We've got as full agenda of stupid financial, accounting, and digital tricks on today's episode, including how Google manipulates search results to trick you into clicking on ads, why goodwill is sparking division, KPMG's unveiling of a less-than-brilliant $450 million tech training center, and how audit fees continue to rise. We'll examine what CPAs should know about "tax zapper" software, how a former Wells Fargo CEO has been banned from banking, and share some updates on the continued fallout from the MyPayrollHR debacle, as Cachet Financial Services files for bankruptcy. Because that's not enough, we also explore the Pentagon's $35 trillion in accounting adjustments over a single year, how New Orleans is still suffering after malware attack, and why Mint budgeting software sucks. We'll also take a look at a new "Digital Dollar" project, and talk about Seattle's testing of mobile voting, and more!
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Blake Oliver: I think Ron Baker said it - to paraphrase him - that it's the measure of our ignorance. It's what we can't measure. So, the fact that it's growing, which it is, is kind of worrisome. Overall, the tally of goodwill added to corporate balance sheets every year since the 2008 financial crisis has outstripped the amount written down to source deals or other issues.
Did you know that you could use AP automation as an entry point to offering client accounting services in your firm? A successful transformation from clunky manual processes to automated processes can lead your clients to wanting even more of the services you provide at your firm. Stay tuned to hear more from our sponsor, Bill.com, later in the episode.
This episode of The Cloud Accounting Podcast is sponsored by Timesheets.com. Any guess to what Timesheets.com does? If you said employee time tracking for small to medium-sized businesses, you are partially correct. If you said robust time tracking for payroll, billing, or job costing with mobile access and real-time reporting, you're even more correct, but Timesheets.com is way more than time tracking.
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Blake Oliver: Welcome to The Cloud Accounting Podcast. I'm Blake Oliver.
David Leary: And I'm David Leary.
Blake Oliver: I'm so excited, David. You have no idea. This is the nerdiest thing to be excited about.
David Leary: What ... Did you get ... Is there a new iPhone- an iPhone 12 coming out?
Blake Oliver: Oh, no, it's even nerdier than that. This whole discussion about goodwill and FASB was featured in The Wall Street Journal, in a pretty detailed article all about it and how [00:02:30] it affects the stock market. So, that's my top story.
David Leary: Just goodwill.
Blake Oliver: Yeah, the accounting for goodwill. Not the not-for-profit, the concept - when you pay more than the value of the assets of a corporation, when you buy it - more than the fair market value of the individual assets - you record goodwill on your balance sheet. FASB, as we have discussed, is spending the next six months trying to figure out how public companies should account for that. Should they continue [00:03:00] to record it and then test it for impairment every year, which is very expensive, and time-consuming, or should they be able to amortize it over a period of time, like private companies? Believe it or not, this has significant implications for the markets, and for accounting, and for companies.
David Leary: Continue on. Fill me in on this.
Blake Oliver: Well, we'll talk about it at more length-
David Leary: Okay, okay.
Blake Oliver: -but I wanna hear what's new with you.
David Leary: I don't have a top story, but I do have a story [00:03:30] that affected me personally this week.
Blake Oliver: Okay.
David Leary: You use Google, correct?
Blake Oliver: Oh, yeah, all the time.
David Leary: Have you noticed that the Google ads just kind of blend in with the search results now?
Blake Oliver: Yeah, well, always like the top four results, I know those are gonna be sponsored, or paid for.
David Leary: They used to have a nice different-color-highlighted box around the sponsored links. You could tell that they were not the real link- the search results. Google's reasoning behind them changing this is to make it simpler and cleaner on the [00:04:00] landing page, et cetera, and on mobile. But the real reason why is it's about getting people to make bad clicks and misclick.
So, yesterday, this this happened to me. I went to call Orangetheory Fitness because I needed to change the time for my class. I googled Orangetheory Fitness because usually it'll come up, and once you're at Orangetheory Fitness, you see them and then there's a button to call, right? Their phone number's displayed. Because Google has made the ads blend in, the biggest button to call was [00:04:30] a different fitness company completely. So, I looked like a complete idiot wasting this other company's time.
Blake Oliver: Well, no, they wanted you to do that because they're gonna try and get you to switch.
David Leary: But they didn't try. So, obviously, there's a failure somewhere, but, ultimately ... There are some stats on this. So, this is an article on Verge. People are kind of questioning Google now. They're kind of saying it's the new Yahoo!.
Blake Oliver: Yeah.
David Leary: Like, "Congratulations, Google. 20 years later, you've became what you did not want to become." They're saying that they're seeing clickthrough rates - since Google has made these changes - as high as a 17.8 percent [00:05:00] higher now [crosstalk]
Blake Oliver: Interesting. I just went and did a search. I see the top result says - in small, bold text - 'Ad' right in front of the URL. So, that is less obvious than it used to be, right?
David Leary: Yep, and it's even worse on mobile. They're basically giving kind of like- almost a teeny little visual icon. The article that we'll link to in the show notes has screenshots of it, over time, and you can see where it used to be very obvious; hey, these are the ads. Now, people [00:05:30] are mistakenly just clicking on them.
Blake Oliver: Interesting. Well, so, what's the takeaway for our listeners here?
David Leary: What is the takeaway? Just be aware of what you're clicking on, ultimately.
Blake Oliver: I'm thinking, because I run Google Ads campaigns, that if I was a firm, and I wanted to maybe reach my competitors' clients, I could run ad campaigns on their name, and now it'll be even easier to redirect them to my firm instead. But the same [00:06:00] thing could happen to me. It could be easier for a competitor of mine to run ads for keywords that are related to my firm, like my firm's name - like what was happening with Orangetheory and that competing gym - and they could try to get in touch with my clients that way.
David Leary: That's correct. You could try to steal clients, and you could ... You'd wanna run an ad that's as least ad-like as possible so it looks it's just an organic, normal search term. Ultimately, what this did, it actually pushed me now, after three years, to just put my- Orangetheory Fitness's phone number in my phone. Now, I [00:06:30] will never search for fitness on Google again. Now they've completely lost me as a customer for that search.
Blake Oliver: Well, that's interesting. I wanna get back to my story, that Wall Street Journal article-
David Leary: Yes.
Blake Oliver: -but before we do, I think we have some reviews, and we have some letters.
David Leary: Some feedback- listener feedback.
Blake Oliver: We got some listener feedback. So, I'll read the review that we got today. This is from Kyle Beltle from Kauffman CPA Company: "Listening to The Cloud Accounting Podcast is one of the highlights of my week. Blake and David's strike the [00:07:00] perfect balance of being entertaining while also delivering high-quality news stories, in-depth investigative journalism, and fantastic interviews. As a CPA in public practice, I consider The Cloud Accounting Podcast essential listening; far better than any of the podcasts that the AICPA or my state association puts out. Keep up the great work, guys!" Well, thank you, Kyle; and Kyle also sent us an email; some feedback on one of the topics we talked about in a previous episode. We were talking about companies putting a limit on the number [00:07:30] of meetings. I think you suggested that, David.
David Leary: They were talking about cutting back to the days of the week people would work. Some country was passing a law about that, and I said they should just pass a law on how many meetings people would have, and that would actually be the real boost.
Blake Oliver: So, Kyle sent us this article in Bloomberg, and the headline is: "This Japanese Company Charges Its Staff $100 an Hour to Use Conference Rooms." Did you see this?
David Leary: No, but-
Blake Oliver: It's pretty funny. It's a Japanese company, Disco, that charges employees to use company resources; literally takes it out of their salary. Everybody [00:08:00] gets an allowance for the whole quarter, or year, whatever it is; I don't remember. It's a set period of time. Then, when you utilize resources like booking meetings, you pay out of that account, and you get to keep whatever's left over at the end.
David Leary: I heard recently in a podcast that a company has their own internal currency to save people's time. If you and I are coworkers, Blake, if I need to interrupt you, or schedule a meeting with you, I have a limited amount of currency I'm allowed to spend to get that meeting with you. So I have to be very careful and wise [00:08:30] on the meetings I schedule, and who I invite because I only have so much currency. It reminds me of a few years back at Intuit. There was a hackathon, and somebody built a plugin for Outlook that would look at all the employees you've invited to that meeting and basically calculate what the cost of that meeting is. So, you start booking a meeting, and next thing you know, you have a $45,000 meeting on your hands for peoples' time.
Blake Oliver: That's the thing is there are crazy situations where I may not be able to spend $500 without getting an arduous number of approvals [00:09:00] to buy some equipment, but I can easily book 10 people who cost the company $200 an hour into a conference room for two hours; I've spent thousands of dollars of people's time without having to get any approval. There's something here. I don't know if more companies will adopt it, but there should definitely be at least a measurement of who is really booking the most time wasting meetings, or every meeting should have a cost associated with it.
David Leary: This will never be tracked because it's managers that are doing it, and managers will not track data [00:09:30] about their own performance.
Blake Oliver: Oh, right. There you go. Got it. Well, let's get to our next letter to the editor. Hold on, let me get it out of the mailbag here. I forgot to open my mail bag before.
David Leary: Got it, got it, got it.
Blake Oliver: All right, this one is from Donny Shimamoto, who we mentioned on a previous episode. He must have been listening and heard us. We were talking about his recommendations, or his predictions, I should say, around RPA, saying the RPA is going to be the biggest thing to impact accountants this year, which [00:10:00] I think so. I agree. He said that he want to clarify that Zapier is not RPA. I think we were discussing RPA on the episode, and then we immediately pivoted to Zapier. So, maybe there's some confusion about us saying that Zapier's an example of RPA? Zapier's an example of automation, which is kind of like the overall umbrella for this, but it isn't RPA. It isn't robotic process automation. Donny sent us a definition from Gartner about what RPA [00:10:30] is. And I'll just read some of this-
David Leary: Oh, because it's from Gartner, it's official.
Blake Oliver: Yeah, right. They are. They're the gods of defining all this stuff. So, Gartner says, "RPA tools are designed to mimic the same manual pass taken by a human by using a combination of user-interface interaction or descriptor technologies. An RPA tool operates by mapping a process for the software robot to follow via computer pathways and various data repositories so RPA can operate in place of a human."
Donny says, "Basically, you use [00:11:00] RPA when traditional integrations or APIs aren't available. If you think about the number of systems that don't integrate but are still used together, or how often two vendors may have an integration, but it doesn't operate the way you want it to, that's when you might use RPA to, for example, download a list of transactions, summarize them, and then post a batch journal entry into QBO/Xero, instead of using the integration which does each transaction- which posts each transaction." So, that's the key difference is that RPA, to me, is [00:11:30] for a macro that can operate across different programs and interfaces. It actually can move a mouse like a human, and-
David Leary: Yeah, yeah, it's just doing the clicking, the button-pushing, the button-mashing, the clicking on repetitive tasks that can be repeated, and you're training some plugins to do that. But I could argue, it's remote process automation, and Zapier falls under that.
Blake Oliver: Robotic process automation-
David Leary: Robotic. Robotic, right, but-
Blake Oliver: Zapier is not that because Zapier creates an API [00:12:00] connection. So, it's direct transfer of the information without this clicking, the button clicking-
David Leary: Yes, and no ... I would argue it's very- there's a lot of overlap because there's plenty of times where you have to take one app, move the data to Google, and then connect another app to the Google Spreadsheet to get it into your app; you have to manipulate it; or maybe you're using a combination of both. You have to get the CSV file, possibly, from some site, bring it in to a Google Doc, connect that via Zapier. I just don't see ... This is like arguing [00:12:30] accountants versus bookkeepers versus [crosstalk]
Blake Oliver: -here's the distinguishing thing, and where it really matters is, where Donny operates a lot of time, is in the mid-market with larger companies that have a lot of on-premise ERP systems. So, that is where there's a big difference because those systems have no APIs, so RPA is the only possible solution for them-
David Leary: Maybe that's the big difference. Zapier costs, what, 50 bucks a month? These RPA systems are costing thousands and thousands, if not tens of thousands a month. That's real difference ...
Blake Oliver: Yeah, and there are more [00:13:00] sophisticated enterprise versions of Zapier. I can't remember the name of these companies right now, but there's- they do the same idea of creating API for APIs situation. But, yes, key difference is Zapier is an API machine and RPA is more like macros. Cool. Well, thanks, Donny, for that clarification. Hopefully that cleared things up for our listeners. It definitely did for me.
Let's get back to the news because we've got a lot to cover, and I really wanna dig into this Wall Street Journal article [00:13:30] about goodwill. The headline is: "Goodwill Sparks Deep Division at Least on Balance Sheets." It's summarizing a lot of what we've been talking about, how FASB, the Financial Accounting Standards Board, is looking into possibly changing the way that public companies account for goodwill; maybe allowing them to amortize over a period rather than having to test for impairment on an annual basis. Some of the stats in this article- it does a really good job of explaining [00:14:00] the scope of the challenge, and the problem, and why, actually, it matters a lot.
It starts with an example - when Amazon bought Whole Foods in 2017, they paid $13.7 billion dollars for it. That was $9 billion more than the value of the supermarket stores and other net assets; $9 billion more than what accountants said is the fair market value of all the assets. So, that $9 billion - did Jeff Bezos overpay [00:14:30] for Whole Foods market by $9 billion? Some people would say so. They say that's crazy, but Jeff Bezos is smart. Let's assume that he knows what he's doing.
What do we do as accountants? Well, we add $9 billion of an asset onto Amazon's books, and we call it goodwill. It's the difference between the assets at their fair market value and what the investor is willing to pay for it - what the market values that company at. It's not just Amazon that has a bunch of goodwill on its books. [00:15:00] There's a lot of companies that have goodwill on their books. The S&P 500 had $3.5 trillion worth of goodwill on their books at the end of September, according to Calcbench, and that is up 67 percent from 2013. It's up 67 percent. This is because there's been a wave of mergers and acquisitions. It represents nine percent of total S&P 500 assets. So, all the S&P 500 companies, you take all their balance sheets, and pull out the goodwill, [00:15:30] and add it up, it's nine percent of all their assets, and 42 percent of total equity.
David Leary: So, this has, I guess, been happening over time. So, every time another company acquires another company, if they're doing it at any level of premium, that premium has to go somewhere.
Blake Oliver: Yeah.
David Leary: And it just goes into goodwill and then-
Blake Oliver: Goes into goodwill.
David Leary: -it just sits there forever.
Blake Oliver: It sits there ... Well, it sits there, and then every year, the accountants have to do a study that asks, "Hey, is this company that we acquired still worth what we [00:16:00] paid for it, including the goodwill?" If it's not, then you have to cut out some of that goodwill, or all of it, potentially, and drop the value on the books. That's the way it works now. Private companies, they can just say, "We're gonna write off the goodwill over a period of time," a number of years; maybe it's 10 years, something like that. Public companies can't do that. The reason FASB is looking into this is because it's very expensive to do those studies. Can you imagine how much it costs to look at the whole enterprise of Whole Foods [00:16:30], every single year, and try to figure out if it's still worth at least what Bezos paid for it?
David Leary: Who does that? Do they use one of the Big Four? They kinda outsource that work to a consulting company and then they pay them ... Is this kind of like a big machine that's not gonna stop?
Blake Oliver: I don't know. I'm not in that world of valuation, but I imagine it's a big business. So, companies complain about it because it's expensive. Is it really worth it? There's arguments on either side that have been presented to the FASB, which is soliciting commentary right now. Some [00:17:00] people say it's too expensive. We should do something simpler, just like private companies. People on the other side say, well, if we do that, we're gonna lose valuable information. Now, we're not gonna find out when there's a big drop in the valuation. Then, the counter to that, on the side of amortization, is that, well, these studies are highly subjective, and it's really easy for managers to manipulate them to cut the goodwill in a period that's more favorable to them. So, arguments on both sides.
Here's the thing- another stat that [00:17:30] kind of puts this in perspective: for all public companies trading on U.S. markets, goodwill exceeds $5.5 trillion. Okay, so let's just step back for a moment - away from this decision, or this argument about how to account for goodwill, or how to deal with it, how to amortize it or not - and just think about it for a second. Goodwill, $5.5 trillion of goodwill on the U.S. markets, and I mentioned on the S&P 500, it's nine percent [00:18:00] of their total assets, and 42 percent of equity.
The question is what is this goodwill? What does it actually represent? When you think about assets, what is an asset? It's a resource that the company controls that they own that is supposed to generate some future economic benefit. That's, simply put, what an asset is. Does goodwill meet that definition even? That's why the first question in FASB's survey is, "What is goodwill?" We don't even [00:18:30] have a agreed-upon definition that is solid enough where we can just assume that we all know what goodwill is. So, some-
David Leary: Yeah. In my brain, it's the brand asset, right? The reputation of the brand asset.
Blake Oliver: Except, though, that can actually be on the books. That should already be accounted for. Brand has value. You can measure it. It's an asset that we can determine has a value. So, goodwill is not that, specifically. Goodwill is something that we can't [00:19:00] define as accountants.
David Leary: Is it like that account in QuickBooks, the 'Ask Your Accountant' account? People just dump crap in it. Is it turning into that?
Blake Oliver: That's the criticism of this stepping back from this whole argument is that goodwill doesn't even make sense. It's just a plug. It's the difference between what accountants can measure and the value to the market. I think Ron Baker said it, to paraphrase him, that it's the measure of our ignorance. It's what we can't measure. So, the fact that it's growing, which it is, is [00:19:30] kind of worrisome. Overall, the tally of goodwill added to corporate balance sheets every year since the 2008 financial crisis has outstripped the amount written down due to source deals or other issues.
Goodwill keeps growing. Why does it keep growing? Well, maybe it's because modern accounting - GAAP - can't figure out how to properly value the assets of corporations these days. This all ties back to problems with accounting. The [00:20:00] book that we talk about, "The End of Accounting," which criticizes how we do accounting now as being very old-fashioned, and not being able to keep up with this concept of intangible assets being more and more important to companies.
There's a chart here in the story that shows that from 2013 to 2019, total goodwill on the books of S&P 500 companies went from about $2 trillion to over $3 trillion. So, in the span of six years now, we've added more than $1 trillion dollars of goodwill. [00:20:30] Maybe that is an indication that we aren't properly valuing assets because we don't really know ... Modern accounting GAAP doesn't know how to handle these intangibles that are becoming more and more important to big public companies.
David Leary: Ultimately, corporations, in theory, are thought as an equal, as an individual. A corporation is just like me, right? It's an entity.
Blake Oliver: Well, as Mitt Romney famously said, "Corporations are people."
David Leary: Exactly, but I can't go to [00:21:00] a financial transaction and go to my bank to get a home loan or mortgage, and be like, "I have all this goodwill!"
Blake Oliver: Right. Well-
David Leary: They would laugh in your face. Why is it OK for corporations to do that, then?
Blake Oliver: Right. So, that's the problem I have with it, fundamentally, is that here we have an asset. It's an intangible asset on a corporation's books, but it, alone, doesn't ... How does it generate future economic benefit? It can only generate future economic benefit in combination with the other assets. It's just a plug. It's almost like if [00:21:30] we had a account on every corporation's books that was reconciliation discrepancy, and it was nine percent of all assets.
David Leary: If I pay a premium for Whole Foods, I'm paying a premium - that nine extra billion dollars-
Blake Oliver: A huge premium.
David Leary: -on that, when I make that purchase, that premium difference is really some sort of expense to my company. It's a premium acquisition expense-.
Blake Oliver: That's the argument for amortizing it over time, but there's another argument that it shouldn't even be an asset [00:22:00] at all, and amortization should just go as a reduction to equity. I'm basically giving up some of my equity to acquire this business.
David Leary: That makes sense.
Blake Oliver: It's a transfer- it's an equity transfer.
David Leary: Yes.
Blake Oliver: But investors don't like that because then that makes their ownership in the enterprise worthless. Not worthless, but just worth less, right? Then, it screws up probably-
David Leary: It would just go straight across, right?
Blake Oliver: Yeah.
David Leary: Your total net equity would not change at all on that day the acquisition happened.
Blake Oliver: Well, yeah, among [00:22:30] the two companies, but then, your ratios, like assets-to-liabilities, ratios, and stuff would not look as good, right? I don't know ...
David Leary: You should be on a board or a panel for this, Blake. This could be your new pet project- side project.
Blake Oliver: Well, so, this is ... Here's the problem. FASB, at least in my view, for whatever it's worth, is completely missing the point here. It's that GAAP isn't properly measuring, at the individual asset level, the value of what [00:23:00] investors think that the company is worth, as a whole. This is a problem that's just gonna keep growing. So, to be arguing about whether or not we should amortize it, or test for impairment misses the point. We really need to figure out how to do accounting better in a modern subscription-based economy, a world of intellectual property, and intangible assets [crosstalk]
David Leary: Your argument is to attack it all, not just these little one-offs. Attack goodwill here; attack this other line here ... Reinvent standard accounting practices [00:23:30] across the board.
Blake Oliver: Yeah, we need to make big changes. This is not a change that's gonna actually fix things or provide useful information to investors. All it's doing is ... Here's what we're doing is just talking about how to write off a plug for something we don't understand. Are we gonna do it every year and test for impairment? Are we going to do it- amortize it over time? It's not getting at the root of the problem. That is my opinion, as somebody who knows enough about [00:24:00] accounting to be dangerous. I would be really curious to hear what our listeners think about this.
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David Leary: So, I have a related story ... You talk about this old mindsets, if you wanna think about it that way, or think that it needs to be fixed. KPMG unveils a $450 million tech training center in Orlando. $450 million, this building.
Blake Oliver: I tried to see the [00:25:30] pictures, but I was blocked by a paywall.
David Leary: Basically, it's the biggest tool yet that the Big Four accounting firms have launched to train their employees to come up into the digital era. I just feel it's kind of funny because they're trying to train people on blockchain, and audit technologies, and all this technology, technology, technology, technology, but it's all on-site training. None of it's remote or using the videoconferencing, or anything like that. It's really, really shocking.
Blake Oliver: Yeah. Why are they ... Why [00:26:00] did they build a giant campus to do this? I mean, tech ... You can do that anywhere. You can do it online.
David Leary: Then, there's this ... Disillusion is not the right word here, but they're also playing this up as it's a way to reinforce to employees the importance of corporate culture and to improve as a firm-
Blake Oliver: Oh, my God ...
David Leary: -because this comes after they had their audit practice for governments- that they admitted they cheated the regulatory inspectors; that $50 million settlement with the SEC. They said, "The facility [00:26:30] is designed to remind the 35,000 KPMG staffers of its values, like continuous learning, and the power of collaboration, and the important role that accountants play in capital markets." So, this building is made to symbolize a bunch of crap, when they could just do remote training. It doesn't make any sense.
Blake Oliver: Well, and the importance of accountants in capital markets is declining-
David Leary: As you just pointed out, right?
Blake Oliver: Right, or on the brink of it. Oh, man ... Well, you know why [00:27:00] they can afford this, David? It's because audit fees keep rising. Why do audit fees keep rising? It's because FASB keeps passing new standards that don't really do all that much. They just employ more and more accountants. This was covered in Accounting Today, back January 15th. Apparently, average audit fees increased 4.25 percent from 2017 to 2018, going from an average of $2.2 million to [00:27:30] $2.3 million, mainly driven by new standards from the Financial Accounting Standards Board.
That's according to a report from the Financial Education and Research Foundation, which is an affiliate of Financial Executives International. They also found that more public companies are seeing an increase in the volume of work needed to get an audit report from outside auditors - 73 percent; in private companies, only 27 percent. The big reason is FASB standards. We've got revenue recognition and leases. So, KPMG can afford to spend 400- what'd you say? $450 million? [00:28:00]
David Leary: Half a billion dollars on a building, or campus, yes.
Blake Oliver: On a building they don't need because they're just raking in the dough from audit fees.
David Leary: Living the dream.
Blake Oliver: Yeah, but you have to be an auditor.
David Leary: So, I have an interesting thing that I learned about this week that's tax-related.
Blake Oliver: What's that?
David Leary: It was an article in the AccountingWEB. The title of the article is: "What CPAs and Clients Should Know about Tax-Zapper Software."
Blake Oliver: Tax-zapper software?
David Leary: Do you know what tax-zappers are?
Blake Oliver: No. [00:28:30]
David Leary: I didn't either. I was like, this is very interesting. So, I got on the Wikipedia. So, restaurants, a lotta cash-based businesses, they have their point-of-sales ... This is really something that's probably gonna affect desktop point-of-sales more, but I'm sure there's probably a SaaS product that does this, as well; a cloud based product. Essentially, you put it on an untraceable USB flash drive, and you plug it in your point-of-sale and it's an easy way for you to run a little program and then it's a skim and remove a lot of your sales out of your point [00:29:00]point-of-sale at the end of the day. So, the records that are recorded in your point-of-sale are fake, and you just take out the cash you wanna take out.
Blake Oliver: Whoa ...
David Leary: So, the warning is you need to make sure your clients aren't doing some things like this, if they're your clients. But it was just ... I did not even know these things existed.
Blake Oliver: Well, speaking of fraud, did you hear that the former Wells Fargo CEO has now been banned forever from banking?
David Leary: What's he gonna do?
Blake Oliver: I think he's probably gonna be fine.
David Leary: Podcaster!
Blake Oliver: He could become a podcaster.
David Leary: He can be a podcaster.
Blake Oliver: This is John [00:29:30] Stumpf, who was the CEO of Wells Fargo, when that whole fake account scandal happened, which I don't think anybody could have missed that. He stepped down in back in 2016. It was the biggest financial banking scandal since the crisis, and he agreed to an unusual lifetime ban as part of a settlement with the Office of the Comptroller of the Currency. He also has to pay a $17.5 million fine. I don't know what his net worth is, but I'm gonna guess he'll be just fine after this.
They're also going after some of [00:30:00] the other executives. The OCC announced charges against five former Wells Fargo officials, including Carrie Tolstedt, who headed the Community Bank division that was at the center of the scandal. So, they're gonna try and fine her $25 million and the other four defendants $12.5 million.
David Leary: So, the lesson here is if you create a culture of fraud at your company, though you're not committing it, you will- it'll eventually catch up to you.
Blake Oliver: Yeah. Although we don't know if this really is gonna deter people or make a difference. I'm very [00:30:30] skeptical of that because somehow these people always land on their feet, right? He'll get speaking engagements, just like- who's that Enron guy that was going around giving keynotes at a bunch of conferences? I was so annoyed by that. Why give this guy money?
David Leary: That's like politicians that go on the speaking circuit after they're done [crosstalk]
Blake Oliver: Yeah, yeah. Get convicted- become a convicted felon and then profit off of your ... All that stuff, it's just- it's terrible.
David Leary: So, speaking of felons, do you remember the MyPayrollHR fraud?
Blake Oliver: Yes, how could I forget?
David Leary: So, [00:31:00] it's back in the news again. Cachet Financial Services - and if anybody wants, they can go back and listen to the interview we did with Cachet's lawyer ... Cachet's the money movement company that would move ... Basically, they're an ACH money movement company. So, payroll companies could use them and then they take the money, distribute it to all the other banks to get in the employees accounts. They are basically left holding an empty $26 million bag when this MyPayrollHR fraud occurred.
Blake Oliver: Yep.
David Leary: They have now declared Chapter 11 bankruptcy. So, [00:31:30] if you remember in October, they informed people they can't do payroll anymore, so they've obviously ... This is just another victim in this MyPayrollHR fraud. It's just- it's amazing. This is a real company. People had jobs.
Blake Oliver: It's not just Cachet that's out because now that they've declared bankruptcy, they've got 200- somewhere between 200 and 1,000 creditors that are owed money, and the biggest one is owed close to $700,000. Lots of folks lost out [00:32:00] due to this. You know, we're on the sort of bad news track, so let's continue, shall we?
David Leary: Okay. It's like a snowball.
Blake Oliver: Yeah, yeah. This is in Bloomberg: "Pentagon Racks up $35 Trillion in Accounting Charges in One Year.".
David Leary: Is that all goodwill?
Blake Oliver: I can't remember, David ... No, well, sort of similar, actually. It's unsubstantiated accounting adjustments. The Pentagon's accounting systems are so screwed up and so disjointed that they can't keep anything [00:32:30] balanced. So, the way that they reconcile their books is that they just post these adjustments. I'm not sure exactly what is meant by 'accounting adjustments' in [crosstalk]
David Leary: That's goodwill! That's the goodwill account! It's the same thing.
Blake Oliver: Well, so this is like cash ... Basically they're reconciling their bank accounts, and they don't know where the cash went, so they'll just make adjustments.
David Leary: Oh, that's CIA budget.
Blake Oliver: Yeah, well-
David Leary: This is so obvious!
Blake Oliver: This is crazy because the budget for defense is [00:33:00] $738 billion, and the adjustments total to $35 trillion. You wonder how is that possible? Well, according to Todd Harrison, a Pentagon budget expert with the Center for Strategic and International Studies, it's, "Within that $30 trillion is a lot of double, triple and quadruple counting of the same money as it got moved between accounts." These systems aren't linked, so when money moves between accounts, they don't have a way to- when they consolidate, basically, all of these different groups, they can't figure [00:33:30] out where the money came from, where it went ...
David Leary: Aren't they using a nice cloud ERP, like Sage Intacct or something?
Blake Oliver: Apparently not, and a lot of it is blamed on the antiquated systems that they have. By the way, they had their first ever audit in 2018, and they completely failed that. While auditors found no evidence of fraud, they flagged a laundry list of problems, including these accounting adjustments.
Now, there's something to me that's a little weird about that. So, they didn't find fraud, but they flagged the accounting adjustments. The GAO estimated, [00:34:00] based on a sample, that at least 96 percent of 181,947 automatic adjustments made in the fourth quarter of fiscal 2018 didn't have adequate supporting documentation.
These are essentially journal entries, where nobody attaches any documentation to justify them? That's what this sounds like to me. It's hard to tell. Can you believe this? 181- 182,000 automatic adjustments; 96 percent didn't have supporting documentation. So, the auditors, while they [00:34:30] didn't find fraud, they couldn't even look at these adjustments to determine whether there was fraud because they didn't have any supporting documentation.
David Leary: There's no place to start, right? There's no place to start. It's just a date and a number.
Blake Oliver: So, you can't even audit the Department of Defense because their books don't tie out; their adjustments aren't supported. This is what happens when there's no accountability, I guess. It's kind of insane.
David Leary: In the meantime, we've talked about this before, the IRS gets zero budget to actually do anything.
Blake Oliver: Right, the IRS ... The money- the [00:35:00] revenue-generating arm of the government doesn't have enough money to hire enough auditors. That's why, as we have discussed, taxes are underpaid by 14 percent in this country. We're losing out on 14 percent of revenue that we are legally supposed to be collecting due to the current tax laws, because we don't have enough auditors.
David Leary: We can continue down this bad news strain if you want to.
Blake Oliver: Let's just keep on going. Let's just speed this up-
David Leary: Yeah, there's a lot. Speed this up a little bit? So, hopefully [00:35:30] you have not done any work for the city of New Orleans?
Blake Oliver: No. I visited last year, but I just spent money there. That's all.
David Leary: Because they had a cyber-attack again! This is like the third time, I think, in the last year and a half.
Blake Oliver: Oh, no!
David Leary: On December 13 ... It stalled their vendor payments. So, it's gonna cost them about $7.2 million dollars and take as long as eight months to repair. The payments to city vendors have been delayed because employees can't get into their software to approve the payments.
The other thing they're having to do is ... It's an eyeball ... [00:36:00] They're using an eyeball on every single payment that goes out the door right now. So, it sounds like maybe possibly this cyberattack flooded a bunch of fake invoices into the system, and they're having to manually approve each one. To make it worse, apparently, email is still not working for 75 percent of city hall employees. Any email prior to the hack is still not accessible.
Blake Oliver: How long has this been going on?
David Leary: This was December 13.
Blake Oliver: Oh, man.
David Leary: So, New Orleans is not [00:36:30] having a good few ... They should just format all the hard drives and just start from scratch at this point. This has been their third hack, I think.
Blake Oliver: I wanna know, are they going back to the pneumatic tubes? Do they have those?
David Leary: I have no idea [crosstalk]
Blake Oliver: I have sort of this ... I like the idea of pneumatic tubes. Every time I see that in an old movie, I wish that we still had that system. It's just so cool. So steampunk!
David Leary: You being a music guy, I think there's a lot of audiophile-type gear that still has that stuff in it, right?
Blake Oliver: Oh, yeah, vacuum tubes? I [00:37:00] remember, actually, going to a drive-up ATM with my mom when I was a kid, and it was ... Well, it wasn't an ATM, it was a drive-up teller station. They had lanes, and the teller was at one end. So, if you were on an end that wasn't next, directly, to the teller's window, you had a pneumatic tube, and a voice box, so you could talk to the teller. Then, you would put your card and your withdrawal slip into the tube, and it would fly [00:37:30] up-
David Leary: I'm just smiling right now. You're reliving ... This is a huge childhood memory for you.
Blake Oliver: Oh, it was so cool! Then that, of course, immediately went away, and we had the ATMs. Okay, so let's talk about ... Let's talk about more fintech, since I was talking about pneumatic tubes, and ATMs. We've spoken previously about the idea of the Fed creating its own cryptocurrency- digital dollars.
David Leary: Yep.
Blake Oliver: Well, the chairman of the Fed has pooh-poohed that idea, but I have some good news. There is a movement [00:38:00] to make this happen. This is called the Digital Dollar Project, and it's being led by former Commodity Futures Trading Commission Chairman Christopher Giancarlo. He presented at-
David Leary: This is a U.S.-based effort?
Blake Oliver: Yes. So, he presented his Digital Dollar Project at the World Economic Forum in Davos, Switzerland. I don't know ... Who knows? Maybe Trump was in the audience? He coulda seen this and been inspired. The Digital Dollar Project aims to encourage the launch of a central bank digital currency in the United States, according to Giancarlo, [00:38:30] who is one of the founders. It was announced last week as a partnership between the consultancy company Accenture and the Digital Dollar Foundation. Other founders of the DDF include another former official, Daniel Gorfine, blah, blah, blah ... I don't know who those people are. Somebody from Cisco ...
Basically, this digital dollar would be distributed through commercial banks and other trusted payment processors. It's similar to the idea being explored- actually put into- I think, implemented in China, which [00:39:00] is working on its own digital currency. So, I'm happy to hear this because I don't want us to fall behind China. If China creates a digital currency, that could really chip away at the dollar as the standard for international commerce.
David Leary: Yeah, and there's an article up from NPR. Scott [inaudible] from CPA Academy texted it to us. So, China is about to start testing their digital currency.
Blake Oliver: Oh!
David Leary: They've been working on it for about seven years. But then, when Facebook started to chat more about launching Libra – remember we talked about Facebook Libra and [00:39:30] Facebook's run at this kinda digital global currency thing?
Blake Oliver: Mm-hmm.
David Leary: Then people pulled out ... It's not easy to solve this. But since then, China really doubled down on their efforts to get this to market. He who gets there first probably has a huge advantage – 'he' being a country. There's lots of smaller people building cryptocurrency things, or coins like this. I absolutely believe the U.S. has to do this.
Blake Oliver: Well, so there's one other cool government initiative that is really exciting to me, [00:40:00] or interesting. Have you ever voted online in an election, like an actual election?
David Leary: No ... I think it's the dumbest idea of all.
Blake Oliver: Well, Seattle- King County has decided to try it out. They are testing a new mobile voting solution. Voters in Washington state's most populous county are going to be able to use their phones to vote in a local election. Actually, they can do it now. It started Wednesday. It's the most extensive [00:40:30] use of mobile voting in a U.S. election to date.
There are 1.2 million voters in King County; it includes Seattle. They'll be able to cast ballots electronically on their smartphones or computers by logging into a portal. The election is for a seat on the board of the King Conservation District, a local agency that promotes environmental sustainability.
David Leary: Which, historically, my understanding - I think I heard it on NPR - has the lowest turnout of all voting initiatives they ever have. It's under one percent [crosstalk]
Blake Oliver: What does?
David Leary: This [00:41:00] position they're voting for.
Blake Oliver: Oh ...
David Leary: People do not vote for it. So, in a way, this is like, "Oh, we're gonna do a mobile phone voting, and it's set up for success."
Blake Oliver: If they could get anybody- if they increased the number by a small percentage, it'll be huge. So, here's what's interesting to me about this. The way that you are gonna cast your ballot is you log into a portal, and you verify your identity by providing your name, date of birth, and signature, which will be checked against the county's voter rolls. So, all I need to vote is my name, [00:41:30] date of birth, and signature.
David Leary: Which is what you'd present at a voter station.
Blake Oliver: Right, but I don't have to go there to do it ... It would be very easy for anybody to vote on my behalf by just knowing my name, date of birth, and what my signature looks like, so that's not very secure, right?
David Leary: There's nothing good about this at all. There's just not. We just talked about the crappy computer systems of the IRS, the crappy computer systems that the Pentagon's using. Look [00:42:00] at poor New Orleans, right?
Blake Oliver: Yep.
David Leary: We've talked about these stories all year ... I have no confidence in any computer voting system. Zero ... It's zero confidence in this!
Blake Oliver: Second question, after the security issue, is how do you preserve anonymity? Because it's a database with names and how people voted, and somebody has to have access to that. How could you ever do something similar for any election where you're promising voters anonymity? A blind vote, right [00:42:30]?
David Leary: And your phone- your cell phone is tracking everything you do on it, so now 5 billion third-party advertisers know who you voted for, which they can't do in a paper-closed booth.
Blake Oliver: Right.
David Leary: There's no ... This is the dumbest story you've brought here [crosstalk] Not that it's a dumb story, it's just like it is the dumbest idea in a story, all year.
Blake Oliver: Even dumber than a digital dollar, which is a great idea.
David Leary: It's dumber ... People will build half-a-billion-dollar buildings to do training. [00:43:00]
Blake Oliver: Oh, yeah, it's dumber than that? Well, did you see the article about Mint- Intuit's Mint? Have you-
David Leary: Yeah.
Blake Oliver: You use Mint, right? Or you have-
David Leary: I've used Mint for a long ... I still do. I use it less. What I mean by 'use it less,' I basically just use it as a place to check balances. I don't use it as a budgeting- I use it to track- make sure my stuff's categorized correctly, or any of that. I just use it to- a quick way to see what all my account balances are really quickly. Yeah, there's an article-
Blake Oliver: I used Mint, as well, for like three years to do all of my personal budgeting before it got acquired by Intuit, when it was new, and revolutionary, and connected to all my bank accounts; imported my transactions automatically. That was hot, and sexy, and nobody did that, right? I guess that was back in 2007.
I spotted this article. You obviously saw it, too: "What the hell happened to Mint?" in Fast Company. The first thing I thought was it's really not fair that journalists [00:44:00] get to complain about apps like this; they can just write an article. If they don't like something about an app they've been using, they can write an article that just rails on it, and we're stuck complaining on Twitter to nobody ... Is it legit? I don't know. What is the criticism here?
David Leary: There's a little background. So, in 2009, Mint was bought by Intuit for ... In those days, it was a lot of money; it was a $170 million acquisition. Decade later, Mint [00:44:30] is kind of what Mint is. In that meantime, during that decade - the last decade – Intuit actually sold Quicken. One of the reasons they sold Quicken was Quicken never grew for 30 years. It just never grew.
Ultimately, the same thing is with Mint. There's 13 million registered Mint users, and it just doesn't grow. The bigger reason - this is a much bigger thing with personal finance - is you could argue every single person in this country should be doing personal finances and be using an app to do it. The reality is somewhere between 12 [00:45:00] to 16 million do it. It's a hobby. Personal finance is a hobby. If people really did their personal finances properly, there'd be zero credit card debt in this country, right?
Blake Oliver: Right.
David Leary: This is not ... It's not a growing market. Nobody has to do it. It's just- So, obviously, a company like Intuit's only gonna invest what they need to invest in it.
Blake Oliver: So, they haven't really put a lot of new features in it. One of the criticisms is that it still uses Adobe Flash. Basically, [00:45:30] everybody has ended that because of the security vulnerabilities of Flash. So, I don't even know how you can use Mint anymore, if you wanna be secure.
David Leary: The bigger criticism is it [inaudible] screwed up bank feeds. I mean, we understand this is cloud-accounting industry-
Blake Oliver: Right.
David Leary: Banks, and bank feeds are a mess right now, and the transactions come through dirty. I think they gave an example about Sling TV or something, and it says the city it's in. It's just the consumer feeling the same pain all of us, as cloud accountants, feel with [00:46:00] bank feeds, and getting the data in.
But Intuit- companies like Intuit, and Xero are doubling down on cleaning up that data, getting it into the accounting system properly because there's a market for that. Nobody's gonna pay for that. Nobody cares. Nobody cares if it says Sling TV ... Well, this author of the article does ...
But if you really read the article from an objective point of view, the article has quotes from a former Mint executive, or the Mint Founder [crosstalk] Aaron Patzer, the founder; and then, a lead engineer, an early [00:46:30] lead engineer of Mint. How convenient that the article mentions that former Mint founder folks are launching a new personal finance app called Monarch. So, in my opinion, this is a complete hit piece to promote this new app that's launching this year.
Blake Oliver: That's a good assumption, yeah, that these-
David Leary: That's not an assumption. That's how these things get written.
Blake Oliver: It's a good guess. Well, if you're looking for a new personal finance tool, and you're tired of Mint not working, I have a recommendation. I personally use-
David Leary: You keep talking [00:47:00] about this-
Blake Oliver: What?
David Leary: We're waiting for a review, or a blog post. You're always talking about You Need a Budget, and-
Blake Oliver: Well, you know, I'm busy, okay? I'll get around to it. But, yeah, check out You Need a Budget. I've been using it for three months now, and I really like it. It's good. You gotta pay for it, but, again, you get what you pay for, right? I haven't had any broken bank feeds yet with YNAB. It's like 84 bucks a year, so everybody should be able to afford it because it'll save you that much for sure.
David Leary: All right, I [00:47:30] think I had a story last week, or two weeks ago; it didn't make the cut but Quicken- so, Quicken was sold. Another company owns Quicken. They relaunched a version of Quicken, a mobile version, and you gotta pay three bucks a month or whatever. It's like $40 a year, and it has a lot of other features that Mint doesn't have. If there's only 13 million people that are going to do their personal finances anyways, a huge portion of those would probably pay a little bit.
Blake Oliver: Yeah, but they're not willing to pay that much, which limits the market for this. That's why this is fundamentally different than TurboTax, [00:48:00] which is in the same group of consumer products that Intuit makes. People have to file their taxes, and they want to so they can get their refunds, so they're happy to pay for TurboTax, even if they could do it for free.
Whereas, with Mint and these other apps, they can barely charge a hundred bucks a year because people just aren't willing to pay for personal finance even though it's what they should be doing, and it will save them a ton of money, and help them save for retirement, and ... People just-
David Leary: Early on, this business model actually worked really well. It would look at your credit card balance, Blake, and it would know [00:48:30] your interest rate, and then you would try to find offers- it'd be like, "Hey, Blake, transfer your balance to this credit card to get a cheaper rate."
So, just like, early on, remember all the travel sites, you actually could get good deals. You'd go to this travel site, and they would play the prices. But now, all of those- all the banks, and all the credit cards, they're all ... They're not in cahoots, but they're all kind of in the same systems, the way the travel sites are. That's why when you go shopping for airplane tickets, it's the same price on every single site.
Blake Oliver: Mm-hmm.
David Leary: Kind of the same thing. There's no real deal anymore that's offered up in these apps. So, the conversion rates are probably really bad, but that was their business [00:49:00] model – "Hey, we'll do it for free, and we'll serve up credit offers, loan offers, et cetera, right?
Blake Oliver: Right, yep.
David Leary: On the other side though [crosstalk] Go ahead.
Blake Oliver: -there's only so many of those offers that you can sell to somebody before they're done. They've got all the loans they need, right?
David Leary: Yes, exactly. So, I have ... You mentioned tax, right? Barely anybody does personal finances, but everybody has to do taxes. This is a survey from FinanceBuzz.com – What tax anxiety? 95 percent of Americans feel confident about tax prep.
Blake Oliver: Wow, [00:49:30] 95 percent are confident.
David Leary: Yeah, and what's really interesting to this is how confident they are. Over two-thirds plan to file in January, or February, well before the deadline, and only two percent expect to file after the deadline. They're feeling good about their own tax-filing abilities. 89 percent reporting that they feel confident they have their withholdings set correctly and 95 percent saying they're confident they're taking all the deductions they can. That leaves five percent as [00:50:00] a possible customer base for all of you tax accountants out there.
Blake Oliver: Well, this is a vote of confidence in the industry, especially the Do-it-Yourself-
David Leary: Do-it-Yourself?
Blake Oliver: Yeah [crosstalk] They're doing a really good job of making people feel like they're getting their money's worth and that they're gonna file correctly. That's great.
David Leary: Just over half feel like they're paying too much in taxes, but 43 percent think they're paying just about the right amount, and 79 percent would prefer to receive a refund than to come out- break even at tax time.
Blake Oliver: Even though you're giving a free [00:50:30] loan to the federal government ...
David Leary: But at the end, though, it kinda feels like-
Blake Oliver: It is nice. It feels good.
David Leary: -a win. It's like a little victory.
Blake Oliver: Yeah. Well, because people don't save enough anyway, so it's the way that- that's the way they save. They save with an interest-free loan to the government that they get back at the end of the year. Let's go out on a high note, unless you got anything else?
David Leary: There's a teeny- some little small stuff on raises that some companies got.
Blake Oliver: Okay. Yeah, let's cover those.
David Leary: So, in January, already there's been a billion B2B- [00:51:00] fintech VC bets, right?
Blake Oliver: Yep.
David Leary: OnPay took in $6 million; FloQast took in $40 million.
Blake Oliver: Yes! My options might be worth something someday!
David Leary: Yeah. So, OnPay is a sponsor of the podcast.
Blake Oliver: FloQast, I used to work there.
David Leary: AvidXchange, they took $260 million, and they've taken a lot over the last couple of years. What's interesting about them, they're kind of an accounts payable automation play, but at a hyper level. So, if you're a Fortune 500 company, you have every one of your bills just go [00:51:30] to this company. They have a warehouse. They're opening the mail. They're processing, true end to end, not just like, "Oh, Send us a PDF, and then we process your accounts payable from that point. They're doing ... They basically have a huge warehouse, and they're doing it all at high volume - massive, massive scale.
Then, Ceterus, who we've talked about before, they're another accounting firm with engineers play; similar to the Botkeeper, Pilot, ScaleFactor ... We've talked about this plenty of times on this podcast. They've raised another $9 million, bringing their total raised to $30 million, and they really intend to use it to continue building out their automation [00:52:00] software. That's been the focus the last three years.
They also said that their focus - and it's still the core of their business - are franchise businesses; so Jimmy Johns, Orangetheory Fitnesses, Firehouse Subs ...That makes sense because if you're gonna build out software to automate processes, you wanna stick with franchises because they actually have processes.
Blake Oliver: Yep.
David Leary: It's really hard to build software to automate random business owners.
Blake Oliver: So, I got one last thing before we go.
David Leary: Yeah.
Blake Oliver: Some good news. Glassdoor is out with [00:52:30] their annual list of the 50 best jobs in America. Number 16 on the list, nestled between finance manager and program manager is - drumroll, please - accounting manager, with a median base salary of $85,794, a job satisfaction of four out of five, and job openings of 3.589.
three thousand five hundred eighty nine.
David Leary: So, get some. Go out there and-
Blake Oliver: Yeah. It has the 19th highest median base salary of the 50 jobs ranked by Glassdoor, [00:53:00] and it's tied for the ninth highest job satisfaction score, along with data scientist, and business development manager. That info is thanks to Jason Bramwell over at Going Concern.
What's funny is that, in the past, audit manager made their list of the top 25 best jobs. I guess that was back in 2015, and they're not on the list anymore. So, accounting managers, you're good; audit managers, sorry, I guess your job isn't so great anymore. Kinda makes you wonder how these lists [00:53:30] change every year, so much? They must be changing the criteria.
David Leary: So, we don't have to talk about this article, but we'll put it in the show notes because I see this discussion happen all the time about password managers. So, Tom's Guide is ... They'll review computer hardware, phones, tech, in general. They have a guide for best password managers of 2020, and they compare seven password managers and reasons you'd use one or the other – one that's good for your family use; one that's good for office, and client use. If you're thinking about ways to manage your client passwords [00:54:00] and manage your passwords for your firm employees, go check out that article. It'll just be in the show notes.
Blake Oliver: Cool. Well, David, I realized I gotta jump on a call. This was fun, as usual.
David Leary: When you're not on a call, what's the best way for people to get a hold of you?
Blake Oliver: @BlakeTOliver on Twitter, and I'm Blake@blakeoliver dot com - email me ... Leave us a review, and we'll read it on the air.
David Leary: You can get a hold of me on Twitter – probably the easiest way - @DavidLeary.
Blake Oliver: Cool. Bye.
David Leary: Bye.
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