Accounting
Are you offering what clients value?
All too often, what accountants are selling are services that clients have to endure, says Joe Woodard, a leading consultant to accountants and the impresario behind the Scaling New Heights Conference, and not the sort of thing that they really value. To succeed in the face of automation, AI and other changes in the profession, accountants need to find new ways to create value in the mind of the client.
Transcription:
Transcripts are generated using a combination of speech recognition software and human transcribers, and may contain errors. Please check the corresponding audio for the authoritative record.
Dan Hood (00:04):
Welcome to On the Air With Accounting Today, I’m editor-in-chief Dan Hood. Not infrequently what you think you’re selling your clients and what they think they’re buying are not exactly the same thing, and that can make both sides uncomfortable with clients feeling underserved and accountants unwilling to bill what they actually deserve and unwilling to insist on the value that they create Here. To talk about that and more is Joe Woodard. He’s a leading consultant to accounting firms and the impresario behind the mammoth Scaling New Heights conference. And I should mention a keynote speaker at Accounting today’s own firm growth forum coming up in May. Joe, thanks for joining us.
Joe Woodard (00:33):
It’s always great to be here, Dan.
Dan Hood (00:34):
Yeah, it’s a pleasure to have you back. Now, I talked about that disconnect between what clients value, what they like, what they want, what they think they’re getting, and what accountants are selling or think they’re selling. Where does that come from? Where does that disconnect spring from?
Joe Woodard (00:48):
Well, we are a compliance industry and therefore we are selling regulations or at least the compliance with those regulations. And so what we think the client, it’s valuing the client only is enduring. I mean it’s basically the company we keep is undertakers death and taxes, right? The two things you can’t avoid, and those are the two people that you want to talk to the least, right? The undertaker and the CPA. And so what it really comes down to the magic word here, Dan, is utility. We are a utility, not because we’re not valuable. I’m not trying to minimize the industry. It’s extremely valuable that the lights are working in this room.
Dan Hood (01:30):
Yeah,
Joe Woodard (01:30):
Electricity is super valuable. The heat too, it’s very cool day outside utilities are extremely valuable, but they’re nonetheless utilities. I have a very wealthy friend named Bill. He has a six car garage filled with luxury cars, but he will drive those luxury cars five miles out of his way to save 2 cents on a gallon of gas because one is value and the other is utility. And so we think we’re selling value and we’re not. We’re selling requirement.
Dan Hood (01:57):
So that makes a lot of sense. That is what accountants are focused on and most of the time, what is it the clients value,
Joe Woodard (02:03):
What they value is an increase in their wealth. Now that wealth doesn’t necessarily have to be defined as financial wealth, though we should be trying to drive to the bottom line, Dan. We shouldn’t just be compiling financials. We should be interpreting financials. We shouldn’t just be preparing a tax return or even doing a tax planning engagement, which is basically just a pre return. We should be doing tax analysis. We should be helping the clients to save money everywhere that we can turn, and that’s actually the easiest part of financial advisory is saving money. Accountants are really good at that. It’s more intimidating to say, we’re going to help the client with their pricing strategies or their go-to-market strategies and the more complex areas of business advisory, but anybody can save anyone money if you’re an accountant, at least that it’s a core competency. We just don’t apply the knowledge that we have to what the client actually wants. So if we can connect our knowledge to an increase in the client’s bottom line, then we can start giving them what they really want to buy.
Dan Hood (03:03):
Well, it’s interesting. That increase I think is what’s crucial there, right? Because we’ve done surveys of small business clients for accountants and one of the things they say they love best about, love best about when do you ask them, what do you love about your accountant? They’ll say, he saves me lots of money on my taxes. And that’s genuine. They appreciate that they value that to a certain extent. It’s more in the endurance form that you’re talking about, but that’s what they think they’re valuing about their accountants because they don’t know what else accountants can do for ’em. And then again, there’s a difference between that saving of money and increasing the bottom line. So how do accountants move to that? How do they get to the point where
Joe Woodard (03:39):
They’re, well, can I take something you just said and unpack it a little bit? There is a big difference and the reason is I can be convinced accurately or inaccurately from a TurboTax Super Bowl commercial that TurboTax will save me just as much money as my CPA and I can just buy a piece of software or use TurboTax live. Our HR block might convince me of that. So it gets into another factor here. There’s utility as one factor, there’s commoditization as another, and this move to scaled service of that tax savings is what’s driving the value proposition down. Even if the same value as there, even if the CPA could save or the enrolled agent can save their client more money than TurboTax can, it’s optics, it’s perception and perception equals value in the mind of the buyer. So now I’m going to get to your question.
(04:30):
How do we do we shift, we have to shift our focus from the tax return being central, and I’m even going to go so far as to say even the financial statement being central because both of those are very key to our business model. But what really matters are the operational elements of the client’s financial performance and condition and operations, meaning by that controllership services. So if I can assist the client in the back office with the way they spend money, not just record what they spend, I can help them to create and then adhere to policies around the way they purchase, the way their people travel and how their people comply to those policies around travel, then I can create the very financials alongside the client that I’m compiling. Now I know there’s independence, I can’t audit that same client, I get it, but I can do CS for that client and still help them save money and then I can still prepare their tax return.
(05:36):
Alright, fine, refer the audit to another firm partner, create the independence some other way that’s not as valuable in terms of recurring revenue as the CS is. Anyway, so that kind of gets me into the whole C story because value pricing in cas, yes you have tax analysis and that’s extremely valuable, but at the end of the day, it’s the reason that the profession is driving toward casso strongly because they can start selling the outcome of that increase in wealth so much more easily, so much more pervasively. I mean if I’m doing a tax analysis engagement at best I might talk to the client quarterly. It’s usually somewhere in the middle between tax filings in the summer or whatever. So here I’m dealing with the client not just every month. If I’m their controllership services provider, I might be touching that client weekly and there I can really affect change.
Dan Hood (06:31):
All that makes a great deal of sense. Lemme just take a step back a little devil’s advocacy style because there is, we keep talking about value and value and value and perception and how much of value is entirely perception, right? I mean it
Joe Woodard (06:44):
Really is.
Dan Hood (06:44):
We’ve decided that this weird yellow metal that comes out of the earth is valuable. It’s not really, you can’t do much with it, but gold is super valuable.
Joe Woodard (06:50):
Or just look at cryptocurrency.
Dan Hood (06:51):
Yeah, exactly. We decide what value is. Everyone decides what value is for themselves. What about the accountant who says, well, there is huge value in getting your taxes done, right, getting your compliance work done properly. Why can’t I just focus on communicating that value? Why can’t I reeducate the client and still because the work has to be done? We’ve said they endure it, but they have to endure it. They don’t any choice. And as I said, there are clients who are like, I love that they saved me money mostly because they don’t know what else an accountant could do for them. So why not just reeducate the client? Why do I have to change? Why can’t they change?
Joe Woodard (07:26):
Yeah, why can’t they change?
Dan Hood (07:27):
Yes. Like I said, this is a little bit of devil’s advocacy.
Joe Woodard (07:28):
No, no, no, no. It’s actually a very important point because if I have the right pitch and I can create the right value then to put it in Casey Brown’s terms from her famous TED Talk, she said, and I’m going to paraphrase this, she was talking about employers. I’m going to put it into accounting terms. Clients will never pay you what you worth, what you’re worth. They will only pay you what they think you’re worth. And then she said, and you get to control their thinking. So there are techniques where you can walk your customers, your clients through a value proposition or for that matter, your employer through a value proposition and you can engineer a greater perception of value. That is absolutely true, Dan, and that is limited by the market forces of commoditization and the market forces of commoditization is a wall that accountants can’t get passed.
(08:19):
Right now it brings me back to TurboTax or H&R Block and it’s furthered also by the offshoring of services, which we’re leveraging, but is also being leveraged against us at scale. And though it would be a whole other can of worms, we could do on another podcast, artificial intelligence, which is creating right now, you have automation. Then there’s going to be this pervasive thought process in the market, whether it’s ahead of reality or not, that I don’t need to pay a CPA to do this. AI will just do it for me. And even if they’re presuming incorrectly in the present and they’re presuming the future upon the present, they’re still diminishing the value in the present. So I would tell everyone listening here that unfortunately your hands are tied when it comes to tax. Yes. Tied by the forces of commoditization.
Dan Hood (09:07):
Gotcha. Well, and following on, I mean a lot of the financial writeup sort of stuff I think is going to end up being automated and artificial intelligence in the same way it’s
Joe Woodard (09:20):
Commoditized, it’s imminent
Dan Hood (09:21):
If it isn’t already.
Joe Woodard (09:22):
As a matter of fact, there have been press releases. There’s sort of this war of the press releases, and I’m not going to speak to because I haven’t looked at or analyzed what’s under the hood, but a lot of these AI developers are saying, well, just recently this week digits came out with autonomous general ledger. They got it coined as a GL, and then about three or four weeks ago, there was a big announcement from puzzle and people are kind of picking their AI camps. It’s all very preliminary, it’s all very pioneer. It does drive the perception with the commoditization, but it just gets me back to this controllership piece because the tax returns, the tax code is vast, but it is finite and it is the playground of artificial intelligence because artificial intelligence, the data is holistic, it’s accessible, it’s ingestible and it has calculations behind it.
(10:22):
It’s a field day for ai. The variables in bookkeeping make that a little bit farther out, but you’re right, it’s going to happen in the next some however many years, not decades, controllership in the present. We can sell against the value proposition of almost like contra expense. Yes, you’re going to pay me this much per month to be your controller, but I’m going to save you this much projected savings. So it’s contra expense, and that’s very powerful to the client when you’re in a sales position. But it also will endure beyond this next wave of ai because AI can’t enforce a spend policy. AI cannot digest the politics and the intercompany dynamics of why this person should be staying at a Ritz-Carlton. That person should be staying at a courtyard. Those nuances will elude it, but a controller puts in the human element that will become not just valuable, but maybe even invaluable to the client.
Dan Hood (11:23):
There’s a lot there. So much so that I’m going to take a pause. We’re going to take a quick break while I figure out which direction to go in because there are a lot of different ways to unpack that. Among the things we’re going to be talking about is how accountants need to start thinking differently and what services they should starting to think about. But as I said, we’re going to take a quick break and then we’ll be back. Okay. And we’re back. We’re talking with Joe Woodard. As I said, the man behind Kaley New Heights said a million other things and also a keynoter at our firm growth form in May. I’m going to do one more devil’s advocate to talk on the notion of, right, we’ve talked about all the technology that is commoditizing a lot of what accountants are doing, and I think the not so distant threat that AI poses to a lot of things, as you said, it’s just all of these things are just sets of rules and formulas to which you apply a set of data.
(12:17):
That’s a thing that computers forget AI computers are really good at. So eventually and not that far away, we’re going to see a lot of that work is able to be done by computers. It’s the judgment as you mentioned, that goes to human beings. The question is, one final sort of devil’s advocate is I think there’s potentially room for accountants who just say, well, yeah, but I’ll be the one using the ai. I’ll be the one using the technology. They’re not going to, an AI isn’t going to incorporate itself and put an ad in a yellow Pages or start getting referrals. There’s always going to be a human being using the ai. Now, it doesn’t have to be a CPA or an EA. It could be some low cost threat, some interloper who comes in and says, ‘Aha, I can disintermediate this market.’ But for accountants that are smart, why can’t they say, Hey, you know what? I’ll just leverage this. I’ll leverage outsourcing. You mentioned outsourcing, and I’ll become the low cost provider myself and then I’ll every once in a while get to do something interesting and fun because clients will rise up, will need that kind of judgment. But mostly I’ll be running a thing where I oversee all these technologies. Well,
Joe Woodard (13:20):
That is absolutely the play, Dan, and that play has a horizon. So first I would say absolutely yes, do it. And there are already players going direct B2B on this. I am going to come back into it as a shareholder. I think their strategy is brilliant. It’s exactly what they should be doing in the service of their shareholders. But they’re running these Super Bowl commercials that say if you have QuickBooks, you have a small business, boom, you’re done. Now they’re not leading out with ai, but then you go read their shareholder report and it’s all an AI driven future. Now, there are people involved in that and there is a network. I want to make sure we’re clear on this Intuit as raising network of actual certified professionals that are part of this organization, but it’s not your firm. It’s you kind of gig economy play with Intuit going direct B2B. And so I think that’s good for business globally. I think that’s exactly intu. Its advancing the field as they should. It’s disruptive to accounting firms. But this is the key takeaway I keep coming back to, and this is the reason I’m such on this controllership services, and I don’t want to just say controllership services, maybe this larger holistic CAS play is because with all of the power that Intuit is putting into AI and other players are as well to go after scaled economics globally.
(14:48):
Pilot is another good example. They don’t do controllership services and pilot doesn’t even model around anyone with inventory. Once you start getting into complexities of operations, you start hitting a wall really fast. So I would say absolutely accountants should leverage ai, but just like every other technology, if we’re first adopters, we get competitive advantage and then we run out of runway. Eventually everything does go direct to the consumer or direct to the business. So we have to think about that beyond this next horizon. And that gets us back to the theme of this podcast, which is how do we create value in the mind of the client? And that gets me back to there’s only one. Well, two things, two things and two things only they will value. And that’s how do you solve my problem? And I don’t mean in a utility sense, keep the IRS off my back. I mean, help my business be stronger. And the other thing they will pay money for is how you make me feel. And we always forget that. Second one is accountants. A lot of people can’t straddle. Both of those worlds are paradigms of value. Disney only gets to do how you make me feel. I don’t go to Disney World to solve my problems
Dan Hood (16:05):
Unless your problem is that you’re feeling bad.
Joe Woodard (16:07):
Well, yes, there you go. That’s
Dan Hood (16:08):
The happiest.
Joe Woodard (16:09):
And I don’t go to a lawyer to feel better. I go to a lawyer, solve my problem. But there are a couple of professions. Therapists are another one. They straddle both worlds. They make me feel feelings I need to feel and they solve my problem. Accountants can straddle those two worlds. We can sell peace of mind. So at the very beginning of the podcast, I said, wealth is not necessarily financial and business owners, especially business owners that are in that emerging space, maybe between two and 10 million in revenues, that’s a dangerous place to be a business owner. It is very volatile. They don’t really understand how to scale an organization like that. And I can tell you that whatever persona they present to you in your tax interviews every year they live in a perpetual and maybe subdued, but present state of fear and to know that someone is protecting their journey. If you were going to ask me, Joe, what would be the ultimate then product that we could sell that a client would value? Yes, it’s an increase in wealth, but it’s bigger than that. It’s a protection of a journey. And I don’t know any profession that is maybe lawyers, but they’re so lawyer about it. I don’t know any profession that is better positioned to be the protectors of business journey than we are.
Dan Hood (17:33):
It does, but it does require a little bit. It requires a fairly, not a little bit, actually a fairly significant mindset shift, right? Yes, it does. In the sense of, and people have been talking about this framework for a million years, the difference between the backward looking historically focused, these are the numbers, this is what happened. I’m telling you what’s what has happened. We all know
Joe Woodard (17:50):
It.
Dan Hood (17:51):
Or Well, I know it now. I told you about
Joe Woodard (17:53):
It. Yes. And I’m telling you, it matters even though you don’t, even though you don’t really know
Dan Hood (17:57):
Because you can’t read the statements I’m handing you anyways, and I’m not good at explaining it to you. This is a whole separate set of issues. But the flip side, and what you’re really talking about is it’s not just protecting their journey is also a little bit of guiding them on their journey, right? Alright, where are you going? Okay, well, here’s how you get there and here’s how you get there in style and successfully and
Joe Woodard (18:15):
Without. But can I take some of the mystery out of that? Because that’s the part that scares CPAs because then they’re like, well, I’m not a business consultant and I don’t understand table turns in a restaurant or I don’t understand when it’s time to open up a second warehouse. And there are advisors that can do that sort of management advisory and directional and strategic advisory. I can really lower the fruit on the tree for the listeners here. Controllership services is broken into three components and the way that we design the model, you can interpret so many different ways, and that’s regulatory compliance, sweet spot. I can protect their journey by making sure that they’re compliant in the state of Ohio where they just hired an employee.
(18:56):
That’s our backyard regulatory compliance on sales tax. And then you don’t even have to open up salt practice. You could just partner with those companies. There’s so many of them out there that have these research arms that infuse and democratize their knowledge through their software. You just have to be paying attention to the fact that they’re now selling more products and they’ve crossed a sales threshold. In Colorado, you just have to be paying attention and the data’s discoverable. So regulatory compliance, our backyard risk mitigation, they need that as part of their journey protection. If I was hiring a controller to be in my company, that would be part of their job description. Risk mitigation, it’s our backyard. We can help the client with that. And then there’s managerial compliance, which is maybe not our backyard, but it’s right over the fence. It’s very easy for us to adopt because it’s that spend policies and spend management, but it’s also budgets, budget curation, very adjacent to what we do. If you’re listening in on this and you’re like, well, this whole idea of steering the client and the exposure with that and the fact that I don’t have my 10,000 hours in and I’m not an expert, and who am I to tell them how to run their business? I get all that for the listeners listening in. But I think any CPA listening in or even an EA or even anyone with no credentials listening in can help with regulatory compliance, managerial compliance and risk mitigation. Right?
Dan Hood (20:26):
Well, and that makes it tremendous. When you phrase it that way, as you say, that’s the low hanging fruit, and that makes it clear for a lot of audiences should make them a lot more comfortable with this idea because it’s all very close to what their current,
Joe Woodard (20:36):
And they don’t have to stretch their brand either. If they go to any of their clients and they present themselves as protecting the journey in those areas, nobody’s going to say, you’re a CPA. That doesn’t fit. Right. They’re actually going to
Dan Hood (20:47):
Go, oh, they’re perfect.
Joe Woodard (20:48):
Yeah, it is a perfect fit for the brand.
Dan Hood (20:50):
Right, right. But here’s my question for that is how does that grow their bottom line,
Joe Woodard (20:56):
The CPA firms or the business?
Dan Hood (20:58):
The businesses?
Joe Woodard (20:58):
Oh yeah,
Dan Hood (20:59):
I totally understand how it protects them from downside. How does it give ’em upside?
Joe Woodard (21:03):
Well, okay, so
Dan Hood (21:04):
Because where you get the value,
Joe Woodard (21:05):
Well, when you get into managerial compliance, you get increases in the bottom line, the budgets, that’s the purchasing policies, and that’s the travel expense policies and the spend assessment. So any kind of cost or expense overruns, you’re mitigating those and you start there because that goes straight to the dollars. The other gets into the how you make me feel, right? Well, there is penalties, abatement, and prevention. So you have penalties and interest if you’re out of compliance with sales tax or payroll. So you are saving them on that. Preventively risk is a fraud. Those are forms of passive expense. You’re saving, they hit the p and l, you’re saving them on that as well to help them with their accounts receivable, just to pay a little attention to that aging and coach them through how to get that money collected faster and better, maybe who to loan money to and not because what we’re doing with our customers is loaning ’em money that hits the p and l.
(21:58):
It’s bad debt expense. So all of those do increase the bottom line directly. But how you make me feel part is the heaviest value of risk mitigation and regulatory compliance. And now you’ve hit both solve their problem. I have expense and cost overruns give me peace of mind. Something’s watching my back with embezzlement and fraud and regulatory compliance. And clients will pay handsomely for that. And I just want to give a couple of success stories here. They’re anecdotal, but what really makes them powerful, we coach a lot of small firms. We consult a lot of CPA firms. The small firms are not credentialed. And just within the last week, a couple of the firms, I have the privilege of coaching directly women led organizations, not a single letter of designation, no comma after their name. They only do CAS. And these two ladies sold, one of ’em sold a $7,500 a month engagement and the other one sold an $8,000 a month engagement selling controllership services, which by the way, we’ll do your bookkeeping. And if they can do it, then the CPAs listening in can do it too.
Dan Hood (23:09):
Sure. Well, particularly when you phrase it that way. I think for a lot of people when they look at this, when they talk about the high dollar value potential for CPA firms or for accountants in this, there’s certainly more money than they’re currently making from their clients in the controllership services area. But I think a lot of them are looking at, well, if I actually did get into the business consulting and the business advisory and teaching them how to really expand and how to grow, that’s the real opportunity. But then that’s an area of risk that a lot of accountant firms don’t want to get into.
Joe Woodard (23:38):
It’s area of expertise. They’re not prepared currently to staff either,
Dan Hood (23:41):
Right?
Joe Woodard (23:41):
All this other stuff, they have the requisite knowledge.
Dan Hood (23:44):
But it’s just interesting because in the end, that would be the high dollar value opportunity if you could take somebody, yes, you can save ’em a hundred thousand dollars over the course of 10 years there, and that does go to their bottom line.
Joe Woodard (23:55):
And you could niche maybe if you could
Dan Hood (23:56):
’em a 2 million opportunity today because you understand their industry.
Joe Woodard (24:00):
But yes, and you could go there. Maybe that’s where you niche, because they’re riches in those niches. When you get into management advisory and strategic advisory, there are leashes in the niches when you’re in controllership. So you want to go broad there. Anybody can help any client save on their expenses. And then when you start getting into revenue or maybe cost of good sold, you have to be a little bit more specialized. But that’s why I just want to keep bringing it back to this. If you’re in here and a really good account for you, if I were to walk in the door and I had a $15,000 or $20,000 a year tax preparation portfolio, you would go home singing a tune. That’s a nice new client to pick up for a lot of listening audience here, but a $7,000 a month controllership services client. Now, a lot of people are thinking, yes, but the lift is heavier. Yes, but we’re still talking about 60, 70% gross profit margins. So even if you take it net of the margins, the account is still significantly greater. The revenue is non-seasonal. And then when you do get to that tax returns practically,
Dan Hood (24:59):
Yeah, because on the inside, but you talked about being heavy lift, and I wanted to, because you gave me the example, right, of knowing the difference between which executive gets which level of t and e kind of thing, and having a sense of who gets this, who gets the nice room, who gets the business class as opposed to economy seat, all that sort of stuff. And I was thinking about that requires a real level of almost embedding in the client. We reach a point where, how many clients can you serve that? Is that what that level of knowledge must feel like? I think to a lot of people look and think, wow, that’s basically like I’m their controller. How many places can you be controller for if you’re their controller?
Joe Woodard (25:33):
Well, I’m going to get back to the advice that you gave the listeners, which is to leverage the ai. So I was teaching a class on spend management just two days ago, and I told them the manual way to do it, take 13 months of every single bank and credit card statement, look for all the recurring vendors that pop up at least twice over 13 months and then cross analyze them for any overlap or redundancies in feature set. And I was doing it on purpose to make them feel overwhelmed at how much work it takes to make sure that even the passive purchases that all of their clients have are not, where they’re not overspending. And when they were looking back at me, there’s no way I can make profit on this. I said, now watch. And I went to chat GPT, I had it in just the 13 months worth of financial statements just by uploading the PDFs, asked the question, a simple question, are there any redundant expenses here or any place where I have overlapping feature sets and it spit out an entire spend assessment in 15 seconds. So if I could have AI ingest the travel policy and then I can have it ingest the expense reports, it will tell me exactly who’s in and out of compliance in 15 or 20 seconds. Now the question comes in inevitably, but couldn’t the client do the same thing?
Dan Hood (26:51):
Sure, of course not. Probably not. But they wouldn’t get it,
Joe Woodard (26:54):
Right? Even if they can figure it out, they don’t have the attention to pay attention to it. And so what you’re actually selling the client is still the outcome, not the effort to get to the outcome because they would never take the time, take the capacity or give it the attention. Because in the mindset of the business owner, well, I might do all of that and give it my hour or two of attention, which it only takes 15 or 20 minutes when you get it all set up. But then what? To save a couple thousand dollars, I’m trying to close the next $200,000 deal. But you as the controller could take that AI layer, save the client 50, 60, $70,000 a year because you can lend the attention to it that they can’t, their opportunity cost in redirecting their attention may be too great.
Dan Hood (27:44):
Well, and also the accountant knows to ask the question. The accountant knows to say, yeah, this is the thing we should be looking at. And this is true of accounting firms as well. You talked about when you get that eight, 10 million level, you’re growing to a new totally new business. All the things that matter to you are no longer the things that went into whatever business you were running. If you were, I used go with Bakers. You’re running a bakery, you know how to bake, that’s great. You don’t know how to run a 10 million business, and that’s what’s going to matter going forward. So
Joe Woodard (28:11):
Exactly.
Dan Hood (28:11):
You’re not going to ask the right questions. You’re not going to think of the right thing. So very cool. We could talk a lot more about this, but
Joe Woodard (28:20):
I was going to kind of end on this note. There’s an irony inherent in my keynote. I’m going to be presenting coming up here in May, and it’s why your clients don’t value services and how to change their thinking. Well, at the end of the day, it isn’t the client’s mind. You have to change. It’s going to be the attendees at the summit, and you alluded to this earlier, because the client already has the mindset, I’m afraid I need help someone walking alongside me. I would value that very highly. The problem isn’t the client’s mindset at all. It’s the CPAs.
Dan Hood (29:01):
And then if you’ve got the right mindset, you can go, then do whatever you need to do to the client’s mindset if they need change or it makes a ton of sense. Very cool. As I said, this is just the taste of what we’re going to be getting at the firm growth form, but pretty valuable nonetheless on its own. Joe Woodard, thank you so much.
Joe Woodard (29:17):
It’s always great to be here, Dan,
Dan Hood (29:18):
And thank you all for listening. This episode of On the Air was produced by Accounting Today with audio production by Kelly Maloney Radio. Review us on your favorite podcast platform and see the rest of our content on accounting today.com. Thanks again to our guest, and thank you for listening.
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At a future meeting, the board plans to consider clarifying the derecognition guidance for crypto transfer arrangements to assess whether the control of a crypto asset has been transferred.
FASB also began deliberations on the
The board decided to provide illustrative examples in Topic 230, Statement of Cash Flows, to clarify whether certain digital assets such as stablecoins can meet the definition of cash equivalents. It also decided to include the following concepts in the illustrative examples:
- Interpretive explanations that link to the current cash equivalents definition;
- The amount and composition of reserve assets; and,
- The nature of qualifying on-demand, contractual cash redemption rights directly with the issuer.
FASB plans to clarify that an entity should consider compliance with relevant laws and regulations when it’s creating a policy concerning which assets that satisfy the Master Glossary definition of the term “cash equivalents“ will be treated as cash equivalents.
“I agree with the staff suggestion to look at examples,” said FASB vice chair Hillary Salo. “From my perspective, I think that is going to help level the playing field. People have been making reasonable judgments. I agree with that. And I think that this is really going to help show those goalposts or guardrails of what types of stablecoins would be in the scope of cash equivalents, and which ones would not be in the scope of cash equivalents. I certainly appreciate that approach, and I think it has the least potential impact of unintended consequences, because I do agree with my fellow board members that we shouldn’t be changing the definition of cash equivalents, and it’s a high bar to get into the cash equivalent definition.”
“I’m definitely supportive of not changing the definition of cash equivalents,” said FASB chair Richard Jones. “I believe that’s settled GAAP in a way, and we’re not really seeing a call to change it for broader issues. I am supportive of the example-based approach. The challenge with examples, though, is everybody’s going to want their exact pattern, but that’s not what we’re doing.”
The examples will explain the rationale for how digital assets such as stablecoins do or do not qualify as cash equivalents and give a roadmap for other types of digital assets with varying fact patterns to be able to apply.
“We really don’t want to be as a board facing a situation where something was a cash equivalent and then no longer is at a later date,” said Jones. “That’s not good for anyone, so keeping it as a high bar with certain rigid criteria, I think, is fine.”
Stablecoins are supposed to be pegged to fiat currencies such as U.S. dollars and thus provide more stability to investors. “In my view, while a stablecoin may meet the accounting definition established for cash equivalents, not every one of those stablecoins in the cash equivalent classification represents the same level of risk,” said FASB member Joyce Joseph.
She noted that the capital markets recognize the distinctions and have established a Stablecoin Stability Assessment Framework to evaluate a stablecoin’s ability to maintain its peg to a fiat currency. Such assessments look at the legal and regulatory framework associated with the stablecoin, and provide investors with information that could enable them to do forward-looking assessments about the stability of the stablecoin.
“However, for an investor to consider and utilize such information for a company analysis the financial statement disclosures would need to include information about the stablecoin itself,” Joseph added. “In outreach, the staff learned that investors supported classifying certain stablecoins as cash equivalents when transparent information is available about the entities at which the reserve assets are held. Therefore, in my view, taking all of this into consideration a relevant and informative company disclosure would include providing investors with the name of the stablecoin and the amount of the stablecoin that is classified as a cash equivalent, so investors can independently assess the liquidity risks more meaningfully and more comprehensively by utilizing broader information that is available in the capital markets and its emerging information.”
Such information could include the issuer, reserves, governance and management, she noted, so investors would get a more holistic look at the risks that holding the stablecoin would entail for a given company.
The board decided to require all entities to disclose the significant classes and related amounts of cash equivalents on an annual basis for each period that a statement of financial position is presented.
Entities should apply the amendments related to the classification of certain digital assets as cash equivalents on a modified prospective basis as of the beginning of the annual reporting period in the year of adoption.
FASB decided that entities should apply the amendments related to the disclosure of the significant classes and amounts of cash equivalents on a prospective basis as of the date of the most recent statement of financial position presented in the period of adoption.
The board will allow early adoption in both interim and annual reporting periods in which financial statements have not been issued or made available for issuance.
FASB also decided to permit entities to adopt the amendments to be illustrated in the examples related to the classification of certain digital assets as cash equivalents without the need to perform a preferability assessment as described in Topic 250, Accounting Changes and Error Corrections.
The board directed the staff to draft a proposed accounting standards update to be voted on by written ballot. The proposed update will have a 90-day comment period.
Senators introduced several pieces of tax-related legislation this week, including measures aimed at improving customer service at the Internal Revenue Service, cracking down on tax evasion and curbing the carried interest tax break, in addition to efforts in the House to repeal the Corporate Transparency Act.
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Senators Bill Cassidy, R-Louisiana, and Mark Warner, D-Virginia, teamed up on introducing a bipartisan bill, the
The bill would establish a dashboard to inform taxpayers of backlogs and wait times; expand electronic access to information and refunds; expand callback technology and online accounts; and inform individuals facing economic hardship about collection alternatives.
“Taxpayers deserve a simple, stress-free experience when dealing with the IRS,” Cassidy said in a statement Wednesday. “This bill makes the process quicker and easier for taxpayers to get the information they need.”
He also mentioned the bill during a
“I’m happy to meet with the team … and do all I can to make it as good as you want it to be,” said Bisignano.
“My bill would equip the IRS with the legislative mandate to create an online dashboard so that taxpayers can monitor average call wait time and budget time accordingly,” said Cassidy. He noted that the bill would allow a callback for taxpayers that might need to wait longer than five minutes to speak to a representative, and establish a program to identify and support taxpayers struggling to make ends meet by providing information about alternative payment methods, such as installments, partial payments and offers in compromise.
“I know people are kind of desperate and don’t know where to turn for cash, so I think this could really ease anxiety,” he added. “This legislation is bipartisan and is likely to pass this Congress.”
Cassidy and Warner
“Taxpayers shouldn’t have to jump through hoops to get basic answers from the IRS — and in the last year, those challenges have only gotten worse,” Warner said in a statement. “I am glad to reintroduce this bipartisan legislation on Tax Day to ease some of this frustration by increasing clear communication and making IRS resources more readily available.”
Stop CHEATERS Act
Also on Tax Day, a group of Senate Democrats and an independent who usually caucuses with Democrats teamed up to introduce the Stop Corporations and High Earners from Avoiding Taxes and Enforce the Rules Strictly (Stop CHEATERS) Act.
Senate Finance Committee ranking member Ron Wyden, D-Oregon, joined with Senators Angus King, I-Maine, Elizabeth Warren, D-Massachusetts, Tim Kaine, D-Virginia, and Sheldon Whitehouse, D-Rhode Island. The bill would provide additional funding for the IRS to strengthen and expand tax collection services and systems and crack down on tax cheating by the wealthy.
“Wealthy tax cheats and scofflaw corporations are stealing billions and billions from the American people by refusing to pay what they legally owe, and far too many of them are getting a free pass because Republicans gutted the enforcement capacity of the IRS,” Wyden said in a statement. “A rich tax cheat who shelters mountains of cash among a web of shell companies and passthroughs is likelier to be struck by lightning than face an IRS audit, and Republicans want to keep it that way. This bill is about making sure the IRS has the resources it needs to go after wealthy tax cheats while improving customer service for the vast majority of American taxpayers who follow the law every year.”
Earlier this week. Wyden also
The Stop CHEATERS Act would provide the IRS with additional funding for tax enforcement focused upon high-income tax evasion, technology operations support, systems modernization, and taxpayer services like free tax-payer assistance.
“As Congress seeks ways to fund much-needed policy priorities and address our growing national debt, there is one common sense solution that should have unanimous bipartisan support: let’s enforce the tax laws already on the books,” said King in a statement. “Our legislation will make sure the IRS has the resources it needs to confront the gap between taxes owed and taxes paid – while ensuring that our tax enforcement professionals are focused on the high-income earners who account for the most tax evasion. This is a serious problem with an easy solution; let’s pass this legislation and make sure every American pays what they owe in taxes.”
Carried interest
Wyden, King and Whitehouse also teamed up on another bill Thursday to close the carried interest tax break for hedge fund managers that
Carried interest is a form of compensation received by a fund manager in exchange for investment management services, according to a
Under the bill, the
“Our tax code is rigged to favor ultra-wealthy investors who know how to game the system to dodge paying a fair share, and there is no better example of how it works in practice than the carried interest loophole,” Wyden said in a statement. “For several decades now we’ve had a tax system that rewards the accumulation of wealth by the rich while punishing middle-class wage earners, and the effect of that system has been the strangulation of prosperity and opportunity for everybody but the ultra-wealthy. There are a lot of problems to fix to restore fairness and common sense to our tax code, and closing the carried interest loophole is a great place to start.”
Repealing Corporate Transparency Act
The House Financial Services Committee is also planning to markup a bill next Tuesday that would fully repeal the Corporate Transparency Act, which has already been significantly
If enacted, the repeal would eliminate beneficial ownership reporting requirements, removing a transparency measure designed to help law enforcement and national security officials identify who is behind U.S. companies.
“This repeal would turn the United States back into one of the easiest places in the world to set up anonymous shell companies, something Congress worked for years to fix,” said Erica Hanichak, deputy director of the FACT Coalition, in a statement. “These entities are routinely used to facilitate corruption, financial crime, and abuse. Rolling back the CTA doesn’t just weaken transparency, it signals to bad actors around the world that the U.S. is once again open for illicit business.”
The Internal Revenue Service rarely penalizes taxpayers who have high balances in foreign bank accounts and fail to file the proper forms, according to a new report.
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The
Taxpayers with specified foreign financial assets that meet a certain dollar threshold are also required to report the information to the IRS by filing Form 8938. Failure to file the form can result in penalties of up to $60,000. However, TIGTA’s previous reports have demonstrated that the IRS rarely enforces these penalties.
The IRS created an Offshore Private Banking Campaign initiative to address tax noncompliance related to taxpayers’ failure to file Form 8938 and information reporting associated with offshore banking accounts, but it’s had limited success.
Even though the initiative identified hundreds of individual taxpayers with significant foreign bank account deposits who failed to file Forms 8938, the campaign only resulted in relatively few taxpayer examinations and a small number of nonfiling penalties. The campaign identified 405 taxpayers with significant foreign account balances who appeared to be noncompliant with their FATCA reporting requirements.
The IRS used two ways to address the 405 noncompliant taxpayers: referral for examinations and the issuance of letters to them.
- 164 taxpayers (who had an average unreported foreign account balance of $1.3 billion) were referred for possible examination, but only 12 of the 164 were examined, with five having $39.7 million in additional tax and $80,000 in penalties assessed.
- 241 noncompliant taxpayers (who had an average unreported account balance of $377 million) received a combination of 225 educational letters (requiring no response from the taxpayers) and 16 soft letters (requiring taxpayers to respond). None of the 241 taxpayers were assessed the initial $10,000 FATCA nonfiling penalty.
“While taxpayers can hold offshore banking accounts for a number of legitimate reasons, some taxpayers have also used them to hide income and evade taxes,” said the report.
Significant assets and income are factors considered by the IRS when assessing whether taxpayers intentionally evaded their tax responsibilities, the report noted. Given the large size of the average unreported foreign account balances, these taxpayers probably have higher levels of sophistication and an awareness of their obligation to comply with the law.
TIGTA believes the IRS needs to establish specific performance measures to determine the effectiveness of the FATCA program. “If the IRS does not plan to enforce the FATCA provisions even where obvious noncompliance is identified, it should at least quantify the enforcement impact of its efforts,” said the report. “This will ensure that IRS decision makers have the information they need to determine if the FATCA program is worth the investment and improves taxpayer compliance.
TIGTA made three recommendations in the report, including revising Campaign 896 processes to include assessing FATCA failure to file penalties; assessing the viability of using Form 1099 data to identify Form 8938 nonfilers; and implementing additional performance measures to give decision makers comprehensive information about the effectiveness of the FATCA program. The IRS disagreed with two of TIGTA’s recommendations and partially agreed with the remaining recommendation. IRS officials didn’t agree to assess penalties in Campaign 896 or with implementing performance measures to assess the effectiveness of the FATCA program.
“From our perspective, TIGTA’s conclusions regarding IRS Campaign 896 are based, in part, on a misguided premise and overgeneralizations, including the treatment of ‘potential noncompliance’ as tantamount to ‘egregious noncompliance’ that warrants a monetary penalty without contemplating the variety of justifications that may exempt a taxpayer from having to file Form 8938,” wrote Mabeline Baldwin, acting commissioner of the IRS’s Large Business and International Division, in response to the report.
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