Accountants Blamed for Southwest Meltdown

Pilot blames accountants for Southwest Airlines meltdown; AICPA defends the 150-hour rule; Blake's solution to save accounting; SEC "wary" of crypto exploiting accounting firms; all this and more!

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David Leary: [00:00:21] So basically you take Accounting 101 and they offer you an internship your very next year, essentially. And then not only that, now people are going on to high schools. They're trying to be they're trying to reach people earlier in the funnel. Yeah. In high school to become accountants and come to their firms.

Blake Oliver: [00:00:38] It's I it won't work. And the reason it won't work is because you're not solving the underlying issues that are causing them not to choose a career in accounting, which is the long hours, the low pay and the boring work. As an entry level associate. You can promote it all you want, but you know, you put lipstick on a pig. It's still a pig.

David Leary: [00:01:00] Coming to you weekly from the OnPay Recording Studio, this is The Cloud Accounting Podcast.

Blake Oliver: [00:01:09] Welcome to The Cloud Accounting Podcast. I'm Blake Oliver.

David Leary: [00:01:12] I'm David Leary. Last day of the year, Blake. We finally made it. End of 2022.

Blake Oliver: [00:01:18] Happy New Year's Eve. And as is tradition, we will be making predictions.

David Leary: [00:01:25] The big ones like crypto is going to fall more like.

Blake Oliver: [00:01:28] I don't know, but you've been teasing this for weeks, so we got.

David Leary: [00:01:30] I'd like to read the other people's predictions, like especially predictions that are outside of our our industry and kind of learn from some of those. So but yeah that's, that's very interesting. I just spent the week in Vegas again.

Blake Oliver: [00:01:43] Again what what took you to Vegas in the week between Christmas and New Year's?

David Leary: [00:01:48] My youngest, Jamison, which some of you have met, if you were at scaling new heights, he did. He competed in the national chess tournament. Really? So yeah it's a it's interesting because you used to go into conferences and stuff, so there's a lot of people that are competing and it's like seven year olds to 75 year olds all playing chess. And these games take three and a half. And as each level goes up, right, they take 4 hours, 5 hours, six hour games of chess, which is just emotionally and mentally draining. But yeah, three nights in Vegas is just too much. Even if you're not at a conference, it's just too much.

Blake Oliver: [00:02:20] Well, we just stayed here in the Phenix area. My aunt and uncle were supposed to come from Rochester to visit us, but they got tangled up in the whole Southwest collapse of the airline.

David Leary: [00:02:33] That happened. We. We went up having to drive. Yeah, we were at the airport. The southwest didn't say they canceled the flights. And obviously you get to the airport and we just got in the car and drove to Vegas. And then then Southwest canceled the return flight, which is a matter because we're in Vegas with a car. But yeah, the last communication.

Blake Oliver: [00:02:52] I want to talk about that because I think there's a tie in to the profession. What's crazy about what happened with Southwest is just for our listeners who don't know the numbers, the numbers are really dramatic. They canceled two thirds of all of their flights four days, and initially they had a really good reason it was the weather. And so my aunt and uncle were driving from their place near Rochester to Buffalo to get a plane to go to Sacramento first. And then they were going to come here. And as they were driving, the storm started happening. So they had to turn around and go home.

David Leary: [00:03:23] So they both put its own problems of its own airport and its own I mean, situation outside of the national problems of weather.

Blake Oliver: [00:03:29] Right. Right. And they got, you know, four feet of snow in like hours. I mean, it's crazy amount. And so that was legit. And Southwest has a bunch of hubs in areas that tend to get hit by snow. So this is normal. But then they couldn't recover. And that is what led to the cascading series of cancellations in the days that followed, even when the weather was good, even at airports like Las Vegas and Phenix, which have no weather problems, the only problem we have is when it gets so hot the planes can't take off, which is very rare. And I.

David Leary: [00:04:01] Remember years.

Blake Oliver: [00:04:01] Ago tidbit.

David Leary: [00:04:03] Know because going to San Francisco in fact to fly through LA all the time right on Southwest it's Tucson, LA. And I remember just sitting there and talking to somebody who's an old guy that's been flying Southwest forever and he's like, Southwest never had a late or canceled flight until they started going to the East Coast because when they only served Texas, Arizona and California in Utah a little bit, there was no reason for the flights to ever get canceled. But as soon as flights had to start coming from Chicago and the East Coast and then at that, it's a domino effect, right? Yeah. If a flight from Chicago has to land nilly and that's your plane, you can't take off from LA, right?

Blake Oliver: [00:04:38] Yeah. So I want to talk about why that happened. It was a technology issue near and dear to my heart, but I'll save that until is it to okay apps. Yeah. Ask. Go ahead, David.

David Leary: [00:04:49] I mean is it just a technology issue.

Blake Oliver: [00:04:52] It really was. So in essence, Southwest has a system for tracking staff, their employees. In order to report your location, you have to call a phone number in 2022. That's how Southwest tracks, where its pilots are, where its flight crews are. They call a phone number. So they were all trying to call in and their system couldn't handle it. So that's what that's why.

David Leary: [00:05:22] They write into this article. Then let's because I obviously being in the cancellation, they thought about this. Right. And there's way more overlaps to our industry in this. I know. Right. So I was I was this is not an article a game. I was all set up to play a game with you, Blake. Okay. And now we can't because you already your brainwave is already in the same spot. Mine is.

Blake Oliver: [00:05:44] Okay, but so.

David Leary: [00:05:45] Like. Like I was going to play a game and try to ask you, what industry am I talking about? Right? And I'm going to read you some quotes. And obviously, I had to pull out the word Southwest so it wasn't obvious. Here's the quotes and tell me what this sounds like. It's actually the failure of upper executive management to ensure its I.T. Infrastructure can take on the growth and expansion we've taken over the years. Mm hmm. It said it was fully staffed and prepare. Heading into the season, but stretched the tools and capacity. Staff said they've been flagging issues for years. For more than a decade, leadership shortcomings in adapting and innovating and safeguarding operations have led to repeated system disruptions. Countless disappointed clients. Many of our people have forced to work 16 hour and 18 hour days during the season. The glory days were in the eighties and nineties, and you still have that same IT system. The entire industry has been running around trying to satisfy customer demands that have stretched manpower really thin across the industry. And like that could be about our industry. It's the same lines.

Blake Oliver: [00:06:43] That actually sounds like accounting, but it's not. Are you telling me not.

David Leary: [00:06:47] The airline industry, It's not even Southwest.

Blake Oliver: [00:06:49] Just the industry in general?

David Leary: [00:06:50] This is in a lot of it's staffing. They're understaffed. So if you have this, if your system is your capacity is so tight that all it takes is some bad weather and you can't get your pilots to the right place to take off the next airplane. Right. Just dominant. They have a staffing problem like this.

Blake Oliver: [00:07:05] Us I wouldn't say it's a staffing problem. It's just they've they've set up systems and schedules that maximize their resources.

David Leary: [00:07:14] So like you said, the limited resources though they have there, they don't have shortages, right?

Blake Oliver: [00:07:19] Yeah, right. They they don't have spare capacity. So if a pilot gets sick or a plane has a maintenance issue or a flight crew gets lost on the way to the airport, that cascades through the system. Now, normally it doesn't cascade too bad, but when there's a lot of them all at once, they get this perfect storm type of situation. So I, I was wondering what was going on with this. And I saw a Facebook post that became very, very popular by Larry Lenora, who says he's a Southwest pilot for over 35 years. He says. What happened to Southwest Airlines? I've been a pilot for Southwest Airlines for over 35 years. I've given my heart and soul to Southwest Airlines during those years. And quite honestly, Southwest Airlines has given its heart and soul to me and my family. Many of you have asked what caused this epic meltdown. Unfortunately, the front line employees have been watching this meltdown coming like a slow motion train wreck for some time. And we've been begging our leadership to make much needed changes in order to avoid it.

David Leary: [00:08:17] Who does that sound like?

Blake Oliver: [00:08:18] Again, that sounds like.

David Leary: [00:08:19] The same quotes.

Blake Oliver: [00:08:20] Right. So what happened yesterday started two decades ago. So then he goes into the history talking about Herb or Herb Kelleher. Who was the CEO of Southwest Airlines until 2004. He was an operational leader. He spent a lot of time on the front line. He had his pulse on the day to day operation and the people who ran it. And he's the guy who turned Southwest into a national international airline. He made it into.

David Leary: [00:08:49] What it is. I think arguably, he's one of the top CEOs in the history of not just Southwest, but an industry in general. I'm understanding.

Blake Oliver: [00:08:56] Yeah. So get this, I kind of skipped through that part of the post. It's a long one. So I'm just going to go to the the part that where the accountants come in. So. Herb retired in 2004 and Gary Kelly became the new CEO. Gary was an accountant by education. In his style, leading Southwest Airlines became more focused on finances and less on operations. He did not spend much time on the front lines. He didn't engage front line employees much. When the CEO doesn't get out in the trenches, then neither do the lower levels of leadership. Gary named another accountant to be chief operating officer. The new CFO had little or no operational background. This trickled down through the lower levels of leadership as well. They all disengaged, the operation, disengaged the employees and focus more on return on investment, stock buybacks and Wall Street. This approach worked for Gary's first eight years because we were still riding the strong wave that Herb had built and the accountants running Southwest Airlines. I hate to say.

David Leary: [00:09:58] This part of it. I mean, I didn't know the stories were this intertwined.

Blake Oliver: [00:10:02] So they extracted value from Southwest. They drove up the stock price. They they grew the company, but they did not invest in the technology. And those who fly Southwest a lot are aware that this has happened before in smaller ways. There were a few meltdowns in previous years that lasted a day and then got resolved. So at worst people were delayed a day. This was multiple days in a really important time of year where, like me, I didn't get to see my aunt and uncle who are in their late seventies. And for me that's really important. I haven't seen them in like ten years and now I'm not going to get to see them until the spring. Luckily they're going to come. But you can't screw up at Christmas time, right? That's when family comes together. So. Yeah, they had these small semi little meltdowns, but leadership ignored it and they were operating with 1990s technology. They didn't invest in the new technology. They were now a large and sophisticated airline and they were still running on a system that required the people in the field to call in on the phone in order to report their location.

David Leary: [00:11:13] I kind of heard they are not very they're not cloud based either. I think I saw a little blurb about that from an industry.

Blake Oliver: [00:11:18] I would believe that right now, 20,000, they have 20,000 employees, 20,000 frontline employees. Sorry, they have more than that. But 20,000 like flying the planes. Right. 20,000 frontline employees have to call in. No automation had been developed to run the sophisticated machine. So when you have this like complicated set of point to point routes, which is how Southwest operates, they're different than a hub and spoke system hub and spoke is everybody flies to one port. Yeah. And then goes out to the other ones. And that's much more easy to operate because most of your people end up flying back to the same airport every day. Whereas Southwest operates a point to point system where a flight might originate in Phenix and go to New York and then go to Tampa and then go to Seattle, and then just whatever works, right? And that kind of system, everybody's everywhere. So you can't just get everyone together and say, All right, you're going to get on this plane, you're going to get on this plane, you have to have a system. So basically, it sounds like they're blaming the accountants in this post. I don't know if that's true, but I just had to bring it up because I saw, oh, the CEO is an accountant. You know, the I mean, not good for the brand.

David Leary: [00:12:32] This episode of The Cloud Accounting Podcast is sponsored by Zoho. I'm sure you've heard of Zoho before. We've probably even mentioned Zoho CRM or Zoho Books on this podcast in the past, but you really know about Zoho. Did you know that Zoho offers an entire suite of solutions to run your firm, including a CRM expense tracking bookkeeping, a full office suite, a support ticket system, and workflow automation? Did you know that Zoho offers a suite of solutions for your clients bookkeeping, including bookkeeping, inventory invoicing, subscription management, and a checkout app? Did you know that Zoho has an accountants program? Did you know that Zoho advisors get free access to eight Zoho applications and a dedicated account manager? If you want to learn more about becoming a Zoho advisor, head over to Cloudaccountingpodcast.com promo slash Zoho. That is Cloudaccountingpodcast.com Promo for Access. Zoho. Take this back to us because this does sound like us. Are we set up for a similar collapse? I mean, we already have the earth's teetering, but I'm thinking about just my own personal return. It's dependent on companies and banks and brokerages. Right. And internal accountants, which they're short staffed. Right. If I don't get all my paperwork out to me by deadlines, I can't do my taxes. And on top of that, we have business returns. I mean, you and I are between the two of us are working with four or five different accounting firms. And there are things one firm needs to do to issue a return or we need our ten KS, and then you get this to use to the other return. And are we like at a possible collapse of our own in this industry of all it's going to this domino where because even right now I think, you know, firms can't service their clients because they can't get the information back from the IRS. Are we just kind of teetering on the same embarrassment and then they'll really blame the accountants, Right.

Blake Oliver: [00:14:19] Well, I guess the question is, what would be the equivalent large scale disaster in accounting? Southwest. They have all these cancellations. People are mad they're stranded. Right. What would happen in accounting if we had a meltdown? And I guess it would be another Enron? That's what we risk in. Accounting is at a large scale in a way that will affect the public is, as we talked about in our last episode, a third of audits are significantly deficient to the point where the auditor should not have issued the opinion. They didn't collect enough evidence. And if you think about that, that means like a third of companies are out there with financial statements issued that people are relying on that really probably shouldn't be relied upon or we don't know if they can be relied upon. That's the question. And so, yeah, I think the the environment is there where people aren't. Watching what's going on. And yeah, it might not just be something like FTX, which is contained to crypto. It might be something that is broader and sets off the next recession. So that's the risk we run.

David Leary: [00:15:25] I mean, yes, we have room in here, right, to where accountants and accounting firms can file for extensions with the IRS. There's. But even the IRS is technically their computer system is not up to snuff. And you.

Blake Oliver: [00:15:39] Could you could argue that we're already in a slow moving version of what's happening at Southwest in accounting.

David Leary: [00:15:44] When it comes. That's what I that's my that's that's my my goodness.

Blake Oliver: [00:15:46] Because there's still returns that are not being processed. There's all this stuff is snowballing and it's making working in tax such a painful thing that people are quitting because they say, why would I why would I want to deal with these issues and these angry clients? They're angry at me because the IRS, I mean, maybe this is why 300,000 accountants quit their jobs in the last two years. That's 17% of the US accounting and auditing workforce. 300,000 US accountants and auditors quit their jobs and didn't stay in accounting. 17% of our workforce decided to leave in two years. That is, I think, an existential threat to the profession. And the question is, what do we do about it? We've been talking I've been soap boxing for years now. It feels like about the 140 hour requirement, making it easier for people to enter the profession. That's one way to do it. The AICPA doesn't believe that that will work. I've got a letter from the chair of the AICPA specifically addressing that issue that he he sent this message. And then two days later, we get this Wall Street Journal story, about 300,000 accountants quitting their jobs. And this this timing is incredible.

David Leary: [00:17:09] The story, the accounts between their jobs, different versions of it have been kind of floating around now, too, on other media as well. I have a you know, the same article I realized after I went through mine, but it's the same exact article, the same interviews with the same accounting students.

Blake Oliver: [00:17:23] Yeah. So it was it originated on the on the Wall Street Journal, and then others have picked it up. I think, you know, Bloomberg is talking about it now. It gets syndicated through Bloomberg. So the headline is on The Wall Street Journal, Why so many accountants are quitting? And they've got a great picture of the CEO of KPMG talking to a sort of like half empty class of accountants at a university about how great accounting is. Yeah, and the opening paragraph is more than 300,000 US accountants and auditors have left their jobs in the past two years, a 17% decline, and the dwindling number of college students coming into the field can't fill the gap. And that's the big, bigger problem is not only do we have people leaving the profession, college students aren't coming in in great enough numbers to replace those who have left. And the article.

David Leary: [00:18:15] That's number one, even CPA, just just beginning accounting degrees.

Blake Oliver: [00:18:18] Yeah, just people with just accounting in without CPA, right. Is still having trouble. The exodus is driven by deeper workplace shifts than baby boomer retirements. Young professionals in the 25 to 34 year old range and mid-career professionals between the ages of 45 and 54 also departed in high numbers starting in 2019, according to the Bureau of Labor Statistics. Recruiters who have been luring experienced accountants into new roles say they are often moving into jobs in finance and technology, which accountants are really well suited to because we're numbers people and technology.

David Leary: [00:18:48] Airlines, but maybe technology.

Blake Oliver: [00:18:50] Numbers and systems people, right? Yeah. Well.

David Leary: [00:18:55] One thing they caught my eyes the which is nice about articles like this because usually when there's articles like this, they're only talking to like senior leaders in our profession who are kind of out of touch. And what I loved about this article, they talked to real accounting students. Mm hmm. Right. And the one of the quotes I liked is, like many college students don't want to work in accounting, even those who majored in it. Right. And the student, he's at Clemson University, Jordan Pixley, he said he he loved the numbers. He loved his accounting classes. And then he started to take on work. And he just could not stand the repetitive task, bouncing cash, bouncing cash sheets. It was just less interesting. And then he basically chose not to apply KPMG after he's recruited and now he's looking to do opportunities in the US military. And I'm not like.

Blake Oliver: [00:19:44] Well, stop there for a second. So and the reason given in the Wall Street Journal story about why he chose the military instead of KPMG or why he's looking into the military is the hours he is aware that you have to work 70 to 80 hour weeks at the big firms. And he said, quote, I was a little scared of it. Not going to lie. I don't know if I want to do all that, unquote. And so the military is less scary to him than KPMG.

David Leary: [00:20:11] Yeah. Which which in theory, the hours are going to work in the military, the grueling ness, and always the risk of war and real danger.

Blake Oliver: [00:20:20] Yeah.

David Leary: [00:20:20] And arguably, the military is possibly harder than most of the career choices you could make. He's saying accounting might be harder than that.

Blake Oliver: [00:20:29] Well, I'm going to guess that when you're an accountant in the military, it's a little easier. You know, they're probably not putting you on the front lines, right? Probably. Good.

David Leary: [00:20:38] That's a whole separate discussion because, like we've seen about these audits of the military in these toilet seats that cost $10 Million and stuff. Yeah, that's a different kind of accounting.

Blake Oliver: [00:20:46] If you work as an accountant in the military, you don't have to reconcile, apparently, because nobody actually it's like accounting.

David Leary: [00:20:53] Yeah.

Blake Oliver: [00:20:54] Is that this is a crazy thing. I don't want to get into this like, sidetrack too much. But yeah, the military can't pass an audit and never, like, it hasn't ever. Like, we just don't know what happens to all that money.

David Leary: [00:21:08] And the other the the interesting thing too, they talk about in this and I think the accounting twins, you know, had the same thing happen to them. So it talks about how p w c needs to recruit 4200 entry level associates for fall 2023. And they're starting now to to offer internships to sophomores in college. So basically you take accounting one on one and they offer you an internship for very next year essentially. And then not only that, now. People are going on to high schools. They're trying to be they're trying to reach. People earlier in the funnel. Yeah. Like in high school to become accountants and come to their firms. It's I.

Blake Oliver: [00:21:45] It won't work. And the reason it won't work is because you're not solving the underlying issues that are causing them not to choose a career in accounting, which is the long hours, the low pay and the boring work as an entry level associate. You can promote it all you want, but, you know, you put lipstick, put lipstick on a pig, it's still a pig.

David Leary: [00:22:05] So my wife is a counselor at a high school and they have a career day coming up here in March or April. I don't know what day it is. And she's like, Would you like to come and speak about maybe accounting or podcasting? Like how to be a podcaster? And I was like, if I do that, how to be a podcast? Lots of people are going to come to that session. Yes, but accounting, they might not, but it's like I was encouraged to do both. But that's where we're at. Like, how do you even encourage somebody to go to a session that says how to become an accountant? If the choices are how to be a tick talker or podcaster? I don't know. This episode of The Cloud Accounting Podcast is sponsored by LiveFlow. Think about this If you have approximately 60 clients and create five reports a month for each of them, that's over 3500 reports a year. And let's say you're really fast and only take you one minute per report. That's almost 2.5 days a year you spend creating reports. Here are a few of the ways LiveFlow saves time for so many accounts and bookkeepers.

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Blake Oliver: [00:24:06] So also in this article is a paragraph, a discussion of the pay, and the pay is lower compared to four year degrees that you can earn in technology and finance. And so why would you major in accounting have to do an extra year to get your master's and then sit for the CPA exam and make less money than somebody who does four years and doesn't have to do an exam or a fifth year? That's kind of basic math to me, and it's a difference of tens of thousands of dollars in terms of tuition. And then more than that, in terms of your time, the average accountant coming out of college. It depends on where you're at. But let's say you're in New York City, a high cost of living area. New York City firms now have to disclose pay. And so The Wall Street Journal cites a job posting that has an entry level tax associate job based in New York City with a range of between 71,080 2000. And if you're elsewhere in the country, that might sound great. But in New York, like that's not a ton of money to live on. And I spotted another article in Bloomberg. Another stat, What's the lowest pay US workers would accept for a new job? Actually, David, I mean, have you guessed that? What is the lowest pay US workers would accept for a new job?

David Leary: [00:25:23] I think I saw something like this. It's like 72,000 now.

Blake Oliver: [00:25:26] 74,000.

David Leary: [00:25:27] Okay.

Blake Oliver: [00:25:28] Okay. Yeah. So basically the the lower end of the range of that job in New York City is lower than what workers are willing to accept. So it's very bottom of the barrel. And that's on average that Bloomberg stat that's not in high cost of living areas. So in a high cost of living area like New York City, it's probably even it's got to be even higher. So that's a problem. It's the pay is the pay is low, the hours are long and the work is not rewarding. So I got more on this, David. You know, I can go on and on and on about the future. I have a question and.

David Leary: [00:26:04] One an article that ties into about you know, the article has a weird title. The CPA pipeline includes the present, and this is written by it's an accounting today. It's written by Amber Setter. She says her title is the chief Enlightenment officer for Conscious Public Accountants. She thinks that we need to support candidates better that are trying to become accountants or trying to become CPAs. And so one thing is just advocacy, right? Like really making sure you're you're pushing them to get licensed at your firm. You're creating scenarios where they're not overworked and they can you know, they can finish all their tests in that 18 month period. She also said that you have to save your war stories like you can't If people are in this journey to become a CPA, don't tell them what you did 20 years ago and how you had to work 80 hours a week. It's not going to help. That's not going to attract people to our profession. Empathy, right? Just completely being more empathetic to these people and then providing emotional support. So it's at some level, this isn't filling the funnel, but this could these types of behaviors could help us not kick a couple of people out of the funnel like he could keep Everything's going to help maybe is the way to kind of think about this.

Blake Oliver: [00:27:18] So the AICPA continues to have its head in the sand about this issue. And thank you to Chase for sending me one of the latest emails from the AICPA, specifically addressing the 150 hour requirement as we end the year. Chase said Thought you'd find this interesting. Seems like the AICPA is position on getting more folks to get their license will not be about lowering education requirements or creating alternative pathways into the profession, but rather finding ways to reduce education costs, aka more scholarships, creating a more palatable way to pass the exam and creating better starting jobs and growth paths and firms. In other words, boiling the ocean instead of the hot tub in their backyard. And what he forwarded to me was an email from Anoop mehta. He's a CPA and the chair of the American Institute of CPAs, and he's been the chair now for a little less than a year, I think. And he's been traveling around the country talking to students at colleges and universities in accounting. And there was something really revealing that he said in one of the AICPA town halls. And I would like to play that for you. Let me get this going over here.

David Leary: [00:28:29] And what you're doing that I just want to say the AICPA townhalls might be the best thing the CPA is currently doing. But and they you know, they kind of came to this game a little bit. They've been consistent about it throughout their there's actually good information.

Blake Oliver: [00:28:44] I guess. But also, I mean.

David Leary: [00:28:47] Their messaging is what bothers you?

Blake Oliver: [00:28:49] Well, the thing is, they're not listening to the members. The members are telling them this 150 hour rule is a problem. And the CPA keeps saying, no, it's not it's not enough just to have a podcast. Yeah, you have to actually listen to the people who are listening to your show. And that's why we love to get listener feedback and we love to talk about it on the air. A CPA gets these people on their on their town halls saying, Get rid of the 150 hour requirement. All they keep saying is no. And I think there's actually like like a real I don't know what you call it. It's they're just not looking at the data. They're not they're ignoring the data that they published about this problem. And I want to I want to play this clip for you. Let me see if I can share my screen here. All right. Now, I'm just waiting for the video to render. So while I wait for the video to render, allow me to read the email because there's both an email and there's a appearance on the AICPA town hall. So here's the email from the chair of the CPA. As you close out the year, you're no doubt reflecting on a challenging 2022 and anticipating what lies ahead. For many of you, recruiting and retaining highly qualified staff remains a top concern. Accounting, like many other professions, is facing talent shortages. Over the past several years, we've seen a trend of fewer young people entering the profession.

Blake Oliver: [00:30:12] Enrollment in higher education is in decline. College and exam related costs are high. Many starting salaries at firms are too low, so they see the problem, right? This trend cannot continue. For our profession to survive, we must grow our student pipeline, and this means addressing multiple factors, including attractiveness, cost, time and reward. And that's exactly what the AICPA and its partners aim to do. We all know there are no quick solutions to these issues, but the CPA, together with stakeholders across the profession, is poised to tackle them. Some believe reducing educational requirements for initial licensure is a silver bullet. We fundamentally disagree. This action would come at a great cost, undermining the CPA license itself and would not solve a very complicated problem. Lowering the bar for entry into the CPA profession and even one state would immediately introduce new barriers that would make it harder for CPAs to practice across state lines, physically or virtually. In addition, such a move undermines the hard earned reputation of the CPA profession as an esteemed and trusted profession. This reputation we hold as CPAs is one of the reasons I came into the profession. So let's just stop there. The chair of the AICPA, Anoop Mehta, is saying that that removing the fifth year would lower the bar for entry. And and then create all these barriers among like practicing among states. But nobody is saying that we should just do it in one state. Right. We should do it everywhere.

David Leary: [00:31:36] Yeah. Their guidance should push down to the states to do it everywhere.

Blake Oliver: [00:31:39] Yeah.

David Leary: [00:31:40] And I think about the accounting trends, right? Because one chose to go down the CPA route and one chose not to. And I.

Blake Oliver: [00:31:45] Think the reason is for our listeners to.

David Leary: [00:31:47] Think again.

Blake Oliver: [00:31:47] When you say accounting twins, I don't think all of our listeners know what you're talking.

David Leary: [00:31:50] Oh, sorry. That's okay.

Blake Oliver: [00:31:51] I think so. Who are these accounting times?

David Leary: [00:31:54] So there's another podcast that I produced called the Accounting Twins podcast, and the concept is they are true twins, same DNA, same grade point, average is same everything. But one went public, one went private. And I think the major reason why is one did not want to go to school anymore. Mm hmm. And so she's not going to get her CPA because she's not going to go to school. So that's 50% right there. The like, there's your numbers. It's equity.

Blake Oliver: [00:32:19] So I think this idea that it's going to create problems among the states can be dealt with. Like that's not a good reason to not do this. Just because you have to do a lot of work doesn't mean you shouldn't do something right. Just because something's hard doesn't mean you shouldn't do something. Also, the second point that it undermines the hard earned reputation as a profession, esteemed and trusted profession. Like I don't think anybody actually believes that the fifth year adds any esteem to our profession. I think most people who are not accountants have no clue that there's even this requirement. Nobody knows other than accountants about it. So it's it's not like having a fifth year of college or a master's degree makes you. Like it.

David Leary: [00:33:01] Doesn't. You have the CPA. Nobody's paying attention to your degree.

Blake Oliver: [00:33:04] Exactly. And that's something that I've heard for years, is that nobody cares about your degree once you have the CPA license. So why the fifth year doesn't matter. And I'd love to see evidence to the contrary. And then there's this other third point. Lowering the bar would also fuel the efforts of well-funded and well connected think tanks aggressively seeking to eliminate professional licensing, including our CPA credential. And this is what I've seen the AICPA go to.

David Leary: [00:33:27] In the past, the one where they're in bed with real estate licensed professionals and the they you can't braid hair professionals there where they help fund those groups, those political organizations.

Blake Oliver: [00:33:39] But it's like I haven't I haven't heard a peep about this being a problem in any state for years. Like this is not a real issue. I feel like this is a straw man issue.

David Leary: [00:33:51] Because what he's saying what he's saying here is if we give in on this 150 hour rule, it's a slippery slope. And then we're going to they're going to twist our arm to get rid of CFPA entirely.

Blake Oliver: [00:34:02] Right.

David Leary: [00:34:03] Which is to say it's Yeah.

Blake Oliver: [00:34:04] Which is, I think, absurd. You know, it's not going to happen. He says our ability to fight back has largely depended on the profession's uniform and rigorous approach to the education exam and experience requirements across the country. If we lose uniformity, the risk to CPA licensure rises sharply and swiftly, and our ability to defend it exponentially decreases. So I think this goes back to this idea that, like, if one state did this, it would be a problem. And I agree, we don't want to lose uniformity. We want to have actually the exact same requirements in every state. Ideally, CPAs should not be licensed state by state. That's antiquated an old fashion, and that is what holds back the profession, is that in order to get the profession to do anything, you have to get 50 more than 50 jurisdictions to also do it. It's like it's like an accounting firm with 50 partners that all have to agree on everything in order to get anything done. So really, we shouldn't we should nationalize the CPA license so that it can be agile. That's what we should do.

David Leary: [00:35:04] So they're trying to protect it because they don't want it to go away. But ultimately, is this protection going to kill it because there's now a decade of numbers of downward trends? I think some of some one of our listeners is really good. Excel can take these numbers and tell us the year. Nobody will. Nobody will get any more. There'll be zero people passing the CPA exam like based on the current downward trends, there is this point of nobody getting the CPA at all. Well, so where are they protecting?

Blake Oliver: [00:35:32] I saw a chart the other day that showed computer science majors versus accounting majors since, I don't know, for decades now. Right. And accounting has been on a decline going down slowly, whereas computer science has been on this upward trajectory that looks almost exponential. And they crossed not that long ago. So now we have more people becoming computer science majors and becoming accounting majors. And the decline for accounting, I mean, it could stretch off forever, right? But I think the real risk is that we're not keeping up with economic growth, like just to stay at the right employment levels. Accounting should be growing every year. We need more accountants, every business needs accountants. So every time the economy grows and new business starts, you need more accountants and we're shrinking. So it's actually worse than the numbers. Look, when 17% of accountants quit the profession, that's you know, if economic growth happens, it's like, you know, 5%. We've got to add those numbers together to get the real scope of the problem.

David Leary: [00:36:26] And we're in a unique profession where demand never really goes down. Right. It's not like our labor. Yeah. Or the supply has to keep up with demand because demand really never goes away if it does. I mean, we have a major economic issue in the whole world, in the country.

Blake Oliver: [00:36:40] And so after these three arguments against removing the 150, our role, Mr. Mehta continues an intentional and coordinated effort to preserve and grow our profession must be made. This is why we are laser focused on addressing the real issues that keep students from seeking CPA licensure. The real issues like we know that the 150 hour rule discourages them. We know the cost and the time discourages them, and it's way bigger than the cost of the exam. I mean, there's also the the work life balance inside of firms, which I agree needs to change. And I've got an idea for how we could do that, which I want to talk about. But like the thing that we can actually control, the thing, the AICPA, the one thing the AICPA can control is education. I guess it's two things the education requirement and the CPA exam. Those are the two things they can can change, and that's the hot tub in their backyard that Chase was talking about. They can change that. They can do it. Or they can get everybody together who can do it, that the one organization that can actually do this. So then they talk about creating some sort of draft plan, which I've never seen the draft plan, though, like everything they talk about, is basically encouraging more students to come into the profession, which is just not going to it's not going to work.

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Blake Oliver: [00:39:02] So anyway, I got the video going. I want to play this video because I think this is also quite revealing. So this is Mr. Mehta at an AICPA town hall.

Speaker3: [00:39:09] I tell you, I've been going around and talking a lot of folks, and one of the things that constantly comes up is retention of talent, finding the talent and retaining them. How do we advance? We need to take a people first approach and people should be at the center of all our decisions. How do we continue to provide flexibility? Advancement opportunities create that purpose that's so vital. And I'll tell you, if you look at in terms organizations, top performers, what are they looking for? Especially with Gen Y's and Gen Z's, they need to know that their work matters and that is critical. They want an opportunity to grow. They want an opportunity to they want leaders to invest in them, to be able to provide value and see their career grow. Employees don't need to enjoy 100% of the things that they do. 20% is only the right. And I tell you, it's been an experience of a lifetime meeting. So many of our members, students, faculty, state, society leaders and staff. And I tell you, I couldn't be more proud of this profession. So I visited about ten universities in the last four months. September, they went back to school, and I've spoken about 2500 students and faculty members and actually firms that are around the universities and where they recruit from.

Speaker3: [00:40:50] You know, I know also we talk about student graduating in accounting and we find that at least the data is showing that not many are sitting for the CPA. I tell you, that's not what I'm seeing. If I was to estimate nearly 90 to 95% of the accounting majors that I spoke to are going to be sitting for the CPA exam. That is exciting. I'll tell you one, I was in Puerto Rico. I spoke to 160 students, all accounting graduates, and nearly every single one of them was going to sit for the CPA exam. I was so impressed with their dedication, their drive, and they're willing to put in the effort. And so this is what really is exciting about our profession, and and that's why I'm so passionate about it. Eric, before I turn it back to you, the point is the purpose of the profession has to be sold and Knoop does a great job of doing that. The impact this profession does for entrepreneurs, for the capital market system, what is what resonates with this generation coming in is not a 40 year career and always having a job. It's the impact we make in society.

David Leary: [00:42:03] Can I call bullshit? On his 90% of the people he spoke to are going to sit for the CPA exam?

Blake Oliver: [00:42:08] Yeah, please.

David Leary: [00:42:09] Because that's before they've started grad school. That's before they've taken a job at a firm and they're working 70 hours a week. That is before maybe they fall in love and start a family. Right? Like it's, it's total crap because the reality is it isn't 90%. It's nowhere close to that. No, Like, like they're convincing themselves. It is like Kool-Aid drinking at some major level. It's and on top of that, like, what is his role at the CPA?

Blake Oliver: [00:42:36] He's the chair. He is the, you know, chair of the AICPA like the board of.

David Leary: [00:42:41] Some four months. He went to ten campuses like in many cities. He spoke to 2500 students. He spoke at 2500 students.

Blake Oliver: [00:42:49] Yes. Right. Yeah. It's it's total denial. It's total denial of the real problem. And like Barry Melanson, the president of the AICPA, you know, the number one employee there, he basically summarized at the end, we need to sell the profession better. But they don't have a marketing problem. They have an operational problem. And also, how do you sell the meaning of a profession that, yes, supports capital markets when like a third of audits fail, A third of audits are are failing, and it's because people are overworked that we're not collecting enough proper evidence that partners are not incentivized properly. You know what I mean? You can't sell something that if you just if you make a crappy car. Hiring better salespeople, right? Or going out and trying to get people to like, that's not the problem. You need to make a better car market.

David Leary: [00:43:46] You know, I say it's to apps like you can't market, you can't save a bad product by marketing. You just can't. Right. And the naive part of this is this younger generation. They're not stupid. They can go on Reddit, they can do a couple of Google searches, they can see tic talks, they can learn about the realities of the profession. So you can't market them like markets are conversations. And so you either participate in the conversation, you cannot market one way at them. They're going to find the real answers out there. And the real stories are there. They're everywhere.

Blake Oliver: [00:44:19] Oh, it's yeah.

David Leary: [00:44:20] When the mainstream media is publishing articles about how we don't have accountants and why they're not being accountants, like your marketing is not going to work. It's over. You've already lost.

Blake Oliver: [00:44:30] It was like top ten stories in the Wall Street Journal for days.

David Leary: [00:44:33] The comments you tweeted or tweeted at you, you posted on LinkedIn, it's like your all time feud post or something ridiculous.

Blake Oliver: [00:44:39] Yeah. So I posted that on LinkedIn. I posted a little summary of the problem, and then I proposed a solution because I don't want to be the guy who's just saying, you know, the silver bullet solution is removing the 150 hour requirement, because I don't believe that's true. I think there's a lot more that needs to be done. I just think that the 150 hour requirement is the most obvious bad one. But there are other ways to solve so they.

David Leary: [00:45:06] Can map the decline with 150 hour rule coming in. Right?

Blake Oliver: [00:45:10] I mean, probably I don't know if anyone's tried to do that, but the decline has been going on for decades now. It's 150 hour rule has been around for decades. So I posted another solution to the problem on LinkedIn. And that actually really surprised me at how much response this got. So I said, Here's how to solve, here's how to save the accounting profession. The top 100 accounting firms agree to stop exempting their people from overtime. Every person in the firm earns one and a half times pay for hours over eight per day and 40 per week. This creates a financial incentive for firms to figure out how to create a culture that prioritizes both profits and healthy living. That includes both staff and partners. If all the large firms did it together, they'd be on an even playing field, Working 70 to 80 hours a week for even a few months at a time is not healthy. Busy season is the main reason students avoid an accounting career, and it's a big reason we lose so many young accountants in the first few years of their careers. If we want to save the profession, we need to rethink the busy season. That means rethinking the business model built around it. And that's gotten the probably the greatest response of anything I've ever written on LinkedIn. And I'm just saying let's have overtime protections for accountants. I think some people don't really aren't really aware that accountants are exempted from overtime. So like when you go to work for a big firm, they can just work you as much as they can and they do.

David Leary: [00:46:38] This is why so many leave the industry after a year and a half or two years. They just leave the industry entirely.

Blake Oliver: [00:46:44] So here's what the CPA could do to help improve the profession for its young accountants who are leaving. And that's what's happening, is they're really enthusiastic, like Mr. Mehta encountered. Right? They are saying, yes, I want to get the CPA. Then they go into a firm and they realize, Oh, crap, this sucks. I'm leaving before I get my CPA. And so how do we combat that? We get the firms to actually create a positive work life balance. And it's very difficult for one firm to do that because it's expensive. Right? You have to pay your people more, you have to work them less, and that gives you a disadvantage in the marketplace. But what if something like the AICPA went to all the firms and said, all right, we are going to hold you to creating a good work environment and we are going to reduce the hours together and we're going to increase the pay so that we're all in the same even playing field. And we're going to shame the firms that treat their employees like crap.

David Leary: [00:47:41] And you should want to participate in this big firm X, because in theory, this is going to fill the bottom of your funnel even more with more bodies because that's what they want. In the end, they want more bodies.

Blake Oliver: [00:47:53] Yep.

David Leary: [00:47:54] I think it's a good idea. I mean, you sent that to your AICPA representative to get their feedback.

Blake Oliver: [00:47:59] Well, so I would love to get Mr. Mehta on the program to talk about the issues facing the profession, because I feel like he what he is hearing. I feel like he's not getting the truth. I feel like he's not getting the right information or the right data because the people feeding him this information have an agenda. And it's sort of like all these stories we've been hearing about Putin in Russia. Putin is making bad decisions because all of his generals and advisors are telling him what they think he wants to hear, which is that everything's going great. But really it's not.

David Leary: [00:48:35] Yeah, because we're and we've been doing this podcast in a four and a half, you know, starting push here five years. And I've yet to see the study that says AICPA held a roundtable with 30 people that recently just quit accounting. And here's the results of that roundtable. Well, they're not talking to the people leaving.

Blake Oliver: [00:48:51] So this is why.

David Leary: [00:48:52] There's no exit survey.

Blake Oliver: [00:48:53] This is what I would love to do in 2023 is get the voices of the people who are leaving, get the exit interviews, collect the exit interviews of all the people leaving the profession, and feed that into an AI and figure out what is the reason they are leaving and prove it with data. We know it anecdotally. We hear from those people who are leaving. We see it on Reddit, but maybe we can convince the leaders of our profession if we actually show them unequivocal data. They have some of the data, but they're just choosing to ignore it right now. But I think there needs to be more data. And, you know, I didn't leave us any room for predictions.

David Leary: [00:49:34] David No, I think we can. I think it's okay to go a little late on this one, I think, because I think we have it like there's a couple of things in crypto we can touch and then we can talk prediction we can get into a little bit. It does not be too much.

Blake Oliver: [00:49:46] What if we did that?

David Leary: [00:49:46] Because it ties back to what we have.

Blake Oliver: [00:49:48] What if we just did a double episode today, Dave and then we could take a break for once? You know, we haven't taken a break in four years because you make me do this every single week. I mean, I appreciate you for that. It's like the best thing that's ever happened to me is doing this every single week.

David Leary: [00:50:01] So. So. So we want to run long. Yeah. Cut, cut, cut this into two.

Blake Oliver: [00:50:05] We to send it to episodes. Yeah. All right.

David Leary: [00:50:11] Time for the classifieds.

Greg Kyte: [00:50:12] I don't care where you live in the United States, if you're a CPA, you have to take ethics, continuing education. And I don't care who you are and where you live. You hate taking ethics, continuing education. That's why me, Greg Kyte and my buddy Adam Broad, we created a podcast called Drunk Ethics where we unfold and expose all of the inner secrets of not just ethics, but how to become more ethical and to promote ethical behavior at your workplace. And we do that while we are getting progressively more faced during the course of each episode. In each episode, we take seven shots every 7 minutes. And so at the beginning we are scholarly and by the end we are drunk, yet still scholarly. If you're interested in this podcast, which I know you are, anyone can listen to the podcast for free. It's out there, you can find it, but if you want CPE credit for it, Naspa certified CPE credit. It is a premium course on earmark. So if you're already a subscriber to earmark, it's going to be more than that. But listen. It's worth it because for two reasons. First off, you know your company, you know your firm's going to pay for it and not you. And second of all, it's worth it, damn it.

David Leary: [00:51:36] 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 The Cloud Accounting Podcast know by running a classified ad if the show notes for the link to get more info?

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