Why CPAs Cheat On Ethics Exams

SEC slaps EY with $100 million fine for cheating on ethics exams; IRS launches new voice bots; Will IRS service improvements be the end of enQ?; Intuit pulling QuickBooks from India; Listener feedback on crypto; and more!

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[00:00:24] Preview

Blake: So, the business model of Public Accounting causes us to be less ethical. It's that we are overworked, so we cut corners and we are paid by our clients. So, when it comes to standing our ground, we have every financial incentive not to. To be weak.

And that's what happens in audit is that auditors are weak, and they don't stand up to the clients, and the clients get away with stuff that they shouldn't get away with. So, until we change the financial incentives and this business model where everyone is just too overworked, nothing will change.

David Leary: Coming to you weekly from the OnPay recording studio, this is The Cloud Accounting Podcast.

[00:01:16] Introduction

Blake: Welcome to The Cloud Accounting Podcast. I'm Blake Oliver.

David: And I’m David Leary.

Blake: We made it through the first half of the year, David.

David: July 1st, today, right?

Blake: Yeah.

David: Start of third quarter. Let’s start a big holiday weekend.

Blake: Right.

David: Are you traveling this week?

Blake: I am gonna be seeing some family, yes, but nothing super exciting.

David: I'm going to Italy tomorrow.

Blake: Italy?

David: No, not- on Sunday, the 3rd.

Blake: All right.

David: So, for two weeks. So, we'll be in Italy for two weeks. We’ll- I'll record from Italy. I'm going to go visit the birthplace of Luca Pacioli and see his statue. And if I'm feeling really frisky, I'll just climb up on it and put a Cloud Accounting podcast T-shirt on him.

Blake: And that is how David was arrested in Italy and held without bond for desecrating the statue dedicated to the father of Accounting in Sansepolcro, a town in Italy.

David: We could- I could put a shirt and some stickers, like an offering. I could do that at the base.

Blake: It looks like a beautiful place. Like, I'm not sure why- I guess, you know, Luca Pacioli had to leave his beautiful hometown in Tuscany to go to Venice, I think? Was that where he was?

David: He was in Venice for a while. Then I guess the French invaded, then they ran to Florence. They're kind of everywhere.

Blake: Florence, right, right.

David: Now, that super famous painting of him is in Naples, but I'm not going that south. I'm just doing Northern Italy. So, we're not going there.

Blake: Right. The picture that you see on Wikipedia, that painting, that's the one you're talking about there.

David: Correct, yup.

Blake: Well, awesome. That's great. So, now you can write off- you can write off a portion of your trip.

David: So, hopefully, I can- yeah, I’m gonna portion off the trip. Yeah. Well, yeah, the father of debits and credits. Or the person who documented it, I guess, is really, technically.

Blake: Right. Right. Because that's the thing, is a lot of people have the mistaken impression that Luca Pacioli invented double entry bookkeeping, but he did not. He was a mathematician who was the first person that we know of, to document the process.

David: It was a chapter of a bigger book, of all kinds.

Blake: It was a chapter of this like, massive-

David: There was some algebra and all this other stuff he was documenting. Yeah.

Blake: Yeah. He was- yeah. He's actually, I think, well known in mathematical circles and he was friends with Leonardo DaVinci.

David: Well, the perfect ratio.

Blake: They were actually roommates.

David: Probably had a lot- he had a lot of influence over that. But he- I have a lot of things bookmarked I'll read, you know, on the flight, but mostly, I just tend to eat and drink a lot when I'm there for two weeks. But we will record it. We will record live from Italy. We have to figure out time zones and what hotel I'm at and how Wi-Fi is going, but we will do an episode from Italy.

Blake: I am really jealous because you are gonna be recording from Lake Como in Italy.

David: Assuming internet and all that works, yes. Yeah.

Blake: Which is like one of the most beautiful places that I want to go to someday. You're gonna be there.

David: I'll let you know. We'll see how that goes.

Blake: Does it live up to the hype?

David: Live up to the hype. What I'm scared about is between Facebook, Twitter, and LinkedIn, I think I know six to eight people that are either in Italy or were in Italy in the last two weeks or going to Italy in the next three weeks. I'm just afraid it's gonna be like massive, massive amounts of tourists everywhere you go.

Except for the statue, ‘cause that's like way outta the way. Maybe that'll be the only private time I get in Italy.

Blake: I haven't traveled widely, but I feel like I did do a good stint backpacking in Asia. And there are those touristy places. And all you have to do is avoid those places. And then, you know, it's like, it's not that hard. Like, just don't go do the stupid tourist stuff. Like, don't go see the Mona Lisa. There's like, no point. It's behind glass.

David: The statue of David, just say, forget it. Don't go see the statue of David. Just, you travel all the way there, it’s your once in a lifetime chance, and just not go.

Blake: Yeah. I mean, like- I mean, maybe go see that in person, but like, you know, if it's something where you have to wait in line forever and it's just like gonna be behind glass anyway, like, what's the point, right? Like, that's just doing your Instagram thing, unless you're gonna go put a Cloud Accounting Podcast sticker on the glass on them.

David: For more info. And it'll just be a QR code that people can scan.

Blake: Yes.

David: Alright, should we jump into the news?

Blake: Yes, we have to, because we spent our last episode talking about one thing, our Abortion by The Numbers episode, which was a new thing for us. A kind of scary thing to do because we're treading into controversial, very political, very polarized-

David: Yeah. Emotionally charged issue.

Blake: Emotionally waters. And I was really happy-

David: And it breaks the rules of accounting, right? Because usually, you're not supposed to mix, like, what's the rules for accountants? Like, don't talk to your- about religion-

Blake: Don’t talk politics.

David: -or politics with your clients. Right?

Blake: Right. Although, like we said in the show, inevitably, finance and tax and accounting, it's very highly politically charged. And almost every issue has some sort of tax or accounting or finance consequence. And so, just like business leaders, CEOs of companies are being drawn into these conversations and drawn into taking positions.

I think so, too, are we, as accountants, going to be more and more drawn into this as our country becomes more and more polarized.

David: Did we-

Blake: I've been reading- mm-hmm?

David: Did we get any feedback directly on that? I know we got small email people. I've heard that he was very gutsy that you guys even did that, or attempted to do that. Some- there was some feedback on Twitter, but did we- any voicemails or listener mail or anything specifically with other thoughts or numbers that we didn't talk about?

Blake: We did. And so, I would be happy to play those voicemails. Let's save that for like the second half of the episode. We got two voicemails, we got an email. And I was really excited and impressed that the conversation has been so civil.

David: I had a little fear, like, did we- somebody was gonna blow up on us for even touching the topic. So, yeah, it's- I'm very impressed. Everybody's very mature. Everybody's taking very mature point of view on this across the board, except for all the people that blocked me and I don't know it. That's the other- you just don't know.

Blake: Yeah. Well, our show hasn't tanked, so that's good. The numbers are still good. Right? So, I guess we'll know. We'll know, based on the downloads of after that episode, of what happened. But I think the- generally, it's been positive and- it's actually all been positive.

I haven't gotten a single negative comment. So, I'm glad we did that. We might do some more of those kind of episodes. Not every episode, but as things happen in this country, as current events develop, we should talk about the numbers. Because that's my complaint about mainstream media. A lot of the time is, they're really good at telling stories. Journalists love to tell human stories, but sometimes, the data gets ignored.

David: It’s the more important part. Makes sense.

Blake: And the data- I mean, I wouldn't say the data's more important, but I say it's just as important as the human story, because the human story is like zoomed in. This is the impact on people. And then the numbers actually tell the bigger story. And you need both in order to understand the impact of something happening in the world.

And it makes sense, right? Journalists, they don't go into journalism, just like accountants don't go into accounting to do sales, journalists don't go into journalism to do accounting.

David: Math, yes.

Blake: Or math, right? So, again, we have those voicemails. We'll play them. Thank you, everybody who gave feedback.

[00:08:35] EY fine

Blake: I want to talk about Ernst & Young.

David: Yes. It's funny. I was thinking about this, just standing here, you know? Because we kind of didn't do a lot of individual news articles last week and we kind of have two weeks of news articles stacked up. And I was like, man, like, you're always like, I don't know. What's really the most important pressing thing?

And then of course the craziest news of all bounces up, EY cheated on their ethics exams is on the CPA portion. Like, can you clarify this for me? ‘Cause it's a little crazy.

Blake: Yeah. So, after you pass all four parts of the CPA exam in the testing center, you have one more thing to do. And it's a test you take at home or on your computer. You don't have to go to a testing center. It's administered by the AICPA. And it's the ethics exam.

It's an open book test. The problem is, it's really hard. And I don't remember the details ‘cause it's been a little while, but I actually remember that was the only part of the CPA exam I failed and had to retake, was the open book ethics exam.

David: This is like in will Wonka where you finish everything, and then there's still that last test. And he didn't know he passed it until he put that little gobstopper on the desk at the end. [CROSSTALK].

Blake: Right. There's the one last- one test you didn't know about. Yeah. Yeah. And so, I think- just ba- I remember taking it and being like infuriated by the questions. Like, they- it seemed like deliberately difficult beyond reason. Like it wasn't testing ethics, it was testing like- the questions were hard for no- you know what I mean?

Like those kind of tests where the questions are just difficult to be difficult. And so eventually, I took it the first time without- you know, I kind of browsed the study guide. I took the test, I'm like, “Oh, I'll pass it. I know ethics.” And then I failed. And so then, I got the PDF book, I believe this is one where I did Ctrl+F on the PDF. So, I had the question open, you know?

David: ‘Cause it’s open book.

Blake: And then I- yeah, it's open book. I could do that. And then I searched for the keyword and I could find it and then figure out the answer.

David: So, basically, it's what every high school kid has done during the whole, entire pandemic when they're online school. Like, you set the trend for that before with Ctrl+F.

Blake: Yeah, but it took a long time. Like, it still was not easy to find the answers. And so, what happened at EY, the test never changes. And literally, the order of the questions never changes.

And so, somebody had the answer key, right? People have the answer key just literally, like it's A, then C, then D, then B. And they just pass this around the firm so you can just get it done with and get back to work. And that's what was happening at EY. They're not the only firm where this happens.

This is very common. And they got caught for it. And then they tried to- apparently, tried to hide. They didn't- they tried to cover it up or something like that. The SEC got really upset after that, hit them with 100 million-dollar fine, and they had to admit that they were wrong. And so, it's the biggest fine. That's the news.

David: Against an audit firm from the SEC. And the SEC- so, we've all done this and app developers have done this, and maybe you've done this with your clients, where like, your client has a quote and you make this cool image with the quote and you put it on social media, right? We've done with The Cloud Accounting Podcast.

We might take a review and make it a quote. The SEC took time to make an image like in Canva about this. So, this is the Director of SEC's Enforcement Division, Gurbir S. Grewal. “It's simply outrageous that the very professionals responsible for catching cheating by clients, cheated on ethics exams, of all things. This action should serve as a clear message that the SEC will not tolerate integrity failures by independent auditors who choose the easier wrong over the harder right.”

But the fact that they even made artwork around this action just shows us how big of a deal this is, up and down, in the SEC.

Blake: Yeah, I mean, they're tooting their own horn, right? They're beating their chest. We got this. And you know, normally when these settlements happen, the firm doesn't even admit wrongdoing. It's just a financial penalty. They move on. I don't think this is gonna change anything. I don't think this is gonna change anything about ethics in our profession. We have a big problem with ethics.

David: ‘Cause it's a 100 million out of 40 million in revenue or whatever around that.

Blake: Ernst & Young, EY, generated 16.2 billion U.S. dollars in the United States in the 2021 fiscal year. 16 billion, with a B, dollars. This fine is 100 million. So, let's put that in context. If I'm doing math right, it should be like 100 divided by 16,200, I think, because what, a billion is a thousand millions? So, it's like less than- let's call it half a percent.

David: It’s what one hundredth of a percent, right? Or one tenth of 1 percent [CROSSTALK].

Blake: 0.006. This might be one of those bits where we have to cut it out because I can't do math live without Excel. You know, my fellow CPAs will forgive me for this, but anyway.

David: It's pretty teeny.

Blake: It's tiny, tiny, tiny. It's what I would call immaterial to their earnings and probably, to their profit too. And so, the question is, will this actually change any behavior? And I don't think it will, because as long as the SEC is issuing fines that are tiny, compared to what these firms are making, and compared to their profits, why will they change their behavior? And there was a really good point on Twitter.

David: But won't this change the behavior of smaller firms maybe that don't have that kinda revenue and this is kind of a scary fine?

Blake: I don't know that small firms aren't a target. Right? Like, it's not like the SEC's gonna go after like, you know, 100-person firm or anything like that, or a 1000-person firm. They're going after the big boys. Right?

David: Yup.

Blake: So, Mike Shaub, he is an Auditing and Accounting Ethics Clinical professor at Texas A&M. He's the Director of the professional program in Accounting. So, he's an ethics professor and he tweeted in response to the EY cheating case. He said, “We can do something about this if we have the will, but we have to have the will.”

And I said, “To do what? What are we gonna do about this?” And Mike Shaub said, “Public disclosure,” Professor Shaub, “Public disclosure has historically been done by the AICPA and the state boards when CPAs committed acts discreditable through the CPA letter and state board reports. When the big scandals happen, there's usually no clarity about anyone being sanctioned.

The recent exception was the KPMG partner/managing director in the exam stealing scandal. And of course, the egregious behaviors by one prominent person like Scott London's insider trading at KPMG, but the thousands who did it at KPMG and the hundreds at EY remain anonymous. Suspend people in firms from practicing before the SEC and PCAOB, or from taking on new clients. For students, give Fs for cheating or kick them out of programs.

These are people you don't want in the profession, and you don't want practicing. Lots of people who are CPAs shouldn't be- we don't need them in the profession and the firms don't need them to be successful. This isn't a great forum for a comprehensive plan, but I'm happy to chat offline about the design of my Accounting ethics course, if you like.”

David: So, is his argument-

Blake: Then he continues. I'm just gonna go to the end, “But an open-air, honest discussion of our feelings as a profession would be a good starting point.” So, basically, what I take this to mean is like, the individuals are not being sanctioned. It's the firm. And if the firm gets a fine that is immaterial, how does that change their behavior? It's like giving a speeding ticket to a billionaire.

David: Because no manager at the firm is gonna go around and be like, “I'm gonna make sure cheating doesn't happen at my firm because there's just too much money.” Nobody cares.

Blake: And why would they stick their neck out, right?

David: And does this professor- is he arguing that all accounting professors at all universities should be on the lookout for people that are cheating in their accounting classes and fail them so they never become in the profession ‘cause that's the problem?

Blake: That- well, that's part of the problem, but I think the other part of the problem is that these penalties don't target the individuals responsible. There's no- it's, you know, who cheats? The firm doesn't cheat. It's people in the firm. So, until you hold them accountable by publicly shaming them, by naming them, by stripping them of their licenses, you're not gonna really make a difference. The SEC-

David: Well, you can't bill clients for this, right? It's the billable hour. So, that's why they can't, like in the end, right? You're like, “Just get that out of the way, because it's, I need billable hours.”

Blake: Yeah. And that's the other reason this happened. The theory is- well it doesn't really have to be a theory. If you've worked in a public accounting firm where you're billable, you are constantly working to be billable. Oh, and you're a young accountant, right? You're new. So, you're being worked the hardest.

You've got the least time to spare and somebody's passing around the answer key. This is like sanctioned, essentially, by your superiors. And so, you have the choice. Do I be ethical and I go take the time and eat hours to pass this ethics exam, or do I just get it over with, and then get back to work?

Basically, they're overworked. And if you overwork people, they're gonna be less ethical because being ethical takes time. So, the business model of public accounting causes us to be less ethical. It's that we are overworked, so we cut corners and we are paid by our clients. So, when it comes to standing our ground, we have every financial incentive not to. To be weak.

And that's what happens in audit, is that auditors are weak and they don't stand up to the clients. And the clients get away with stuff that they shouldn't get away with. That's essentially it. So, until we change the financial incentives and this business model where everyone is just too overworked, nothing will change.

So, we are headed on a path ultimately, with the talent shortage, I think it's just gonna get worse and worse, where auditors auditing public companies will continue to cut corners ‘cause they don't have the labor to do it, and they're not adopting the technology fast enough. So, the audits will continue to decline in quality, and we will have probably in this country, a string of massive audit failures.

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[00:20:10] Ideas on how to fix auditing

David: So, then, why doesn't the SEC just create their own audit division?

Blake: Oh, why doesn't the- why doesn't the government audit?

David: Yeah. Why- they do the independent audits and you just get in line, you get your stuff audited and it's certified by the SEC. And then instead of them punishing companies that cheat, punishing companies that fail their audits or don't do audits properly, they're always playing- ‘cause really, they're auditing the auditors, in a weird kind of way. Right? Just do the audits.

Blake: Right. Right. Yeah. So, that is one argument, right? Is that we should just have auditors that work for the government. I'm not in favor of that because like in general, I don't think the government does a better job than private industry.

David: No, it's [CROSSTALK]. I don't think it's always a solution either. Yeah.

Blake: Right. Like innovation is even slower. Right? But I think that you could structure the audit professions. It's like, one recommendation. I think Ron Baker talks about this is, I don't know where he got it from maybe Baruch Lev, but he talks about, “Well, instead of auditors getting selected and paid by the companies they're auditing, why don't we have the SEC rotate the auditors and pick and decide, “Okay, you're gonna audit this company.

You're gonna audit this company.” And then also, instead of the companies paying the auditors directly, why don't these companies just pay into a fund that then pays out the auditors?” So, you're separating out that financial conflict of interest that auditors have. Now, the AICPA will go and tell you, “We have processes and procedures in place to prevent conflicts of interest, to overcome this conflict of interest.”

But I don't believe that any of those processes can actually eliminate the money conflict of interest, because think about it, just think about it. If you're gonna give somebody an adverse opinion, you're gonna lose that client. So, you have to decide as an auditor, “Do I let this slide and lose the money, lose the client or-” on all these difficult issues, right?

Like, you have to decide. It's a financial penalty for you. So, if you take away the financial penalty for being a good auditor, we'll get better audits. Seems pretty obvious to me.

David: Yeah. It's who's paying the auditors, the root cause of a lot of this.

Blake: Yeah. I mean- and then maybe the audit will be less of a- you know, just check the box activity and heck, there's even other things we could do. Like why are audits pass/fail? That seems like a terrible way to grade companies. When we do restaurant inspections, are those pass/fail? No, we give them a score, and that works really well. Right?

Restaurant gets a B or a C instead of an A, you know, that's gonna hurt their business. Right? And so, why don't we do audit scoring that way? Like, maybe you don't have to fail somebody. You could give them a lower score on their audit and then the markets could decide.

David: Yeah, that's true. So, if you get through 98% and everything's pretty tight, and you're like, “Yeah, there's this oddball weird stuff going on here. And it's immaterial,” maybe nobody cares and you score them as like, it's passed, but they get a last streak.

Blake: Well, no, we have. We have something like that, but I'm saying like, actually, like-

David: A B, C, D. Yeah.

Blake: -the way we score, like yeah. Like why- we give students scores in school. There are some schools that do like pass/fail. Right? But that's- you know, we generally don't do that. Why don't we grade public companies on their financials? It would give people more information. Right? Right now, investors don't get a lot of information because it's really hard- like, companies generally don't fail audits.

What happens is the audit firm resigns from the engagement. And then the company has to go out and shop for another auditor, and they find somebody who's less ethical who then gives them a passing opinion.

David: And I think that's- so, that's the pass/fail minute matter, ‘cause people are gonna be like, “Well, I can't have that B. You gotta make sure I get the A.” And they're gonna keep shopping until they get somebody who’s gonna give them the A, the A-chasers.

Blake: Imagine if in school- imagine if in college, the way that you got your grades for your classes was, you had to go out and hire another student to grade your papers.

David: Yeah, that would be great.

Blake: The student who was the easiest grader would get the most work, right?

David: Yeah. Or, I mean, this already happens, right? People will drop a class with professor A to move to professor B because something about that class is easier.

Blake: Yeah. And anyway, the whole reason that like audits are declining in value and that audit reports don't mean much is because we, as a profession, have made it that way. Like, we have reduced- we wanna reduce our own risk. So, we water down all this stuff. We don't look for fraud.

You know, we don't take responsibility, and that is what causes- anyway, enough about that. We gotta get onto other stuff.

[00:25:01] Marker

David: You wanna talk about the- we kind of have two stories that are connected here. So, remember we were at AccountingWEB and we interviewed the IRS commissioner, Darren.

Blake: Deputy Commisioner.

David: Deputy Commissioner, Darren Giot?

Blake: Gio. Gio.

[00:25:16] IRS bots and the impact on call waiting services

David: Gio. Gio. No T. No T. Gio. He- there was an article. This was last Tuesday, but they announced- but he was telling us there was bots coming. “Hey, we got some new bots and some- to handle the automated telephone stuff.” And what they've done now is they've added new bots to the IRS collection system.

So, you, Blake, can call up on the phone, make your payment arrangements all over the phone through a bot for your overdue tax balance. And you don't have to talk to a human. And so, these went live last Tuesday, to about 25% of their full capacity. And then I guess by this week now, they're 100% deployed. Right?

So, they've been- they're having a lot of success with this to help the call volumes, because really, you could take as many calls as you can. Right? You don't have to wait in the line. You don't have to be in queue to take a call. In the meantime, so this week, EnQ, so, CallEnQ, you know, like, “Hey, we'll call the IRS for you and wait on hold.”

Blake: Yeah. That's the service. You pay a subscription fee and they have bots that wait in line on the IRS phone lines, and then you can grab the spot where, you know, it's like five minutes- they're- it's the IRS agent's about to answer so you don't have to wait in line. They wait in line for you.

David: So, out of the blue, they tweeted something. And they haven't tweeted-CallEnQ itself has not tweeted since 2017. So, they just aren't, as a company, Twitterers. They just don't do things on Twitter. They responded to somebody on Twitter this week because, Phyllis Joe Kubey, @PKUBEYEA on Twitter, she linked to an article, and the title of the article is, “Urgent Update. Changes at the IRS impacting EnQ service.” And the gist of it is they're raising prices at EnQ for their services.

Blake: By a lot.

David: By a lot. And so, they jumped on and replied to this thread, but the blog post is gone. Like, they've pulled it off. The blog post is no longer live on EnQ. So, I don't really know what this said, what happened in the blog post, but obviously, they- they've raised rates. Something doesn't add up on EnQ side.

Blake: So, is the theory that they are- so, the bots- the IRS has deployed chat bots or phone bots now, voice bots. And maybe that's screwing up the CallEnQ service?

David: It's that, or the volume, or maybe is the IRS blocking them?

Blake: Mm-hmm. They could, with this technology, right? Because- right? I don't know exactly how CallEnQ works. I'd be curious, but you know, I can imagine that what happens is like, IRS agent picks up and then CallEnQ says, “Please hold,” and then puts one of their customers on the line.

But if a bot answers, that doesn't help the person who paid for CallEnQ, and now, CallEnQ’s gotta use their bot to try and get through the IRS bot.

David: Well, plus the business model doesn't make any sense because in theory, now, the IRS is getting better at answering calls.

Blake: Well, but they can only do so many things, right? The bot can do certain things. Like, it can set up a payment plan,

David: But every time they do this and they roll this out, that's less hold times for everybody else calling in. So, if IRS makes hold times decrease and CallEnQ’s gonna charge you more to be in line for a hold time that's decreasing, it's probably not a good business model.

Blake: Yeah, interesting.

David: So, I don't know. It's just fishy when a company doesn't tweet and just, they magically show up five years later and do one oddball tweet, and they have a blog post that shows up and vanishes off the internet.

You start to wonder what's going on at that company. And so, I think we'll- I'm sure we'll see stuff over the next week, two weeks here, of what's going on with them. But they're definitely obviously having some sort of PR issues maybe, would be- at least that's obvious.

[00:28:59] Some IRS updates

Blake: Well, the IRS is still struggling to get through their backlog of tax returns. According to the National Taxpayer Advocate, the backlog of tax returns at the IRS has grown to more than 20 million in the last year, despite efforts by the Biden administration to process filings and send out refunds more quickly.

They also said that the IRS was slow to use relief funds that it received as part of the 1.9 trillion stimulus package that Congress passed in March of 2021. It said the agency should have moved more quickly to ramp up hiring, reassign employees and make technology changes that could have eased the backlog.

David: When they had all their offices closed, they were supposed to wrap up hiring.

Blake: Yeah. I don't think it's quite fair, but also, a lot of this funding- when the funding is one-time, it's hard to use it because you're making investments that are gonna require years to happen. Right? And so, you can't just give them money and say, “Okay, fix it.” You gotta give them like, increased budget over years. But also, I could see like the IRS as an agency, it's a big one. It moves slowly.

David: I can testify that they made some statements, they were gonna hit some deadlines by the end of the month or yesterday. I literally got my letter on Tuesday from the IRS that they finally processed my 2020 paper return that I had to mail in for tax year 2020. And I got my refund deposited with some interest.

It got deposited yesterday. So, the IRS-

Blake: Congratulations.

David: -is hitting- they're getting through this paper return stack. It's happening. Not all of 'em got shredded or burned, or whatever they did to other supporting docs.

Blake: Meanwhile, IRS audit rates are still dropping and big earners couldn't be happier. That's the headline at- on CPA Trendlines The odds of a taxpayer being audited are astonishingly low. An average of just a quarter of a percent in 2019, way down from 0.9% in 2010. Now, if you're between 25,000 and 500,000, your audit rate is 0.17%.

If you're over 5 million, in the highest bracket, that has declined the most, dropping from 16% to just 2.35%. That's nuts. 16%, down to 2.35%. It's still higher, you know, than for all the other brackets, but still, you know, if you're making over $5 million a year, there aren't that many people who make that much money, right? It shouldn't be like that difficult to audit a good number of them.

And those are the folks who have the resources to do the most tax evasion.

David: Or if you audit and you find it, it's actually worth your time of chasing it.

Blake: Yeah. Yeah. So, the IRS cited three reasons. Attrition agents are retiring. New agents, you know? They need to get on board, major work disruptions. COVID 19, and tax law changes. So, basically, it's the golden age of fraud because you're not gonna get caught ‘cause nobody's auditing. Not on the IRS side, not on the Big Four side.

[00:32:09] Thank you to our sponsor, Digits

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Blake: A few more quick items here. We were talking about big firms, right?

[00:33:25] Audits by big firms % + young accountant quits corporate job to become fulltime influencer

Blake: There's a story in Accounting Today about the share of public audits by top firms. Interestingly, the top 10 firms with the most public company audit clients accounted for 68.8% of the total market. So, over two thirds of the market for public audits is just 10 firms. The Big Four, their market share actually declined slightly. It went from 49% to 44.7%.

And the other top 10 picked up more of that. They basically picked up those audits. EY audits the most public companies. Interesting. Huh? So, the firm that had the ethics cheating scandal is the one that has the most clients. I wonder if those staffers are also the busiest as a result. They don't make the most money.

I got one more story here. Here's a story about an influencer who quit her Big Four job to create content full time. Tonvy Shah left her corporate job at a Big Four Accounting firm to become an influencer. She has 70,000 followers on TikTok and more than 38,000 on Instagram. She increased her Instagram following from 5,000 to 38,000 in about three years.

She's 26 years old, decided to leave her big firm job after realizing she could earn just as much. She said the corporate world affected her mental health and her job satisfaction is now higher. Where did she work? Let's see. Does it say?

David: If you can do it, I guess, do it.

Blake: Article says in the finance world, there was a clear career path and progression timeline for Shah. However, she felt it would take its toll on her mental. “When I'm working for myself as a creator, I can manage my mental health by setting boundaries,” she said. “If I decide for a week that I can't work, I won't be outta pocket because of last month's earnings.”

Having a background in accounting and consulting, as well as knowing how to manage her money, helped Shah when becoming self-employed. “What people don't see is all the work that goes on behind the scenes. I feel strongly about self-management and have at least five different apps and tools for scheduling and organizing,” she said. “It helps that I know basic tax and accounting rules and a way to track profit and loss.”

David: Wait, wait, wait. How many tools? Sorry.

Blake: Five. Five tools.

David: Oh, five. Five, okay.

Blake: “It helps that I know basic tax and accounting rules, and a way to track profit and loss and expenses. I'm a finance girl and nerd. So, it was second nature to look at how much profit I was making.” So, having a background in accounting and finance can help you as an influencer when you're self-employed. Alright, David.

David: Or anything, right? If you have a background in accounting and finance, and do anything in your life, it should help you be more successful at running a small business.

Blake: That’s right.

David: Yeah, the only thing I think it helps you not be successful at sometimes is running an accounting firm. That seems to be a struggle for a lot of people. It's hard to run their own firm sometimes.

Blake: It's because cost accounting- my theory, I'm not gonna go on about this. I'm not gonna soapbox about this, but I think that actually, the big reason accounting firms suck is because they apply industrial cost accounting to people, and people aren't machines. You can't divide a person into 200- 2000 hours or whatever. That's not how people work.

David: Yeah.

Blake: All right, go on.

[00:36:36] 2 new bills introduced to congress

David: There's two bills that have been introduced here. One is a bill to double the R&D tax credit.

Blake: Hmm. Great. Well, the folks over at- was it Allegiant Group?

David: Alliant Group.

Blake: Alliant Group.

David: Alliant Group. They’ll be excited.

Blake: Might be excited about that.

David: And so, that's- and there's a lot of companies that are, you know, in that space now, that's like help companies figure out what the credit is, and then take a percentage of this. So, if they double the formula, right, and they double the rate, all these companies are just gonna get a percentage of a much bigger pie.

So, it's- I wonder what's really driving this. It's kind of interesting. So, they call the bill ‘The Fostering Innovation and Research To Strengthen Tomorrow Act’. So, it's the first act, so that exists. And then there's another bill that's been proposed, this is by senators. It’s a bipartisan bill. It's called the ‘Payment Choice Act’.

And we've talked about this before in the past, it's kind of a reintroduction of the bill, but essentially, it's to prohibit businesses from requiring cash, which to be honest, is kind of annoying. We were at Scaling New Heights-

Blake: Oh, business that only takes cash?

David: -and that hotel was no cash.

Blake: Yeah. Oh, you mean it's to stop businesses from prohibiting from only taking electronic payments and not taking cash.

David: Prohibiting, yes, or charging people extra fees if they pay cash. I mean, we talked about this before the beginning of the pandemic. It's safer. Maybe it's easier to account for, but at the same time, still 5% of the country is unbanked and- or for whatever reason, prefers not to have a bank account and just use real deal cash. And so, they have a- so, that's another bill.

So, basically, there's a- and actually, sorry about that, it's 5.4% of U.S. households are unbanked.

Blake: Well, related to that, I don't know if this is the same bill you're talking about, but Cynthia Loomis, who we were talking about on-

David: Different bill.

Blake: I think two episodes ago. Different bill. So, she's got a bill with Senator Gillibrand, together, that they've put into the Senate, that they've proposed, that would- we have to talk about this more on another episode ‘cause the tax implications are huge.

It would basically exempt tax on any crypto transactions, like payments of crypto for goods and services under $200. So, similar to how, like, if you go abroad- David, you're going abroad. So, this is related to this. You're gonna exchange your U.S. dollars for Euros. And under a certain threshold, you don't have to go and report like a gain or a loss, and pay tax on it.

And that's just like a diminimous, like convenience rule, right? Because it would be annoying if every tourist from America, if every American citizen had to then report all that, right? Every time they just take a vacation. So, because, you know, crypto has that situation where it's you know, treated like a commodity and every time you buy or sell it, you have to calculate a gain or a loss, they wanna write into the law that- into the tax code, that if it's under $200, you don't have to do- calculate the gain and report the income.

David: This could make a lot of sense. And I wonder, you know, what's driving this? But obviously, the numbers, it's measurable, right? Square, all these companies that are- Venmo- that are letting people buy teeny amounts, but- and even myself, like, I've spent under $200. I don't have to deal with all the tax implications of this.

I have under $200 of crypto.

Blake: I know, but just think about how much tax evasion that will enable, because now, I can structure- I can buy and hold Bitcoin. And then when I wanna spend it and I've got a big gain, right, I can just do a bunch of small transactions. Now, there's an exception in the bill that says you can't take a single transaction and divide it up that way.

David: Oh, so this is not about your total crypto movement over a period of time. This is per transaction.

Blake: No, it’s every transaction.

David: Oh yeah, that’s not okay. That doesn’t make sense.

Blake: So- I know. And then they say, okay, well there's- but then the counterargument to this is, how is the IRS gonna enforce this? How are they gonna track this? Like, if you make this exception in the law for crypto, you're just gonna enable people to pay no tax on crypto, in a lot of cases. ‘Cause they're gonna divide up all these transactions into smaller amounts and it’s a handout to crypto.

David: But the one thing that they've proven now, the government has proven, crypto's very tracked- traceable and trackable. This whole notion that, “Oh, it's privacy and I'm hidden, and all this,” it's been proven ‘cause they've gone and collected. Remember that Silk Road thing before, the Russian oligarchs, they are- they can trace this money and go take it.

They made these pools, right? The IRS did, and the SEC. They made these pools, and the FBI has.

[00:41:17] Coinbase selling geolocation data

Blake: Well, and I wasn't gonna talk about this, but since you brought this up, the traceability of crypto, there's a story about Coinbase selling geolocation data to U.S. federal agencies now.

David: So, Coinbase has that data because they probably need to know your customer when they let people exchange funds. And they're like, “Hey, how do we monetize this? We'll sell it to the law officials.” Wow.

Blake: Yeah, not good- not good PR. Yeah. So, they’re apparently- one of the headlines in Gizmodo is ‘Coinbase is selling data on crypto and geotracking to ICE’, or immigration enforcement agency. It's called Coinbase Tracer, the analytics arm of the cryptocurrency exchange Coinbase.

David: Stay away from all the people. It is really bad, across the world.

Blake: So, Coinbase, this product they sell is for governments, crypto businesses, and financial institutions. It allows these clients the ability to trace transactions within the blockchain. It is also used to ‘investigate illicit activities, including money laundering and terrorist financing.”

“Screen risky crypto transactions to ensure regulatory compliance.” So, apparently, the contract was signed in September, 2021, but was now obtained by Watchdog Group Tech Inquiry. It was a 1.37 million-dollar deal, and it was a three year contract for Coinbase’s analytics software. So, if you're looking for anonymity in the crypto world, you know, I mean, you're building a trail, right? Like, that's forever.

David: And some of this is just tech companies in general, folks. Like just, did you see all those- Firefox did a big study on the top- there's all those like Headspace and like meditation apps, and apps for you to do online counseling appointments, all those apps are selling your data to ad vendors. All of them. They're all- all of them were guilty.

There wasn't one that was like, “Oh, look, this one app. They actually keep your data private.” They sell it all. So, if you're talking to a counselor about erectile dysfunction, they're selling your data to Viagra so they can target you with ads on Facebook. Like, that's the world we're in.

[00:43:27] Thank you to our sponsor, UCollect

David: This episode of The Cloud Accounting Podcast is sponsored by UCollect. Xero and QuickBooks are great for automatically sending recurring invoices to your clients, but you need to rely on your clients to pay their invoices. Sure, they'll pay. But usually, when they feel like it, and that could easily be days, weeks, or months. You then need to chase, collect, manually reconcile the client's payments ‘cause you have a half automated process.

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[00:44:43] Coinflex

Blake: Here's a crazier crypto story, David.

David: How does this keep happening?

Blake: Okay. So, let's say you had a Ponzi scheme, David, and your Ponzi scheme was running outta money. Normally, you just give up at that point, you're done. Right? But no, not in the crypto-

David: Because I hit the bottom, I can't find any new investors to invest in this game to pay my- the first investors.

Blake: Well, and let's quickly review what a Ponzi scheme is. Always good to do, right? Because we use that word a lot, but we don't always talk about the same thing. Ponzi scheme is when you take money from new investors to pay out old investors. So, you're not actually investing the money.

You're creating fake database.

David: So, you tell me I'm gonna get a return, and instead of you doing-

Blake: And a high one.

David: -something to create a return, you just go and sell it- get some new investors and take that, their money, and pay me. And then I'm like, “Ah, I got a return. This is great.”

Blake: Yeah. And that, in essence, is defi, in some cases, right? Decentralized finance based on blockchain. So, let me get into the story now. So, there's this crypto exchange called Coinflex. Coinflex is one of these crypto banks, you know, they're in exchange, they allow you to invest your crypto with them, and then they'll pay you a return.

And the way they get that return is by taking your crypto and loaning it out. That's how banks make money, right? They take your money and then they make more money by loaning it out. Banks increase the money supply in our economy. Now, the problem with this is, what if people get scared and then everybody at the same time goes and asks for all their money back from the bank?

The bank doesn't have enough money. They've loaned it out, right? They don't have enough money to pay everybody. So, that's why we have the FDIC, right? That's why we have regulators to make sure that banks don't loan out too much money to stress test them. Because we went through this in our traditional financial system, over hundreds of years with bank runs and The Great Depression and all this stuff. Right?

And eventually, we learned our lesson. We said, the free market cannot handle this. And so, we need to regulate it. Well, crypto, unregulated, right? So, we have these crypto banks, what are essentially banks, like Coinflex, and sometimes, they get into trouble. And I guess there's- it's not quite clear exactly what happened, but in the latest crypto crash, they had a very, very big investor, a trader, who had like 47- what was the amount?

It was a large amount. Right? And, basically, didn't make good on his- on repaying his loan. So, Coinflex had loaned out its customer deposits, right? Loaned out money, customer, big investor doesn't pay back the loan. Now Coinflex doesn't have the money to pay back its account holders or it's depositors.

And so, Coinflex's solution is to issue 47 million dollars’ worth of a new digital coin offering 20% interest, which is called Recovery Value USD or RVUSD. And if they can raise enough money with this new coin, they'll pay back their existing depositors.

David: So, you have one Ponzi scheme. Now, you set up a new one and use that to pay off the people in the first Ponzi scheme.

Blake: It's genius. The solution to your failed Ponzi scheme is a new Ponzi scheme, and you can do it right out in the open. So, the question- you know, and that's the thing is like, they're gonna pay 20% on this. Well, where's the 20% gonna come from, right? They're gonna loan out the money. They're gonna do the same thing again.

And there's no transparency. Like, the deal with this investor or whatever. Like, apparently, the investor even had some sort of clause in their account that did not allow Coinflex to liquidate their position. Like, they had made some deal where they couldn't get their money back. And so, this is a really interesting philosophical question, or I guess economics question, about the whole future of crypto.

The promise of Bitcoin. One of the core promises of Bitcoin is that it has a limited supply, unlike Fiat currency. And one of the problems with Fiat government-issued currency that's not linked to any asset like gold is that the government can just go into debt and then keep on printing money, and printing money to pay its debts, which inevitably, in 500 years of history, always leads to inflation and devaluation, and sometimes, total collapse of a currency. Right?

And that's one of the big questions, that are we headed that way in the United States? I don't think in the short term, but long term, that like every empire ends that way. It happened in the Roman- it happened to the Romans, right? It happened to the British, it happened to the Dutch.

It happened to- who was next after that? I guess well, we took over from the British, and it could happen to us next. Right? Happened to all the Chinese Empires. I'm reading Ray Dalio's book, Principles, and like this- so, this is not me coming up with this. Like, it's just like the natural cycle of debt.

And so, the promise of Bitcoin is that it's a fixed supply. And so, you can't have that, right? You get- that's not gonna happen.

David: Yup.

Blake: But the problem is, we figured out how to overcome this fixed supply with defi. And with defi, you can create more money out of thin air by creating new cryptocurrencies. And so, people loan their Bitcoins into a crypto bank, and then the crypto bank goes out and like creates new cryptocurrencies that are backed by Bitcoin.

David: Yeah, this is-

Blake: And so, you lose the whole, like central core value of Bitcoin, which is that it's a limited supply. Because you can make unlimited cryptocurrencies.

David: Yeah.

[00:50:44] Does the US economy have to fail for crypto to be successful?

David: Did you hear the article- I know you listened to the Indicator from Planet Money about the- the nine-minute- it's a nine-minute episode of the podcast, but the title, it's ‘The Promise and Peril Of Crypto For Black Investors’.

Blake: No, I haven’t.

David: And so, essentially, the argument here is at some level, crypto has been marketed to black investors more because some of it is like, “Oh, this is your chance to participate in the new future of the economy, and not get screwed like you have for centuries.” But what's happening is they're getting screwed like they have for centuries. Because they're being targeted and marketed to, and they're playing on their emotion of, “This is what's gonna help put you on a level playing field.”

But one of the stats that were in this episode that was really interesting. So, obviously, remember the whole one percenters, you know, the 1% in the country, just the one percenters and the protest against the one percenters. You have the one percenters in the country.

Blake: Oh yeah. In the last election, or maybe that was you in one of the cycle before.

David: Yes, but essentially, in the country, it's the one percenters own, like what, huge amount of the wealth. Something something.

Blake: Half of the wealth or something. Yeah.

David: And crypto, it's the 0.01%. It's even smaller number of people. So, like this whole thing, it's a completely rigged game. Like, you've gotta get out of it, people. Like, it's very obvious.

Blake: Well, and that's what I- my question is, and I don't know the answer to this, is like, who is selling you the crypto? Think about it. If crypto is gonna go up forever, why would anyone ever sell it? So, who's- who is selling? It's the people who got in really early, that top- that 0.1% that are selling and cashing out. It's the Greater Fool Theory, right? So, you're betting that somebody else is gonna buy it from you, when you've got 10X or 100X your investment. But eventually, that has to stop. It’s all based on that.

David: I doubled my position two weeks ago, three weeks ago when Sean Stein Smith said, the object here is to buy low, and that's almost all gone. My double of the position is almost all gone now as well. Like, I'm still waiting, you know, for the- when should I sell this?

Blake: Well- so, here's my thing about Bitcoin. And we actually have a listener message about this we could get into, which is, the only way I think that Bitcoin and crypto has- the way that it has value is if the U.S. dollar collapses as the global reserve currency and crypto takes its place. That is when a fixed supply, you know, digital gold could become really, really valuable because it's a way to store value in a highly-

David: If there is a gigantic, well-funded, the greatest military in the planet, in the history of the planet protecting the value of Bitcoin. Like, this is what- that's what actually backs the U.S. dollar, is the massive military industrial complex. Like, that's what makes- that's what backs the U.S. dollar.

Blake: Well, and the fact that every other country like holds U.S. dollars ‘cause it's the global currency.

David: Because it’s the safest. It’s the safest.

Blake: It's the safest currency. Because we’re the most powerful country.

David: It's backed by the world's- historically, the most powerful-

Blake: Ray Dalio says the U.S. is in decline. We've- we reached our peak in the sixties. Right. And we've got- his timeline is something like empires last- what did he say? Like 150 to 200 years, give or take, 75 years, something like that. Right?

David: And this is that whole- go ahead. I lost the word I was gonna say anyways.

Blake: That's alright. If you think of it, let me know. But like, basically, you know, if that happens and the U.S. dollar, if we decline militarily, we withdraw it internally if our internal divisions increase, right? Which it looks like it's happening, right?

That's- like, you look politically at where the country is. We are becoming more and more polarized, which is a classic symptom of a declining empire. And the wealth disparity is greater and greater, which is also causing the political- which is causing the political discontent. So, if the U.S. dollar collapses, then something has to take its place.

And if you are a Bitcoin believer, right, you think that's what's gonna happen. And that is legitimate. That is a legitimate bet, but I don't think it's gonna- like, that's not a short-term bet. That's a really long-term bet. And a lot of stuff can happen in the short run. And it might not be- because-

David: And for the- like, chances are, if the U.S. falls apart to that point, it gets to that point, the U.S. crumbles, you being glad you had some money stored away in Bitcoin, that you can't access ‘cause now, the U.S. doesn't even have electricity for you to access your Bitcoin. Like, it's the craziest argument in the longest term play.

That's insane. Now, if you wanna put $500 for long term, like you're planting Kona trees for your great, great, great grandkids to harvest and get the beautiful wood out of that, fine. That's the game you're playing, play that game. But this whole, I have faith, I'm gonna make a bunch of money in the next two weeks, like, let go of it, folks. Like, this is not a real thing.

Blake: Right. Well, if you're gonna make a bet on this, it's decades long, is what I'm trying to say. Like, probably multiple, like generationally. I think we have another generation left, you know, maybe two, before the shit really hits the fan.

David: And if you're thinking generation, then go buy a big old chunk of land. Like go buy- like buy something else. And all you guys are- the crypto haters have constantly come at us. And like, literally, I'm the only person I know that actually has bought crypto and used it as a way to like pay other people, like experimenting with the possibilities of crypto as in a method of exchange.

Like, I can get a podcast player app, and I can send money to another podcaster through an app. Or I listen to the podcast real time, but nobody else is actually spending Bitcoin. There's just- it's an investment. Like, I don't- so, the haters can hate all they want. I've actually- I'm trying to actually utilize your damn thing. I'm actually trying to use.

Blake: And that's the thing. It's not gonna be- it's not a currency. It’s not a currency. And it wont be.

David: Yeah. And stop saying you have faith. Like, that makes me say, it's a religion. Stop saying you have faith in this. Like, stop- every time someone makes an argument, they use that word faith, which just proves it's a religion. So, come at me, haters. Come at me ‘cause I'm gonna spin us up a lightning network, Blake, and all these haters, to prove that crypto's a valuable thing.

They can send us money to our podcast, a new podcast app and send us money through crypto. They can boost our show when we say something they like- you said we got a listener mail?

Blake: So, we got a bunch. We got some on the abortion discussion, which unfortunately, we don't have time in this episode to like release, and I'm thinking, I dunno, we either have to do it in the next episode or we do some sort of like bonus with our listener mail. Maybe we do that.

David: You know, let's- the abortion episode listener mail, we could break out to a bonus episode.

Blake: Okay. And it'll just be like listener feedback.

David: From that, from the abortion episode, yes. but then we can-

Blake: And it’ll just be those. Yeah. Okay. Well, we did get a crypto response on the crypto discussion. So, I feel like we kind of should read that. And then was there anything else? I think that was it. There's so much more I wanna talk about David. It's like, we need to do this more than once a week. I don't know.

David: Do you wanna jump into this email or do you want me to knock out two small app news things super quick and then just into listener mail and feedback?

Blake: No, no, we're just gonna have to save it for- let’s just do the crypto.

[00:58:18] Intuit pulls out of India

David: Well, one of them’s kind of a big deal.

Blake: What’s that?

David: Like Intuit pulled out of India. QuickBooks.

Blake: Okay. Wow. Really? Wow.

David: And there's not a lot of news on it with the reasoning why, but they basically are, as of January 31st, 2023, you can't use any QuickBooks products in India. Those will not be available.

Blake: Have they been in there for a long time or is that like a new thing?

David: They entered- I want to say they entered 2017-ish or something.

Blake: And any idea why they're pulling out? Or is it just that-

David: They entered the market in 2012. But yeah, there's no news on the reason why. Now, they're keeping their development center there. Right? So, there's engineers building QuickBooks for the rest of the world in India, but there is no- there's not gonna be a QuickBooks in India. Now, the interesting thing about this is, I think we've covered this before, the Indian government had some timelines and dates where you had to have all your stuff in a place that had an audit trail, right?

And I was like, this is a good opportunity for something like QuickBooks, they got a nice, built-in audit trail. So, there must be some other reasons going on, but there is nothing- you know, there's no real statements from Intuit on this. All the statements are like, focused about how, “Oh, we're still gonna employ 1200 people there.”

[00:59:32] Listener email about crypto

Blake: Okay. So, to take us out, I'm gonna read this email from Jonathan Reed, to add some other opinion to our show. “Guys, I've been wanting to chime in on your crypto discussions for a while, but I haven't taken the time. But now that it's crashing and there is a bit of gloating on the show, I'd like to suggest you slow down a little bit. You aren't wrong that there is hype and scam artists and risk.

Absolutely. It is a volatile, new, unregulated asset. Speaking of crypto as a whole is dangerous. Let's try to stick to BTC just for ease. For the record, I am not a crypto bro. I'm down massively, started buying too late to take gains or really have long periods of good growth. I didn't buy quite as at the top as you did, but started in 2021.

Anyways, the discussion you keep having is that the crypto is crashing. That is something inherent about Bitcoin or crypto. It is a volatile asset, as I've already said, and it is not ready to be an inflation hedge or digital gold. There's a lot of salesmanship in the Twitter space, but you seem to completely ignore the overall economic picture.

Even when you address it, it still seems to single out crypto. People sitting at home, playing with stimulus money are realizing it's not a real sustainable thing.” I think that's a quote from you, David. “That is a partially correct statement. Many people who weren't struggling, but were stuck at home, had large amounts of stimulus and pumped it into crypto, the stock market, Wall Street bets, et cetera.

Now, as that money dries up and inflation rears its head, and the economies of the world are faltering, people are pulling their money from risky investments. That's the point though, they are pulling it from all risky investments. They didn't wake up and say, “Hey, crypto is bad and a Ponzi scheme. I better get my money out.”

They don't trust any investments and are selling, hoping to buy back at the bottom.” And then he provides some charts. So, we see Bitcoin is down, S&P 500 is down, NASDAQ is down, even gold is down.

David: But on those charts though, let's start with the first chart. What is the percentage down as Bitcoin?

Blake: Yeah. Oh, yeah. I mean, you know, way, way, way down. I mean, you can’t really read the-

David: And then the other ones are all smaller and smaller and smaller and smaller and smaller. Yes. Everything is down, but like, you're making the argument that the thing that's down double is better than things that are only down a little.

Blake: Yeah. I mean, Gold's down 6%, 8.3% from its peak during the period. I, guess like it's a six-month period. Let me finish this and we'll discuss, continuing on with the email. “As someone who has a play account of pretty risky stocks, and by risky, I mean, tech-focused more Kathy Wood type investments, the type that boom during the stimulus, they're all doing as bad or worse than my crypto investments.

The fact is that risk-based assets are just tanking. Gold is actually declining. The entire market has been inflated by easy money, low inflation and government stimulus for the last two to three years. And realistically, since 2009. And realistically, since 2001, when we started playing this game of near zero rates in fed constant easy monetary policy.” As an aside, that's exactly what we're talking about when we look at like the debt cycle.

It started in that time when we hit zero interest rates, and the feds started doing quantitative easing and buying assets and like, has this giant balance sheet. It's just basically printing money to pay our debts and to keep the economy going, but that can't go on forever.

Continuing on. “What we are seeing is far more about unwinding overvalued assets as a whole, of easy money going away than any statement on crypto. Yes, it's riskier than IBM or GE or Apple. It's definitely riskier than a mutual fund, but you don't have the promise of wild upsides without the risk of wild down swings. Good stewards of investment advice always caution to never invest more than you can afford to lose.

And in the BTC world, that is repeated over and over, to never leverage, to not over invest, and frankly, to dollar cost average. Don't buy $10 at the top, but rather $10 a week or a month or whatever amount you can afford.” And then there's a list of stocks that have underperformed over the year, versus BTC. “So, that's enough, you aren't 100% wrong about your concerns, but the glee and self-assuredness of your views without actually really diving deep enough into knowing about crypto and the positives and negatives with an open mind actually detract from your podcast.

This is my first crypto winter, but I did the research to know it isn't the first and it would be coming to know that there have been multiple crypto and Bitcoin crashes that were the “end of that fake money” and that to date, it has always recovered and reached new highs. At least my faith is based on research and knowledge of history. Best wishes, hope to not have to hear much more about crypto from you guys.

And if you want my BTC wallet address to send that worthless crypto to, I'm more than happy to take it off your hands. Jonathan.” Thank you, Jonathan, for your email. I do appreciate it. And I appreciate the discussion. I guess what I- the problem I have with this is past performance is no indicator of future success.

So, you can't just say that there have been crypto winters before, and they've always recovered because someday, there might be a crypto winter that doesn't end. And unless you have a reason why it won't, like the end of the U.S. dollar or something like that, then I don’t think that’s a real argument.

I mean, I don't think that is a sound, logical argument. So, yes, everything is down, but crypto is farther down, right? It shows that crypto is more of a speculative asset or Bitcoin is more of a speculative asset than anything else right now, except for possibly, some tech companies, which- like tech companies make- it makes sense that they are highly speculative because you're betting on their future potential to take over entire markets and disrupt industries.

And they're gonna make bundles and bundles of money if you bet on the right ones now, and in 10 years and they're gonna own the market. Like, that’s a good reason-

David: But you're also betting on a company that in theory- I mean, sure, there's startups that flame out and you find out, oh, they weren't building their product. Right? And just burning through investor money, but in theory, companies are actually producing a product of value that they're going to resell to somebody else.

Blake: Right. Get your cashflows.

David: Crypto's whole model right now is, I'm just gonna buy this and sell the crypto itself to somebody else.

Blake: In the future. Right. And that's the Greater Fool Theory. It's a- you know, not a nice way to say it, but it's basically saying that you think that someday, somebody else will be willing to pay you more than you paid for it. But the question is always why? Why would they pay you more? There has to be a reason.

The only reason I can think of, because Bitcoin is not a great- it's not a great medium of an exchange. And you know, it's very expensive and slow as a medium of exchange. And there's all this volatility. And I don't think it's gonna ever be a great store value until it's regulated because of like the issues we see, right, with defi, creating the same problems we have with Fiat currency, where it creates a uncontrollable supply of money and over-leveraged crypto exchanges. Right?

Like, the only way to earn a return on crypto is if you loan it out and then people are creating new cryptos with the cryp- like, it's-

David: Well, like I said, I'm trying to use it. Because some part of like Satoshis, which are like one 600000th of a Bitcoin and this comes with these micro- instant micropayments in the lightning network is interesting. Right? Like, it's interesting, but like, that's where this is at in its maturity.

Thinking you're going to get rich on this and invest in it is a sucker’s game because the guys who have it all already got it all.

Blake: I just think that- I mean, to me, that's also not a good argument to not invest, is just because like other people got rich early, right, doesn't mean that I can't also. Like, you should look at- you shouldn't look- you should look at starting from now, what is the investment opportunity? Like, why will this increase in value?

And to me, there's like just as good a chance or actually, a better chance that if the world power dynamics change and the U.S. declines, and China rises, that the digital Yuan, the cryptocurrency controlled by the Chinese government will be the thing that we all use to spend money internationally.

David: Assuming we have electricity. Like, if we're going down these paths of the collapse of the U.S., let’s assume we don’t even have electricity. This is not gonna be an issue.

Blake: Well, no, and I should say, David, when I say collapse, like, there might be wars, right? And there might be conflict. But it doesn't- you know, like when Britain declined, they didn't lose their electricity. Lost some of their standard of living, right? And Europe, too. Right? Europe and Britain are like old powers that declined.

And actually, a lot of people would be happy to go live in Europe, that I talk to. Right? They’re like, “Oh, I'd love to have some sort of like guaranteed, you know, standard of living and all that stuff.” So, you know, it's not also bad. And it doesn't mean the end of the world. It just means like, if you're making long-term investment decisions, that's what you should be thinking about when it comes to crypto.

‘Cause that's the only thing that I can think of that makes it an investment. And then you gotta think, “Well, I'm betting on like the decline of the American Empire.” Like, that's real patriotic of you to do. And this is a July 4th episode, right, David? So, if you invest in crypto, you're betting on the end of America.

David: And if you think about this, like the American experiment, right? Yes, it's an experiment. Nobody was sure how democracy was gonna work. Right? And yes, it may not last forever. And that- and as long as maybe that's the investment you're making and you're aware that that's your bet, you're betting that the American dollar is going to fail at someday in the future. If that's your bet, that's your bet.

Blake: Yeah. Yeah. that the U.S. will default on its debt obligations.

David: I would love to bet that you'll be dead before this happens. Like, that's can I buy that coin? Can we mint a coin that like bets against people being alive with-

Blake: I think it could happen in our lifetimes, you know? I think it certainly could, but it's like, it's gonna take decades and decades. I mean, maybe it could be faster. Nobody really knows. Right? Like the course of events could be suddenly very quick. But you look at- if you look at like the cycle of these empires, like, you know, we're just coming down from the peak, if we're even coming down.

So, there's a long way to go before we hit bottom, or before we get halfway there. You know, like the British- I mean, this book, Ray Dalio is worth reading. Like, look him up on YouTube. He's got really good YouTube videos, and he's got no other reason to do this. Like, he's- this guy runs the biggest hedge fund in the world.

He's got no reason to give out this information, other than to like help people. And he talks about this stuff. It's very educational, economically. And you can learn a lot and, and you know, every- these cycles take quite a while.

David: And the other gamble that's stepping against you in this whole thing is the way technology is, there's probably a better bet something that's way better than Bitcoin will be created and invented 20 years from now that'll just completely make Bitcoin completely useless. Like, there can’t be-

Blake: Right. Like, all the problems with- all the problems with Bitcoin, somebody is gonna solve those. Right?

David: Yeah.

Blake: And so, why would Bitcoin be the thing? Why would the first crypto be the one that dominates? Like, that almost never happens. Like, the first product is not the one that ends up winning. Like the iPhone.

David: No. Like, we don’t have Nokias. We don’t have people running around with Blackberries. We don’t have Blackberries. So, as long as long as you know what you're doing, fine, invest, but it's pretty clear that like over and over again, all indications are this is not legit. And it's a- and at this point, like, it's a sucker's bet. So, good luck, everybody.

Blake: David, if people want to harass you online, where can they do that?

David: You can find me on Twitter. I'm @DavidLeary. It's actually- it's funny. Some guy, I wasn't sure if he was a bot or not, followed me on Twitter. And then he sent me a direct message and he was like some crypto CPA guy. I've never seen him before ever in my life. And then he sends me a direct message.

He says, “How's it going?” I said, “Horrible. I lost money in Bitcoin.” Then he asked me, “How much?” and I said, “$25,” and then he blocked me, and he's gone. He's not on Twitter anymore. I have no clue who this is, so. If you wanna have those same conversations, please, I will be happy to share my Bitcoin losses with you.

Blake: I am @BlakeTOliver. You can also send me a voicemail, Blake@BlakeOliver.com. Just record a voice memo with your phone and then send that my way. We'll listen to it. We will likely play it on the air. Apologies to everyone who did send messages that we couldn't get to. I'm gonna look into figuring out how we can put those out as a bonus or something.

David: Actually. You know what? It’ll be good next week ‘cause I’ll be traveling.

Blake: Oh, we could just play them then.

David: Yeah, it'll be much better to do then and-

Blake: Yeah. I think that might be easier for you, then you don't have to prep so much. You should enjoy your vacation, David. Try to unplug.

David: I'm not bringing the laptop. I'm not bringing the laptop so.

Blake: So, I can just- we can just play listener voicemails, and then I'll get on my soapbox and we'll be done. It'll be perfect.

David: But I’m going to have some accounting stories. I’m gonna bring some accoutnign stories.

Blake: I really want to- you gotta send me- you gotta post a picture of yourself with Luca.

David: I will, but I think that's after next week's episode. I think we're in Florence the week after, but I will definitely do that. And yes, of course I'm gonna brand up and wear on the shirts.

Blake: Awesome.

David: You gotta always be branded up.

Blake: I don't know if anyone's still listening, but if you are, you can get free CPE if you're listening to this podcast. Go to EarmarkCPE.com, download the app. You just take a quick quiz and you get your CPE credit. Every episode becomes a course on the app about a week after we publish it. And we just launched our paid subscription offering.

So, if you wanna support Earmark, you can subscribe. It's $99 and 99 cents per year to get unlimited free CPE. And I really appreciate everybody who has done that already. Thank you so much. I wanna get- my goal is to get a thousand subscribers to start, and that'll give us the recurring revenue we need to like really build- you know, keep building this thing and we'll just grow from there.

David: So you can issue the Earmark [CROSSTALK], the Earmark coin.

Blake: I should really just- I should sell an Earmark coin that gives you CPE on the blockchain. Something like that.

David: Well, CPE- the certificate itself could be an NFT, right?

Blake: Yeah. Or it could just be on a block- an NFT on a blockchain. Yeah.

David: But that's a whole another dance.

Blake: But then it's like, you know- we could raise money, but then like, what's the point, you know?

David: It's all good.

Blake: All right, Dave.

David: Perfect. All right, I'll talk to you next time. I'll be on the other side of the world.

Blake: Have a good trip.

Time for the classifieds.

[01:14:21] Future Firm

David: If you're looking to quickly grow a scalable, systematic, seven-figure accounting firm without having to work 50 plus hours per week, check out Ryan Lazanis’ online coaching membership, Future Firm Accelerate. Designed around Ryan's experience taking his cloud firm from scratch to sale, so that you don't have to reinvent the wheel.

You'll get online learning in topics that help you automate and systemize all aspects of your firm. You'll get coaching when you need help with implementation. And you'll also join a collaborative community of hundreds of other forward-thinking firm owners. For more details, head over to www.futurefirmaccelerate.com.

[01:14:57] Get W9

David: Tired of clients not remembering to get W-9s? getW9 automates and streamlines the collection and storage of W-9s. getW9 has a QBO integration and they have a partner program that pays 25% commissions. getW9 plans start at only $19 a year. Visit getW9.tax today to get started. That is getW9.tax.

[01:15:21] Advisors For Change

Are you looking for a dream job in cloud accounting? We have the job for you. Advisors For Change delivers cloud accounting systems to small and medium nonprofit organizations. Join our team of friendly and collaborative nonprofit accounting professionals while working from home. Our systems associate will join our experienced systems manager to implement and support cloud accounting systems such as QBO, bill.com, Divvy, Sasson and others.

To learn more, head to our website at advisorsforchange.com/join-our-team. That's advisorsforchange.com/join-our-team, where you’ll find a link to the full position description on indeed.

[01:15:57] Royalwise Solutions

David: Are your bookkeeping clients driving you crazy asking the same questions over and over? They need QuickBooks training and you have more important things to do with your time. Let Royalwise be your training partner. Create your own customized client training program and outsource your QuickBooks training department.

Listeners of this podcast are invited to join our partner program and receive a 10% referral commission when you sign up. Join us at Royalwise.com/partner to learn more and get started today.

Again, that's royalwise.com/partner.

[01:16:27] Resolve Works

David: Are you a tech savvy accountant that knows how to lead a team and loves interacting with clients? Are you looking to grow from a controller or CFO into a leadership role? Resolve Works is hiring a director of client accounting to lead our services team and be a key member of our firm leadership.

We are a collaborative team serving entrepreneurs building fast-growing startups. We are fully remote, offer flexible schedules, and have a suite of attractive benefits. To learn more and submit your interests, visit resolve-works.com/careers.

That is resolve-works.com/careers.

[01:17:00] Oh My Fraud: A True Crime Podcast for Accountants

Blake: Hey, podcast listeners, it's Blake, and I wanted to let you know about a new show I'm working on with CPA/comedian, Greg Kyte, and blogger/former CPA, Caleb Newquist. It's called Oh My Fraud, and it's a podcast all about financial crimes. That's right, a true crime podcast for accountants, by accountants.

Caleb and Greg are going to come together every couple of weeks to unpack their favorite frauds, and explore the circumstances, psychology, and interpersonal dynamics involved. They also fully indulge in victim-blaming the defrauded widows, orphans, infirm, and feebleminded - because who can resist?

If you fancy yourself a trusted advisor, or prefer your true crime with spreadsheets instead of corpses, listen to this show to learn what to watch out for, and to keep your clients, your firm, and even yourself, safe. To subscribe, go to ohmyfraud.com, or search "Oh My Fraud" on Apple Podcasts, Spotify, or wherever you get your podcasts.

[01:17:59] How to advertise in these classifieds

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

Why CPAs Cheat On Ethics Exams
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