is really actually a very thin margin business. So that makes a difference. So that's his theory, and I wonder if that's true. I would love to know, like how significant these tax breaks are for having these physical offices. See because Amazon gets the benefit but the employees bear the cost of the commutes.
David Leary: [00:10:05] But I'm assuming when they do these deals with, um, the commerce departments of these cities and states that it's tied to the, the building, right. Or is it tied to people physically working in the building? Well, the whole.
Blake Oliver: [00:10:19] Point of having the building is so that people come into the building and spend money and live in your city, right? Why would you give a tax break to Amazon for having an empty office? It's not helping you, you know. And they've moved all out to the suburbs. They've moved to different states. You're not going to give Amazon that tax break anymore. So this really could be a tax story. I don't think it has anything to do with productivity. I believe that it's either a net zero impact, or that remote workers are actually more productive, because all the people that I know that work remotely say that it is far more productive to be working at home most of the time. And yes, you want to see your team, but you can do that very infrequently, as little as once a month, and you can still be very productive. And they're not saying this to me because they're trying to like, justify their situation. Like, this is just us having a conversation about it, right? They'd be honest with me if they weren't. It's just convenient.
David Leary: [00:11:19] Well, there's a disconnect then, because what we understand about remote work and you just brought this up, are there other variables, possibly taxes that are controlling these decisions. So KPMG had their 2024 CEO outlook. And so they surveyed 1325 global CFOs. These are companies doing 500 million plus okay.
Blake Oliver: [00:11:40] These are big companies.
David Leary: [00:11:41] Big companies. 83% of these CEOs predict a full return to the office in the next three years. This is up from 60% last year. So do they know something these CEOs that the rest of us don't know or are they just that disconnected?
Blake Oliver: [00:11:53] I think they're that disconnected because I think when you get to that level in your career and you know, like these guys don't understand how to work remotely, they've always been in an office. They like the office. You don't get to the C-suite if you don't like being in the C-suite. And for them, a lot of their job does involve this camaraderie, the need to be around the other execs. Like, that's very important. But my argument is, don't make everyone come back to the office. Just go get a nice office for the C-suite, and they can all party in the office and have water cooler conversations. And, you know, whatever else it is that they do play, you know, they can.
David Leary: [00:12:31] Use this mini golf, take advantage to have bigger offices. Yeah. Could even expand.
Blake Oliver: [00:12:35] To have really nice executive retreats. Basically they could, they could you could turn the office into like an executive retreat center, a resort, and then a resort, and then invite employees to come in to meet with the execs. And the employees would be really happy to do it because they're basically staying at a resort, not commuting every day into an office.
David Leary: [00:12:52] And I agree with you. I think there might be out of touch, because another stat that came out of that is 76% of these CEOs anticipate I will not fundamentally reduce the number of jobs within their organizations in the next three years.
Blake Oliver: [00:13:05] That's absurd.
David Leary: [00:13:06] So they assume so their their point of view is AI is not going to take jobs away and everybody's going to return to the office. Yeah. Is this is this a grass for the past like they're trying to control?
Blake Oliver: [00:13:15] It's I don't think they are looking forward. I think they're looking back, which is like the classic problem in accounting and finance that people do. Right? They don't they don't look to the future.
David Leary: [00:13:27] And if I wanted to have that upper hand over the employees because the employees can refuse to commit, ultimately, if I want to have the upper hand, I would start eliminating a bunch of jobs by using AI so the employees have no choice. So I get the upper hand as a CEO now, and I could require them to come in. But until you eliminate the jobs, there's just too much demand. Yeah, people can get jobs. People can get jobs everywhere.
Blake Oliver: [00:13:47] Now here's the ridiculousness of like, hybrid work policies. Did you hear about the Wells Fargo employee who died at work in a Tempe office? This is here in the Phoenix area.
David Leary: [00:13:58] I did hear about this. Yes.
Blake Oliver: [00:14:00] Denise Prud'homme was discovered deceased in the Wells Fargo Tempe corporate office days after she had last checked. Clocked in. She's 60 years old. She scanned into work on August 16th at 7 a.m., but was not found until August 24th days later, when security responded to reports of a person down. There were no signs of foul play. Apparently she just died at her desk, keeled over, and nobody noticed for four days. That's how depressingly Pressingly dead. A lot of these offices are because people aren't coming in at the same time. There are these giant cubicle farms. Everybody has a dedicated desk and there's nobody near you. And apparently her desk was not on a main corridor in the cubicle farm. So like, nobody ever walked by her desk. And her death was only discovered when employees started noticing a foul smell that they thought was plumbing issues. Now, this is very sad. And it's also an indicator of like, why a lot of people don't want to come back to the office because it's not a great place to be. When you sit on zoom calls in your cubicle, why can't you do that from home? I don't get it.
David Leary: [00:15:15] And these are like, yeah, you think about an office situation, and I worked at a call center and all the time somebody if you have 1000 people working in a building, somebody's going to have a heart attack. Somebody's going to have the ambulances are going to have to come. But you're right. If the office is a ghost town and you're there and something happens to you, it's like if you're home alone, you slip in the bathtub. You're like, who's going to help you? It's kind of that same, uh, scenario, but you're in the office and nobody's there to check on this person.
Blake Oliver: [00:15:42] Now, you mentioned the CFOs who think that we're all going to be back in the office.
David Leary: [00:15:46] Ceos. These are CEOs.
Blake Oliver: [00:15:47] Ceos. You mentioned the CEOs. Well, there's some really smart people in that group, and I think they are just stuck in the old way of thinking. And former Google CEO Eric Schmidt is one of those guys. Did you hear about the video that mysteriously vanished from the internet with Eric Schmidt?
David Leary: [00:16:06] No.
Blake Oliver: [00:16:07] So he was at Stanford recently, and he was giving like a fireside chat or a talk or something like that. And they recorded this thing, and apparently he somehow didn't understand that this was going to be on the internet. And he told the audience, quote, Google decided that work life balance and going home early and working from home was more important than winning, unquote. And that video went viral and Google took it down. Well, Stanford made it private, but we can only assume that Google pressured Stanford to make the video private. 1.4 million people viewed the clip on X that was extracted from that video. And in the video, he tells the audience to keep what he's telling them private, and then act somewhat surprised when the interviewer points out cameras in the room. And get this. At another point, he told the audience that AI startups can steal intellectual property and hire smart lawyers to clean it up later once they've created a successful product.
David Leary: [00:17:11] And he assumed that in this day of age of instant video, people with cell phones, this wasn't going to get recorded and published somewhere.
Blake Oliver: [00:17:18] I don't know, maybe he was CEO before YouTube took off. But like, you know, this is the this is the old school mindset of CEOs that are of a often of a certain generation like Gen X or older. Right. Is they have never worked remotely and they can't imagine people being productive remotely. And so they blame the problems that their companies, the problems Google is having on remote work. But it's a it's it's a red herring. It's false. Like the reason that Google is struggling is because their business model is being disrupted by artificial intelligence. The whole advertising business model where you show links at the top of a page, it's all going away because we're no longer going to go through a page of links to find the answer. We just ask apps like perplexity for the answer, and it does the Google search and gives us the answer. So if Google can't compete in the AI race, they're they're done. And nothing that I've seen that they've put out with Gemini has been worth using. We use Google Workspace at Earmark, and I upgraded for 20 bucks a month so that I can access all the Gemini stuff inside a Google suite. I am not impressed like they are way behind and they may talk a big game about AI, but like I wouldn't use Gemini, I would use OpenAI ChatGPT, I use Claude, I use perplexity. Gemini is is is just like not not great. You ask it to summarize an email thread and it misses emails in the thread, or you ask it to draft a response. It has all the data right there. It should be able to eliminate this copy paste between, you know, our programs that we use for work and these AIS. And it just it's just not good in my humble opinion. If anyone else has great experience with Gemini, let me know. But I don't know anyone who even uses it.
David Leary: [00:19:08] Do you have more remote work? Because I have another thought on this as well from my conversation last night before you jump.
Blake Oliver: [00:19:14] Well, I just wanted to like, quantify, you know, some of this time savings for people and also point out some cities where you could live if you just don't want to have a long commute. Um, Lyft did a study, a survey with the Harris Pull not I don't, which I don't believe is affiliated with Candidate Harris. Uh, and they listed out the best cities for the quickest commutes in the country. And number one is Columbus, Ohio, with an average commute time of just 22 minutes. And the traffic moves at an average of 24mph during commute. Not too bad, right? Uh, Las Vegas is second, 25.6 minutes. Then Memphis, Tennessee. Fresno, California. El Paso, Texas, Detroit, Michigan, San Diego, California. Now, I, I was surprised by that San Diego has a short commute time. Top ten. I could see myself living in San Diego if I could afford it. Uh, Milwaukee, then Tucson is number nine on the list. David. Go. Tucson and Jacksonville, Florida. So if you are being forced to commute into an office or you prefer it and you like to commute by car, those are the top cities to live in.
David Leary: [00:20:33] I wonder how is my understanding that the commute from San Diego to LA was always big, and then even Tucson to Phoenix. There's people that live in Tucson and drive to Phoenix for work. These are the massive commutes. It'd be interesting to see this data for like, huge metropolitan areas versus the individual teeny cities.
Blake Oliver: [00:20:49] Yeah, because average commute times include people who live in the city, not just the people who live out of the city that commute in. But in a place like Tucson or like Detroit, you can afford to live in the city. This is the big problem, I think, is that housing prices have gone up so much that younger professionals who are entering the family stage of their life are forced to move out into the suburbs, way out, in many cases in order to afford a home in an area with a nice school, that sort of thing. And your commute just becomes ridiculous, like in LA. We were talking about moving out to Thousand Oaks, and if I had to commute to the office in West LA near Santa Monica, that commute would be like an hour and a half each way from there. Like three hours of my day in traffic. And people do that.
David Leary: [00:21:36] I know at Intuit, too, it's at the bottom of the bay in California. People in Oakland, on the other side of Oakland, you're looking at 90 minute commutes. Yeah. And some people are doing a two hour commute to get to work, and it just.
Blake Oliver: [00:21:49] Makes no sense. Like, you could use that time to work. You could use that time to work out. You could use that time for your family. You could use that time to scroll on TikTok.
David Leary: [00:21:58] At one time, there's a direct flight from Tucson to San Jose, and I could leave my house, take the flight, take the train up to Mountain View and get to the Mountain View office in about two and a half to three hours, and that was less than some people's commutes to the office.
Blake Oliver: [00:22:12] Okay, now here's the good news, David, about all of this is that it seems that accounting firms are Embracing remote work. At least hybrid 99% of accounting firms surveyed by CPA trendlines have adopted remote or hybrid work options 99% and productivity levels have largely remained stable, with 59% of firms reporting unchanged productivity since the pandemic. Although intentional increases in communication and closer monitoring have been vital, and I agree 100%. If you are going to have people working remotely, you need to have ways to communicate intentionally. You need to have perhaps daily stand ups, check ins on a weekly basis at the. At the least, I like the daily stand up option a lot, though, to check in with everybody you know at a certain time every day. 930 10:00 Am. Every day, 30 minutes, the team gets on and you all go through what you're doing that day. Super helpful. But you can also do that with workflow software. If you can see what's on everyone's plate, you can triage that stuff. Like there's technological solutions to solve this. Um, the survey also found that remote work doesn't hinder career advancement. Many firms are open to promoting remote employees to equity partner roles, and that is a very progressive change. So I was really pleased to see that. And you know, CPA trendlines, the audience for that of their surveys is generally smaller firms. So it seems like the smaller firms have really embraced the whole remote work thing. Uh, now there's one more thing I want to touch on before we move on from remote work, David.
Blake Oliver: [00:23:56] And that is a topic we've covered in the past, which is the commercial real estate market, because that is the market that is getting screwed by remote work, because if employees aren't in the office, if companies go remote, they're going to downsize. And what happens to all that excess square footage in city centers. And what happens to the loans on those properties that mid-size banks have issued and we have covered in the past how it's possible that these loans are not being reflected at market value on these bank balance sheets, that these banks have these losses that they haven't recognized. And we're starting to see that, uh, Wall Street Journal did a story, and the headline is property fraud Allegations snowball as commercial real estate values fall. Um, the story is that US prosecutors are intensifying efforts to combat commercial mortgage fraud, which has become more prevalent as property values decline due to higher interest rates and increased defaults. What is this fraud? It's when landlords inflate building financials and valuations to secure larger loans. Why do they do that. Because they're trying to keep afloat. Right. The rising interest rates that we've had over the last few years have meant that when they refi, which they have to do every 6 or 7 years, the payments become unmanageable for them. It's basically like the home mortgage crisis with adjustable rate mortgages, except this is commercial real estate. So the and.
David Leary: [00:25:36] This is why they can't because there's like a percentage of value that if it falls below the banks can basically come get their money and they're going to take.
Blake Oliver: [00:25:44] They're going to take the building.
David Leary: [00:25:45] They take the building. And this is why let's say they have the rent set at X. They're not filling it. They won't lower the possible price for the rent because that changes all the valuations. And then they got the banks going to.
Blake Oliver: [00:25:55] The valuation is often done based on the rental price. So you lower the rents to fill the space. Your valuation goes down. You can't meet your debt covenants. Bank asked for their money back. They foreclose because you can't do it. So that's why rents have stayed high, even though there's like half of all commercial real estate in this country is empty. Yeah. Um, and the CPA practice advisor posted an article that says that by early 2026, nearly a quarter of office space in the US is expected to be vacant. That's from Moody's, a Moody's report. So that's a big increase because in the first quarter of 2024, it's a 20% vacancy rate. So we're going to go from 20% to 24% of office space, almost a quarter being completely vacant. And in some cities it's really bad. In some cities it's like half right. Yeah.
David Leary: [00:26:52] I think Boston's these big cities are major problems with people not going to the office. Right.
Blake Oliver: [00:26:57] So you know how much of this, like, return to office stuff is actually pressure to fill these offices by people who own commercial real estate? I wouldn't be surprised if a lot of these CEOs own commercial real estate. Because what do you do with.
David Leary: [00:27:15] The money here? And we might get our answer.
Blake Oliver: [00:27:16] Yeah, eventually. Um, but we're seeing, you know, some some buildings are getting sold for a steep discount, sometimes 70%. Uh, Yellowstone Real Estate Investments acquired 1740 Broadway in Manhattan for $185 million. It was previously sold for $600 million. So some of these buildings, you know, they can't keep it going, and they got to sell. And that's like a crazy discount. 185 million from 600 million. Now, the last question I have is what are the auditors doing about these bank balance sheets? And the Wall Street Journal again asked this question. And the headline is are banks sweeping dud property loans under the rug? And, uh, it's actually quite nerdy from an accounting perspective. The Wall Street Journal delves into this concept of the expected loss model for these commercial real estate loans. And the what is the new? The new model is it's super wonky. The incurred loss model. So back in 2020, the accounting rules changed for how banks report credit losses. So losses on these loans that they make for commercial real estate, for instance, these office buildings and the new expected loss model was intended to make lenders recognize losses more quickly than the previous incurred loss model. But what we're seeing now in the banking sector is that they're not really recognizing a lot of losses, and it's kind of obvious they should be because of these vacancy rates, because of these buildings getting sold for steep, steep discounts like, you know, 25% of what they went for a few years ago. And so like I was trying to understand what is the difference between the expected loss model and the incurred loss model. And.
David Leary: [00:29:30] I'm gonna interrupt you right there, Blake. Yeah, we're going to run. We're going to do one of our ads. Oh, yeah. Sorry. Explain the difference between these two models. Okay.
Blake Oliver: [00:29:37] Go for it. I'll check the comments as well.
David Leary: [00:29:41] Whoops. I put the link as a private chat. Sorry.
Blake Oliver: [00:29:44] Do you want me to read it?
David Leary: [00:29:45] I got it. It's a zoho. Yeah, if you do the Zoho practice.
Blake Oliver: [00:29:48] All right. Thank you to Zoho Practice for sponsoring this episode of the podcast. I want to introduce you to Zoho Practice, the all in one practice management platform built to streamline accounting firm operations. Zoho practice saves you time chasing clients by automating reminders and requests to get you the documents and clarifications you need when you need them. Staff and clients stay connected through a centralized communication hub to resolve accounting queries faster. Seamless timesheets and billing translate billable hours into invoices with just a few clicks, and robust document management means no more digging through piles of paper to find what you need. Beyond workflow efficiency, Zoho Practice also enables real time financial visibility across clients thanks to seamless integrations with Zoho Accounting Tools, allowing you to gain actionable insights to identify and resolve reporting inconsistencies quickly. Whether ensuring tax compliance, monitoring cash flow health, or simplifying collaboration. Zoho practice is the unified solution to manage all aspects of an accounting practice. To explore how Zoho Practice can save time, enhance oversight, and help your firm work smarter for free, that's up to five users for free. Head over to The Accounting Podcast Dot promo slash Zoho. That is The Accounting Podcast dot promo forward slash Zoho. Now let's catch up on some of these comments. Thank you to our livestream viewers for joining us today. Gator NYC says did you change your diet at all? And I am pleased to say that I did not deliberately make a change. But when I started working out more, and especially when I started doing more resistance with the swimming, I didn't want to eat as much greasy food because my body was like, I can't deal with this.
David Leary: [00:31:32] I've been out with Blake and he got fried rice and a beer. This is not diet food.
Blake Oliver: [00:31:37] I drink beer still. Yeah, if you get enough exercise, at least as a guy, you don't have to, you know, do crazy things with your diet. Maybe instead of getting, like, three beers, I'll get two. Or instead of getting two, I'll get one. Or instead of eating, like the whole plate, I'll eat less. It's just it's weird. Like, I just find myself to be less hungry. Now for some reason. I don't know why. Um, JP says when I hear toe now nowadays return to office, it's usually because they want to lay off people without having to lay people off for stock market reasons or not having to pay severance. Yeah, I think that's what's really going on here. I don't think it's really about productivity because the numbers just don't support that. Uh, there's there's really very little if I mean, I can't find evidence if you average out all these studies that remote work hurts productivity on average. He says. And if it wasn't winter driving conditions, it was construction adding to the time. Yeah, that was the worst part about living in LA is that I would wait until late in order to go home, and then the construction would have started and we'd be down to like one lane on the freeway. It's the same problem. Yeah. Um. Oh, we got way more. Let's see. Boring. Accountant says organizations want to push environmental justice, but then push people to be in the office and increase their carbon footprint. Public facing values do not align with their actions and policy.
David Leary: [00:33:03] How ironic.
Blake Oliver: [00:33:04] Good point. Yeah.
David Leary: [00:33:08] Do you think there's a whole. I had this conversation last night. We have an entire generation that had a pretty miserable two years of their life, and arguably a decent 20% of their life if they were ten year olds. 11 year olds because of remote school. Do you think we have a pendulum swing and change? Do we have a generation of kids that are going to become employees soon that are going to be like, I don't want to work remotely? That was the worst 20% of my whole entire life being in online school. Do you do you think we could see a shift? Just demographic wise? People's values might change?
Blake Oliver: [00:33:42] I don't know. I feel like the remote school thing was bad. Not because remote education is bad, just because, like, none of these teachers or schools were set up to do it right and had zero experience doing it. There's plenty of people who are homeschooled that love it, and I would love to be homeschooled. I would have loved to have been homeschooled when I was a kid. I asked my parents to let me do it because I, you know, I couldn't sit in the classroom and focus, and I wanted to just do my own thing. I could have gone faster, that sort of thing. So, yeah, I don't, I don't think, I mean, but to your point, yeah, because of that bad experience, maybe we'll have a lot of people who don't want to work remotely. I think it is tough at the beginning of your career when you are trying to make connections and get to know people like to do that online is really hard. But, you know, we do it. You learn to do it. Yeah, you just have to be intentional about it. Uh, a long story short says, are they staying on topic today or will they answer questions? We will answer your questions. We just took a long time to get there. Long story short says. Also regarding the, uh, Amazon and stuff, they get the tax breaks from the local politicians, and the local politicians have tight relationships with the landlords that are local. Yes. I think that's, uh, that's that's very insightful, right? Who are the real constituents of these politicians? Gaap says I think PwC wants its UK offices to toe, while they just had another productivity survey that contradicts the move, right? Pwc is out putting out this data about remote work and productivity and it's actually positive. And then they told their people.
David Leary: [00:35:21] Tyler do you want to.
Blake Oliver: [00:35:22] Sorry, David I just we got lots of comments to get through. No problem. Tyler says glad I could make the live stream a little early this week lol. Yeah, it is Monday. We started recording on Mondays because it just gets it out of the way for us and we're done. And we can focus on like actually running our business afterward. Thanks for making it. Uh, S13 Copkiller says remote work is either going away or the salaries are going to go down for the remote workers, IMO. Maybe. But if the remote workers are the most talented employees, they're going to get paid well regardless, and it will probably be better than their cost of living, right? So even if a company pays me less because I live in Arizona versus in LA or San Francisco and I live in Phoenix, I'm still better off as an employee. You have to do the cost of living adjustment on your salary, and you'll find that remote workers are better off than the people in the city, especially if you have a family and you've got to pay like private school tuition for your kids, like it's no contest whatsoever. You know what I'm talking about, David.
David Leary: [00:36:33] No, no, I don't do private school. Do public school.
Blake Oliver: [00:36:35] S13 also says no one likes living in Columbus lol. I don't know, maybe you could get to like it. I've, uh, I don't know if I've been to Columbus. I think I've been to like a Radisson on the outskirts or something like that for a conference. Um, but, you know, it's probably like every other city, right? Once you live there, you get used to it.
David Leary: [00:36:57] So I don't want you to forget you were going to explain the differences of those two calculation models. Oh, right.
Blake Oliver: [00:37:01] Right. This this fascinating, riveting explanation of the expected loss model versus the incurred loss model, in which I will probably get it wrong. And then the accounting professors will come after me. Um, okay. So we switched to this expected loss model in 2020. And the hope was that banks would recognize their losses sooner. It would be better from an accounting perspective. Right. The reality of the situation. And so what the expected loss model makes you do basically is you have to consider past events, current conditions, forecasts of future economic conditions, and you have to do an estimate of the lifetime expected credit losses for all financial assets measured at amortized cost. So it's in the title expected loss model. You got to do a forward looking estimate, and it's supposed to result in early recognition of credit losses compared to the incurred loss model, which is the old model. And the incurred loss model was this backwards approach that was used in the past. And in that model, losses were only recognized when it is probable. That's the word probable that a loss has already been incurred. And so it's more backward looking.
Blake Oliver: [00:38:16] It's historical current conditions. You didn't have to consider future expectations, and you didn't establish a reserve for losses until there was evidence of impairment. So what would be evidence of impairment like the actual sale of a building, perhaps that's, you know, similar to yours for a loss, right, where the valuation has clearly dropped. Now you're supposed to, you know, recognize that loss. Well, with the expected loss model, you would theoretically do that before a sale occurs. Perhaps. So the problem is that a lot of these both of these models and actually the the current expected credit loss model, Cecil uses all these estimates. You have to create these forecasts. You have to, you know, put in all these variables. And what I'm trying to say is that it's very susceptible to manipulation. Anytime an accounting number on the balance sheet is tied to a lot of estimates, you can manipulate it. And that is likely. What is happening at these banks is that the bankers are manipulating the model so they don't have to recognize losses, and they can do it because the auditors are in no place to question this.
David Leary: [00:39:39] And you can't say it's a conspiracy of them all conspiring together to do this. But I could see where as soon as one reduces everything and puts it on their their books. That creates a domino where they all have to do it. And now that we have a collapse.
Blake Oliver: [00:39:54] It could ultimately. Yeah, but they're going to delay doing this as long as they can. Right. Because the banks got to make earnings. Right. Yeah. And so I guess what I'm trying to say is that, like if we want to have accounting that actually matters, that actually predicts what's going to happen at a bank and predicts, say, a bank failure or warns investors, then we've got to get away from these models that involve so many estimates, it would be much better just to give investors data that you can't estimate. That's just hard data. And then let the investors do the estimates. And I would expand this broadly to all accounting standards is we need to reduce estimates as much as possible because estimates are susceptible to manipulation by management. But the problem is all of our accounting standards have been moving further in the direction of estimates. And that's why financial statements are just not that useful anymore. So stop doing estimates and give us hard data, like for a subscription business. Let's get a report on the number of subscribers that you have. That is a very hard number. It's pretty easy, right? You're not estimating the number. You've got that in a database somewhere at your company.
Blake Oliver: [00:41:11] Give us the number of subscribers. That's not in accounting standards. You don't have to report that on the balance sheet. I mean, you don't have to report that it wouldn't be on the balance sheet, but in any of the financial statements. But that's like a super important number for all these subscription businesses. Or, you know, I don't know, in the case of this commercial real estate stuff, it's like, just give us the numbers, all the hard numbers that you can collect and we'll do the rest. I don't want to just see like a number of like estimated losses, like what's in there actually, you know, count it. Yeah. And the notes, the financial statements are not particularly helpful because it's all obfuscated. It's like, this is what we need to get back to as an accounting profession is we need to get back to like hard numbers, not estimates. You know, save leave the estimates for the financial analysts. Let them deal with that. We need to collect the hard data. All right I'm going back through the comments here. And David, we should probably just do like another ad real quick to get through it because I as.
David Leary: [00:42:10] You as you prepare the comments, I'll do the next act. So our next sponsor is relay. Relay. Between Blake and myself we have three, four, five business entities, 20 or so checking accounts, dozens and dozens of virtual cards. And it would be impossible to manage all of this if we weren't using relay as our small business bank. Relay is truly a part of our tech stack, and it's how we run our business. Relay allows Blake and I to each have our own logins. We can grant access to our team and even our accountant without sharing passwords or our two factor authentication codes. Relay allows us to grow and scale our banking needs without ever going into a physical branch. I recently added an account to receive inbound merchant services with just a few clicks, and I had to create a payroll checking account. Again, a few clicks and I instantly had access to my ACH info to give to my payroll provider. With relays virtual cards, we can issue debit cards to our team around the world for needed business expenses. I can instantly spin up a new visa debit card and set both daily and monthly spending limits. And when a team member doesn't need their card, I can just freeze it until they need to use it again. Relay also has automation features to sweep money automatically from one account to another based on dates, amount or target balances or percentages. For example, inbound payments could easily be split to your daily payroll sales tax, operating and saving accounts based on your predefined rules. To learn more about using relay for your firm and clients, head over to The Accounting Podcast dot promo slash relay that is accounting podcast promo forward slash relay.
Blake Oliver: [00:43:47] All right. And we have stimulated much discussion in the comments here. Peyton says we should push for climate change shutdowns that require office workers to work from home. Yeah, just like the Covid shutdowns, climate change shutdowns. Hey, maybe if Harris gets elected, that could be a platform. Uh, Allison says Ohio is getting popular. I keep seeing it on lists for people to move to. Don't know if people are actually moving there, though. Yeah. The weather. The weather is a problem for me. I prefer the desert climate here. Sean Smith says 20 minutes is my max regular commute time, and even that is pushing my limit of what I'm willing to do. Gator says not a single normal person cares about what happens to the owners of commercial real estate. Well, what about all those firm owners who own the office that their firm is in? Gator, I just saw a letter to editor Mendelowitz in CPA trendlines from a 76 year old accounting firm owner who owns the building that his office is in. And one of his worries is that if he sells his firm, he'll have to sell that office. And it's not a great time to sell the office. But that's a sunk cost fallacy.
David Leary: [00:44:58] And there aren't a lot of like, state pensions and retirement plans. You know, if you invested in there, in invested in real estate, like because it was supposedly it was long term safe, right. Investment.
Blake Oliver: [00:45:10] Right? Yeah. Real estate has always been such a great investment, especially in we.
David Leary: [00:45:14] Probably all care about this, about the owners of commercial real estate.
Blake Oliver: [00:45:18] Uh, Alison says bubbles are always fine until they pop. Then it's a calamity. Yeah. As I've said on the show before, if there is a recession, it will be triggered, I think, by a commercial real estate bust. It will be all these banks, for some reason, have to suddenly recognize these hidden losses on their balance sheets, and some of them go under. And then that creates like a cascading effect where the FDIC has too many banks to bail out. And then we see this massive contraction in lending by the regional banks because they can't because they have to maintain their capital requirements in order to make loans. So then that would be like how you hit a recession with a trigger event, right? Yeah. Um, yeah. As Peyton said, lots of our retirements are in commercial real estate, and Sean said all bubbles pop, though, Allison says. But until it pops, it's fine. I'm pretty sure that's what the biggest takeaway was from the oh eight mortgage disaster. Just a joke. Yeah. If you can get out before everybody else. Right? It's a game of musical chairs, Saeed says. Can I ask a question? Absolutely. Saeed, go for it. Um, Tammy wants to know what is the Zoho Info. Can you say that again, David?
David Leary: [00:46:39] Yeah, it's an accounting podcast promo slash Zoho.
Blake Oliver: [00:46:43] Awesome. Uh, stylish says my college education is almost entirely remote. I can't wait to get out of the house more, to be honest. Saeed says. Here's the question from Saeed. Is it a smart ID idea to do CPA after Acca when I'm already doing a master's in pro accounting from University of London in hybrid mode? I mean, Acca, that's what that's the CPA abroad, right? So you're already going to be a chartered accountant and you got a master's in accounting. I mean, that might be overkill. Saeed. Uh, unless you really need the CPA to work for, like a US company or something like that. But I don't think you do. I think you should. I mean, you get get into the work.
David Leary: [00:47:30] In audit.
Blake Oliver: [00:47:32] Unless.
David Leary: [00:47:32] You want to go into audit.
Blake Oliver: [00:47:34] Uh, Shaun asks, how do you think these models play into the predilection of gap for hard assets? So, um, this is regarding my argument that gap has not modernized. In the 70s 60s we had an economy 90% of the S&P 500. The market value was rooted in intangible assets or tangible assets, physical things like factories, inventory, I don't know whatever else. You can touch the widgets, right. Manufacturing. Um, that was what drove S&P 500 market value. It's flipped since the 70s. It is inverted. We have 90% of the S&P 500. Market value is intangibles like intellectual property software brands. And so gap hasn't changed in that time. And I find that to be kind of nuts. And I think that's the root reason why gap is not as useful as it used to be. And financial statements play less and less of a role in investor decision making to where it's like only 14% of investor decision making is based on the financials anymore. Like, I don't think you could do a Warren Buffett these days. You couldn't be Warren Buffett. He famously made all of his best investments in the 60s and the 70s by reading financial statements very carefully and identifying the winners and the losers. And I don't think you can do that anymore. I don't think there will be another guy like Warren Buffett, because that information is not in the financials anymore. So I think the problem with, uh, I guess, like, how does this relate to the estimates problem is that we have accounting that is really focused on putting tangible assets on the balance sheet and not putting the intangibles. We're afraid to assign value to intangible assets. Now, I don't think we should be doing estimates about intangible assets, because I don't think that would be very helpful. But I think we should just start accounting for them and giving investors information about them so that they can determine the financial value. And maybe it's a different statement, like there's a new statement. It could be like a one page estimates statement. No, no a statement of like intangibles.
David Leary: [00:49:58] Intangibles. Right.
Blake Oliver: [00:49:59] And so for like SaaS businesses, let's actually standardize the software as a service, metrics that are the most important metrics that are commonly reported to the inside investors and the management of these software businesses, these SaaS businesses, these subscription businesses. And that's all the SaaS metrics. You can go look them up. What are SaaS metrics and cost to acquire a customer and total number of subscribers and lifetime value? There's no standardization of these metrics in accounting, and we don't require companies to report them, but it would be incredibly useful for your average investor to have this information to make investment decisions. So that's what I think we should do. And we should do that kind of thing for all sorts of different segments. You know, maybe commercial real estate should have its own statement of intangibles, and we don't try to estimate the value of it on the balance sheet if, if that's too much susceptible to manipulation. So we just give the hard numbers, the stuff that's clearly quantifiable. Quincy says, please keep remote work. I left chemistry to do accounting partially for the remote work. Still work in the office, Allison says. I just got a chance to listen to your interview with Kenneth on Spotify today. I'm also going to Western Governors University. Love that it's being talked about more. Oh yeah, we have to talk about that interview, David, that is a great bonus episode. Everyone who is trying to get their credits to sit for the CPA exam. Should listen to Kenneth.
David Leary: [00:51:32] It's a total hack. You basically. In what? Nine months less than CPA. Yeah.
Blake Oliver: [00:51:39] So, uh, let's see. The episode is called how Kenneth got his CPA credits. In three months and 36 days. You can find it on the accounting podcast feed. It's a it's a bonus episode. It's only 25 minutes long, so you get it real quick. And he obtained Kenneth contacted us out of the blue as a listener, saying, I got to tell you guys how I got my credits because we talk all the time about the 150 hour rule, the extra 30 credit hours, all that. Kenneth got his bachelor's and master's degrees in four months, and he did it through Western Governors University WGU because they have a competency based education model. And then he passed all four CPA exams within six months. So like in a year he did it all, which is insane. Bachelor's, master's, CPA exams. So if you are struggling to get your credits and you want to do a competency based model, meaning you just test out of the courses because you already have the knowledge you can do that. It's a hack and WGU has an all you can eat model, so you can take as many courses as you can test out of. It's such a great idea. Sean says, I did my accounting BS at WGU. That's awesome. Tyler asks, do you think employers care about where you get your accounting degree? I've never had an employer ask me where I got mine. I actually didn't get an accounting degree. I just got my credits at a combination of Santa Monica College and UCLA extension. I opted to do the.
David Leary: [00:53:15] Argument of the letters. When you have those three letters, nobody cares where you're.
Blake Oliver: [00:53:19] Yeah. Once you pass the CPA exam, nobody cares where you did your accounting degree. That I know of. I mean, I don't know, maybe if you're trying to get a job at the big four, which I would recommend, you don't, uh, if you're trying to get a job there, maybe they give a crap where you went to school, but, like, it's funny. Like, none of the schools with the top accounting programs are, like, considered to be top schools, like top ten schools elsewhere. You know, like like BYU is like the top school for accounting in the country, but you don't hear about it being on like a top ten list for anything else that I'm aware of. So I don't think it really matters. Let's see. We've got somebody making a journal entry in the YouTube comments. Did you accidentally put your cursor in the wrong window?
David Leary: [00:54:03] They're trying to make a joke about your gym expenses versus making accounting sexy again. It's like, well.
Blake Oliver: [00:54:08] The best part is I moved to because I moved to Arizona. I can be outside like ten months out of the year. Actually, I can be outside the whole year because I swim, so I don't have a gym membership. I just have like a $50 a month Hoa Hoa Potatoes are the best, by the way. I mean, if you have a good one.
David Leary: [00:54:26] For $50 a month, you must have a ridiculous HOA. It's because we have. Amazing. You're in Scottsdale and you're only paying $50 a month for an HOA. It's because we have.
Blake Oliver: [00:54:35] It's two things. We have a what do they call it? Xeriscaping. Meaning that we don't have lawns. It's all just desert. So there's no massive water bill that the community pays to, like, maintain these greenways. It's beautiful. It's like we live out in the in nature, and it's far more green than I thought it would be, by the way. Like the trees. What do you call those trees with the bark? The, um, mesquite, mesquite and palo verde trees are so green and beautiful. Like so. Our neighborhood feels very green even though we don't have grass. And, uh, it's a big HOA. So you spread that cost out around a lot of people. And the secret of amenities is that most people never use the amenities at their apartment building, or that their HOA provides. So, like, I go to the pool every day and like I can always get a lane. But also like the city of Scottsdale is incredibly well run. It's just fantastic. And they have aquatic centers. They have like 4 or 5 of them throughout the city that you can drive to, and you can go get like an Olympic quality experience, clean water, cold water, like it's I try to tell people who are still in the rat race in like New York, LA, Chicago, Seattle. Like, it's not worth it because you can move somewhere else that's cheaper. And and the things that really are great in life are not that expensive. Go work out and grill your own steaks. Learn. Learn how to do a really good reverse sear steak on the grill like you can. You can eat like you eat at a steakhouse every night if you want. And it'll cost you, what, 30 bucks for a pound of steak or something like get a.
David Leary: [00:56:21] New York strip for 15 from Whole Foods. Exactly.
Blake Oliver: [00:56:23] It's cheap. Yeah. So maybe my steak habits. I don't eat red meat that much, so I tend to like upgrade when I do get the get that nice filet, but I digress. David, I can't believe the hour is almost up.
David Leary: [00:56:37] I know we still have to do two more ads. Um, we have some stories to do. We could probably go a little bit longer. Do you have a hard stop?
Blake Oliver: [00:56:43] I do not, so let's do an ad and then we'll.
David Leary: [00:56:45] Do an ad and then. So AD is for safe send. I'll put the link in here.
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David Leary: [00:58:37] Do you want to do a quick follow up news that's audit related? Do you want to go down?
Blake Oliver: [00:58:43] I want you to read the last ad so we don't forget. So we don't.
David Leary: [00:58:46] Forget. Okay. We could do that. It's a.
Blake Oliver: [00:58:47] Twofer. And this is a new one to me. I have not heard of Inter. What is it? Interval.
David Leary: [00:58:53] Interval.
Blake Oliver: [00:58:53] Interval. Cool. Let's hear about it.
David Leary: [00:58:57] Just you want to display the link up on the screen.
Blake Oliver: [00:58:59] Is it interval.
David Leary: [00:59:00] Interval inter the capital letter and the stresses on the V. So it's more like interval right. So interval is wait wait I.
Blake Oliver: [00:59:09] Have to understand is it how is it pronounced.
David Leary: [00:59:11] They their branding is a lowercase I right. Int r capital v al.
Blake Oliver: [00:59:17] So does that mean we say it interval. Because I can't say interval. No we can't. We have to say interval I'm sorry guys but I'm just going to like do I'm gonna I'm gonna be your CMO and I'm gonna say call it interval if you don't.
David Leary: [00:59:30] Okay. So it's interval is your new secret weapon in the world of advisory services. With just a few clicks, you can connect your cloud accounting software or simply upload your end statements, giving you access to a goldmine of insights about your client's businesses. We're talking valuation metrics, industry benchmarks, excess warping, excess working capital analysis, and so much more all at your fingertips.
Blake Oliver: [00:59:54] Oh I get it. It's valuation metrics. So that's why it's interval. Okay thanks David. Now I get it.
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Blake Oliver: [01:01:11] Let's keep talking about steak. I don't know. Should we keep talking about steak, David? Or did you have something that's burning? We have some. I think we.
David Leary: [01:01:22] I think you'll get a kick out of the the audit news. That's more of a follow up. It has to do with FTX. And I can cover that quickly.
Blake Oliver: [01:01:29] Oh, we haven't talked.
David Leary: [01:01:29] About, but you might soapbox on this for a little while.
Blake Oliver: [01:01:32] I don't have time, so we'll just get through it.
David Leary: [01:01:34] Okay. We'll get through it. And then I do want to talk about boy okay. So Prager Metis settled with the SEC for 1.95 million over their audits of FTX. So do you remember Peter Prager? Metis.
Blake Oliver: [01:01:47] Yeah, yeah. And when when this was all going down, they were the auditor of record for FTX. And we were wondering what was going to happen because and.
David Leary: [01:01:54] Before that they were the metaverse accounting firm. So they were they've always been in like questionable crypto ish things. They've been kind of involved.
Blake Oliver: [01:02:03] In they have been on the cutting edge of that. And and to recap, uh, FTX was the crypto exchange that was fraudulently taking customer funds, siphoning them over to a related entity called Alameda Research, and then gambling with those funds. And when the gamble didn't work out, they weren't able to pay back their depositors and they went under.
David Leary: [01:02:30] Yeah. So according to the complaint from the SEC, from February 2021 to April 2022, Prager issued two audit reports for FTX. And basically, the SEC is alleging that they did not adequately assess whether it had the competency or resources to undertake the audit of FTX. And this quality control failure led to Prager failing to comply with gas in multiple aspects of the audit, and ultimately by failing to understand the increased risk stemming from the relationship between FTX and Alameda, the research fund that you just mentioned. Now, to be clear, we're talking about transfers. They transferred $4 billion to Alameda and like it really was never questioned. I mean, imagine $1 billion.
Blake Oliver: [01:03:13] Imagine a traditional bank doing this. So this would be like, you know, Chase Bank taking customer deposits. You and I put money in the bank, and then they secretly put that money into a hedge fund and start making bets with it and profiting and hoping that they'll be able to return the depositors money if necessary.
David Leary: [01:03:33] Like, that's bad enough that go for it. Bad enough that the SEC complaint charges Prager with negligence based fraud. So without admitting or denying the SEC's findings, Prager's agreed to permanent injunctions. They agreed to pay a $745,000 civil penalty, undertake remedial actions including an independent consultant, review their policies and procedures, abide by certain restrictions when they accept new clients. You know, it's the typical barely a slap on the wrist pay a fine when they're accused flat out of fraud as an auditor.
Blake Oliver: [01:04:05] It's just it's shocking to me. And do we know how much Prager Metis got paid? How much did Prager.
David Leary: [01:04:12] Looked that.
Blake Oliver: [01:04:13] Up? Metis get paid as Ftx's auditor each year. I'm going to ask this to perplexity and see if I can get an answer. That's it's not detailed. It's probably in the filings, but it's not. Perplexity didn't find it.
David Leary: [01:04:31] But it sure, it's over $2 million. There's no.
Blake Oliver: [01:04:34] Doubt. I mean, so so this is crazy, right? It's like you have the auditors and and this is actually very similar to the Supermicro story that you covered recently, David, where Supermicro had this related entity and they were like making payments to this entity controlled by the CEO's brothers, I think. Yes. And this is so similar. It's it's you have FTX, the crypto exchange with this really tight relationship with Alameda Research, also controlled by, uh, Sam Bankman-Fried, that's Sam Bankman-Fried I apologize. Um, and and they didn't like, see this happening like, this is, it's it's it's like they were blind. It's like they, they, they missed the most basic material, right?
David Leary: [01:05:23] $4 billion is material.
Blake Oliver: [01:05:27] Yeah. It's just it's a it's it's disgusting. Uh, it is absurd. And this is what I say every time we see one of these frauds or these audit failures is like nobody individual is being held accountable. Nobody at Prager Metis, the audit partners are not being held accountable. The firm doesn't even have to admit wrongdoing. So guess what? It's a cost of doing business. The insurance pays for it and they keep going. And they do it again. And they do it again. And they do it again. And we'll just see it happening again and again until something changes. I would like to see the partners be held criminally Um, liable for this sort of thing. Like, how can they get away.
David Leary: [01:06:06] With happening right every week, every week we cover a story like this. It never ends, you know, honestly, to the point where our listeners are going to put in our reviews. This is all they talk about is crappy audits. Well, stop doing crappy audits, people.
Blake Oliver: [01:06:19] Why do you think we have a talent problem in accounting? Because auditors, whether or not they know this completely, whether or not they're totally aware of this kind of situation in audit, you go in there and you're like, oh, we're not really doing an audit. We're checking boxes. Now, I'm not saying that's all firms. And, you know, there are great auditors out there, but all it takes is like, let's say there's 20% of the auditors are shady or the audit partners are shady. That's all it takes to give the whole audit profession a bad name. And I'm willing to bet that while there's not that many shady auditors, there's certainly a lot who just are doing the job and have, like, completely forgotten what their role is, that their role is to protect the public. Like they're not even aware of it. You want to know something crazy, David? So, um, I was corresponding with the former CEO of a top, uh, firm. I don't remember how big they are, but they're a top 100 firm. And I sent him the PCB inspection report for his firm. And for all the the the main report that showed, like the big four and then the, you know, a bunch of the other firms in the top 25 or whatever. And I said, like, you know, I just want to get your take on this because we're talking like your firm had like two thirds of the audits inspected at your firm were considered, like, so deficient that the auditors should not have issued their opinion. Like, can you talk to me about this, like off the record? And his response to me was, oh, I had no idea. For our listeners, David just almost.
David Leary: [01:08:00] Had a seizure. Ceos, CEOs being out of touch.
Blake Oliver: [01:08:03] Well, if you think about it. Right. The CEOs of these firms are not auditors. They're consultants. They're tax people. And they I'm starting to realize that they may have no idea about this. I mean, either that or he was just, you know, BSing me. But I think it's very possible that they just have no clue. It was shocking, honestly.
David Leary: [01:08:26] I have some shocking stuff to talk about.
Blake Oliver: [01:08:28] Okay, go for it. I'll let you have the last story.
David Leary: [01:08:30] And I'm going to phrase it this way. Now, you could beep it out if we need to. I don't know if. Let's say so. Boy is starting to become batshit crazy. It needs to be killed. It really does.
Blake Oliver: [01:08:39] So this is the beneficial ownership information reporting.
David Leary: [01:08:43] That's the result of the Corporate Transparency Act. Yep. And the reason that exists, right, is to make sure there's not illegal money being moved around, human trafficking, weapons sales, all these the the stuff the bad dudes do, right. Well, the I've had these articles kind of stacking up, but what pushed me over the edge now is FinCEN released an outreach and reporting toolkit, essentially in a weird way, marketed at accountants. So, Blake, you can use this template to share and amplify this important information. Here's a newsletter template. Here's copy for your website, social media posts with images you can use. And they're trying to tack this on to their efforts. They've been doing who they've reached out to 90,000 stakeholders directly. They've done 135 beneficial ownership conferences, webinars, roundtables. And but why are they reporting these resources? And it's because as of this summer, according to the Journal of Accountancy, of the maybe 32 million, 33 million businesses that have to file a report, only 2.7 million have filed halfway through 2024.
Blake Oliver: [01:09:48] So 2.7.
David Leary: [01:09:49] Million.
Blake Oliver: [01:09:50] Out of how many?
David Leary: [01:09:52] Uh, 32 million. 33 million, you know. Yeah, it's like less. It's like.
Blake Oliver: [01:09:56] 8%.
David Leary: [01:09:57] Yeah. Now, that was as of June. A couple months later, we might be at 10%, you know. And are they going to find 30 million business owners $500 a day? And actually, they just raised it to $591 a day and put people in prison for two years. Like, obviously Small Business of America is not complying to this. They could care less about this. It's not a marketing thing. And even the other side of it. So yes, this is a burden for small business owners. But the banks. So this is according to FinCEN themselves, the Financial Crimes Enforcement Network. So the banks, they estimate about 16,000 banks. And this is going to be institutions, law enforcement, state agencies that can request your boy reports. They're going to have to request them. They've estimated how much time they'll spend on this. So of these 16,000 entities will be spending 8.7 million hours filling out paperwork in year one and 3.6 million hours in year two. This is.
Blake Oliver: [01:10:54] Extra work for the banks, these small community banks.
David Leary: [01:10:58] And you can clearly see this march that they're going to probably put pressure on corporations. So just like every time you try to get paid, you got to upload your w-9. Yeah. I would not be surprised if they're going to big companies are going to make you upload your boy reports as well to get paid. This thing needs to be killed. Like they they just cannot go after 30 million businesses in this country.
Blake Oliver: [01:11:18] So I don't know if it'll happen anytime soon, but my theory is that this will be ruled unconstitutional because it was.
David Leary: [01:11:26] Back in.
Blake Oliver: [01:11:26] March, but it was limited. Limited to only a small group. And if you look at the way the law is written, right, it requires all of this reporting from entities, um, to the federal government. But these entities may not be engaging in interstate commerce. And unless a business engages in interstate commerce, the feds don't have authority over it. It's a state thing. Like that's the whole that's the commerce clause, right? The powers not explicitly granted to the federal government are reserved to the states. And like this reporting requirement could impact like an Arizona LLC that just does business in the city of Phoenix. So why would the federal government have any jurisdiction, have any authority to require that LLC to report on its ownership to a federal agency? I just can't imagine that this would be constitutional. But the problem is, it will take a long time to wind its way through the courts. And meantime, you have these threats of legal action and fines and all this paperwork. And it's you could.
David Leary: [01:12:33] Argue the feds have all this data because we did this whole exercise called Irtc and PGP loans. So all the businesses that are fraudulent and not fraudulent applied for these loans. And now we have two lists. We already knew all this data. They don't need BI reporting. It should just be killed. It's silly. The whole thing is silly.
Blake Oliver: [01:12:51] It's it's terrible. It's just.
David Leary: [01:12:53] And it's failing. It's failing. The execution of it is failing. And that's why they need to kill it. Yeah.
Blake Oliver: [01:12:57] Well, the problem is it's all this paperwork you're acquiring. All the legitimate businesses, the vast majority of businesses are legitimate. So you're requiring them to report on all their beneficial owners. And it serves no purpose because there's no crime going on. So you're trying to find, like, now, a needle in a haystack. You've got all this reporting. And do you think that the criminals who are running money laundering operations are actually going to report honestly on their buoy reports? Heck no. So it doesn't do anything. It doesn't accomplish anything. Do you know that, uh, my HOA is saying that if you get elected to the HOA board, you are going to have to be on a beneficial ownership information report for our HOA. Because even though you don't own the HOA, you have some sort of control like it falls under this this requirement Potentially, I mean. It's nuts.
David Leary: [01:13:54] This is not thought out. And the bad thing is, is the elections in November. So you can't put pressure on politicians now. So between the election and the end of the year, this is when this is all going to explode.
Blake Oliver: [01:14:06] Why don't we have Trump and Harris saying they're going to kill beneficial ownership information reporting. Like you know, I feel like this would be because.
David Leary: [01:14:12] Nobody knows it exists. That's the problem. They have a communication. Nobody knows this exists.
Blake Oliver: [01:14:16] I feel like this would be a good one for the Trump campaign. Right. Which is like anti-government big brother information collecting on all of the citizens of this country, all the business owners of this country, like this is like this is a huge overreach. I think the Republicans should get on this. I would I would be very excited if they did that. But instead it's like, let's make tips tax free. And what's the other one he's on?
David Leary: [01:14:40] Hey, accounting firm owners use this social media post to tell people about Bowie.
Blake Oliver: [01:14:45] Or or let's replace income taxes with massive tariffs on foreign imported goods, which would literally destroy the global economy. You know, like that's how we got into the Great Depression. Was everybody put tariffs on everybody else in the global, uh, economy collapse because nobody was importing or exporting anything like. Yeah. Great ideas guys. And I'm not saying the Harris proposals are any better. You know, the, the whole, uh, like, let's, let's jack up the corporate tax rate. Oh, the wealth.
David Leary: [01:15:16] Tax, unrealized unrealized.
Blake Oliver: [01:15:18] Tax on unrealized gains like on on sent to millionaires. I mean, you want to get them all to like, leave. We saw Jeff Bezos, uh, relocated to Florida from Washington when Washington put in place some sort of ridiculous tax on him. I mean, it's just as easy for him to sail his yacht to Malta and, you know, like you're just going to lose all the rich people. You're going to lose all the, the, the enterprising, you know, entrepreneurs, they'll just all take their jets and boats and go somewhere else. You can't force them to stay.
David Leary: [01:15:50] So do we take a public stand and not file our boy information this year and try to fight this? Yeah.
Blake Oliver: [01:15:56] And we go to jail. We go to jail for it.
David Leary: [01:15:58] Podcast from.
Blake Oliver: [01:15:59] Podcast from. I'll be calling you on the payphone calling collect to. How about this? How about you don't file yours and then I'll call you in prison? Does that sound good?
David Leary: [01:16:11] You could try that.
Blake Oliver: [01:16:12] Um, I actually do need to go, like, file it, because I actually have that on my list to do because it's coming up to the end of the year. And I guess, you know, maybe I'll live stream it. I don't know, I wonder, like, I haven't even looked into, like, what kind of personal information I'm going to have to provide them. Uh, okay. Let's close out these comments and then we will get done with this. Uh, let's see, we finished with our boy slander. Uh.
Speaker3: [01:16:41] Choo choo choo.
Blake Oliver: [01:16:43] Tyler says. We get a lot of these calls at the IRS. It's stressing the hell out of small businesses. Complete overkill IMO.
David Leary: [01:16:53] When Tyler is at the IRS, did you? Yeah.
Blake Oliver: [01:16:56] I'm assuming that. Um, let's see, Hunter says, I always wondered why you said we shouldn't just raise tax rates a ton for rich people like we have had before. We had hyper capitalism during those very high tax rates. Um, well, we did have really high tax rates like in the 50s after World War two, but that was like kind of an exception. I have I am of the belief that like, I'm in the middle here. Okay. I do think we should have corporate taxes. I do think that we should have higher taxes for wealthy people. But I believe that, you know, we should have a progressive tax system. I think that's most people agree that like as you make more money, you should pay a little bit more in taxes, right? And it slopes upward. Like that's actually a very popular point of view. And, um, but I also understand that as an accountant and somebody who has witnessed this firsthand, doing bookkeeping and working with tax professionals, that if you raise the tax rate too high, people will just look for loopholes and they will get loopholes. So the key is to have broad taxes and generally try not to tax more than 20% of GDP. If you start taking more than 20% of people's money, they'll rather spend the money preventing you from doing that. But if this is.
David Leary: [01:18:18] How Reagan got into politics, so Reagan had his movie star salary, and apparently at the time, anything over $200,000 was taxed extremely high, maybe 90%. I don't even know. Super high. So he would just say, fine, let's do one movie. He wouldn't even do a second movie because he didn't want all that. Like, what was the point right after it was taxed? He didn't have any money. What's the point? But this is how he got into politics. And this is when all the taxes changed in the 80s. This all changed because Reagan got so motivated by being overtaxed. And so unless you want people that are hate taxes to go into politics more, you can't overtax people. Yep.
Blake Oliver: [01:18:52] So like that's why like raising the corporate tax rate to 30% is stupid because corporations will just spend the money to hire accountants and advisors to help them not pay that 30%, which they already do. Right. So it's it's great for employment, for accountants, for us. I think it's so funny that like, if you look at like CPAs, they tend to lean Republican, but actually it's the policies of the Democrats that give full employment to CPAs, you know? Um, well, thanks everyone for sticking with us. Did you know that you can earn free continuing professional education for having listened to this episode? I know it sounds incredible. It sounds impossible. How is that? How could how could listening to this possible? How could listening to this qualify as CPE? But it does. Amazingly, the National Association of State Boards of Accountancy has seen fit to grant earmark a license. A. Well, they don't call it a license. You're not supposed to call it a license. It's like a sponsorship of CPE. And we are a sponsor. And you can earn continuing education for listening. How you ask? By downloading the earmark app on the Apple App Store or the Android Store, or just going in your web browser to earmark app, creating your free account and finding our episodes in our channel on the app. They come out pretty soon after we publish episodes, usually the same week. So if you're watching this live, wait a couple days. Go check the earmark app. If you've listened to past episodes, you can go get your CPE for that. Just answer a quick five question quiz and we will send you your certificate. You can do one a week for free. Or if you want to support our mission of making continuous continuing education accessible, affordable and entertaining, you can subscribe for $150 a year. And we really appreciate the. What are we up to now, David? Number of subscribers. It's like 13, 1300, 1300 subscribers. We've got 13,000 people have signed up for the app.
David Leary: [01:20:51] Uh, 14,000 and a half, 14,000.
Blake Oliver: [01:20:52] And a half.
David Leary: [01:20:53] Oh my God.
Blake Oliver: [01:20:54] We're up there now. That's like. That's only a couple weeks ago. We looked at the 13,000 number. That's amazing. Um, yeah, we want to. We want to make good on your phone. Convenient. If you have to commute to the office, get the earmark app and listen to episodes while you're driving in so you don't have to sit on a webinar during your lunch. Get outside during lunch. It's beautiful. I hear the the fall colors are happening in other parts of the world. I don't know what those look like here. We don't have fall. We don't have fall in Arizona. All right. Thanks everyone who joined us. See you next week, David. Bye.