The Accounting Podcast

David and Blake are recording live at Sage Intacct Advantage and ready to share the latest news about Sage — But first! — We dial up Ethan Rouen of the Harvard Business School for a lively discussion about the inadequacies of modern GAAP (Generally Accepted Accounting Principles) and specifically the problem with accounting for employees as costs instead of assets. Then, after the break, we share the highlights from Sage Intacct Advantage, as well as news about a ransomware attack on Billtrust, a study that says female CEOs and CFOs generate greater profits, a story about EY's cringeworthy instructions on how women should behave in the firm, and more.

Show Notes

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Show Notes
  • 00:12 – Meet our guest, Ethan Rouen, Assistant Professor of Accounting at Harvard Business School
  • 01:27 – The gentleman dissect Ethan’s article, “The Problem with Accounting for Employees as Costs Instead of Assets”
  • 01:50 – Blake found a lot of similarities to Baruch Lev’s “The End of Accounting” in Ethan’s article | WSJ
  • 02:30 – Using GAAP today is like fixing a Tesla with a Model T manual
  • 04:12 – Why the lack of reporting human capital is a huge problem
  • 05:32 – Will disclosures on human capital get political? 
  • 06:48 – Reporting human capital tells a more compelling story to investors
  • 08:21 – Offering high-quality employee development programs is one way to ride out the economic storms | WSJ
  • 10:28 – There needs to be a broader range of rules in GAAP for telling the stories of these companies
  • 12:04 – The more things change, the more they stay the same, especially where GAAP is concerned
  • 13:58 – Nap time for David? Ethan talks about Boeing’s use of program accounting | The CPA Journal
  • 15:30 – David finally weighs in – Given the emotional climate of investing, what exactly is GAAP used for? 
  • 17:06 – Regardless of investors’ evaluation tactics, Ethan still thinks GAAP is relevant
  • 19:10 – Is Ethan a social-media anomaly? 
  • 23:04 – More insightful Cloud Accounting Podcast content is on the way! Subscribe now, so you don’t miss out!  
  • 23:28 – Innovation is the theme of Sage Intacct Advantage 2019 | GlobeNewswire
  • 24:36 – Finance 3.0, Intelligent GL (AI), product announcements, and more key takeaways from the conference
  • 28:43 – Sage’s goal is to “eliminate the close …” stay tuned for more insight on this aspiration from Sage CTO Aaron Harris in a future interview
  • 30:13 – Some hints about what will become of the AutoEntry acquisition? 
  • 32:50 – Mark your calendars! Intacct Advantage 2020 hits sunny Florida!
  • 34:15 – Update on the QuickBooks Desktop Payroll discontinuation – So far, it’s only in the UK version! | Intuit QuickBooks
  • 35:24 – Billtrust is the latest target for ransomware-ers | Krebs on Security
  • 37:16 – Want Higher Profits? Hire a Female CEO, CFO | Korn Ferry
  • 39:14 – The opposite of woke … E&Y instructs its female counterparts on the art of dressing and behaving appropriately? | The Huffington Post
  • 40:44 – Nuke launches have gone digital … We feel so much safer now | Engadget
Connect with Ethan Rouen

LinkedIn: https://www.linkedin.com/in/ethan-rouen-16a9551/
Website: http://www.ethanrouen.com/

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Creators & Guests

Host
Blake Oliver
Founder and CEO of Earmark CPE
Host
David Leary
President and Founder, Sombrero Apps Company

What is The Accounting Podcast?

The Accounting Podcast (formerly the Cloud Accounting Podcast) is the world's #1 accounting, bookkeeping, and tax podcast! Join us weekly for a roundup of accounting news, analysis, and interviews. Plus, earn free NASBA-approved CPE credits for listening with the Earmark app. Learn more at https://earmarkcpe.com.

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

David Leary: I'm David Leary.

Ethan Rouen: And I'm Ethan Rouen, Assistant Professor of Accounting at Harvard Business School.

Blake Oliver: Ethan, thank you so much for joining us. I feel like you have just leveled up this podcast by bringing the Harvard Business School name to our show.

Ethan Rouen: That's a lot of pressure. Let me try not to disappoint.

David Leary: We're still at Sage Intacct, so we're recording our normal news episode live, but we brought you in ... [00:00:30] You're in ...?

Ethan Rouen: I'm sitting in Boston, right now, where the weather is good, but probably not as good as your weather.

David Leary: We [cross talk] this amazing technical marvel of connecting wires.

Blake Oliver: The thing about Las Vegas is, of course, when you go there for a conference, you never go outside anyway, so we might as well be in Boston. Yeah, so through the miracle of the internet, we are speaking to you remotely from Las Vegas. We, by the way, are at the Sage Intacct Advantage Conference, exploring all things Sage Intacct. For [00:01:00] our regular news episode, we're definitely gonna talk about that in this episode, everything that's is going on, but David and I saw an article a few weeks ago, and we both really wanted to talk about it, but we didn't feel qualified, necessarily-

David Leary: The headline was just ... I was like, this makes so much sense to me, but I really don't understand it. I'll read the headline-

Blake Oliver: David had a great idea. He's like, "Why don't we just go see if the author wants to talk to us," which is something that I would never think to do.

David Leary: I'll read the headline ... Here's the headline: "The Problem with Accounting for Employees as Costs Instead of Assets"-

Blake Oliver: By [00:01:30] Ethan Rouen, which happens to be you!

Ethan Rouen: That it is.

Blake Oliver: Maybe you could come on ... Well, you're here now ... Explain to us, and for the benefit of our listeners, what are we talking about here? I recently read a book called, "The End of Accounting," by Baruch Lev, and I noticed a lot of similarities, I think, in thinking. If I understand right ... Maybe I can just [00:02:00] summarize your point and tell me if I'm wrong.

In many companies now, people are their biggest asset. Yet we don't think about them ... We don't have them on the balance sheet. We don't capitalize our investment in people ... Why don't we do that? Why doesn't GAAP update itself, or why don't we update GAAP to be able to do that? Am I anywhere close to the gist of your article and what you're saying? [00:02:30]

Ethan Rouen: Yeah, I think that was a pretty perfect two-sentence summary. Basically, I equate it ... It's like trying to fix- using GAAP right now is like trying to fix a Tesla with a manual for a Model T. We are living in a world in which GAAP is not necessarily prepared, because we have ... We're creating ... Companies are creating so many intangible assets.

The perfect example is the cliché that employees are our greatest asset, and yet, under [00:03:00] GAAP accounting, that's just wrong, because employees are not assets; they are strictly costs. Therefore, this creates a host of problems that are likely related to some of the concerns around the lack of training, as well as growing wage gaps and issues that concern not just companies, but policymakers, as well.

Blake Oliver: You said here in the article that- going to this, [00:03:30] the GAAP actual reporting, in your analogy of trying to fix a Tesla with instructions for a Model T, if you look at the financial statements of a corporation from a hundred years ago, on the face to it, they look pretty much very similar.
Companies now report very detailed information, you say in this article, about their capital investments, but they have almost no reporting requirements related to human capital. What should we be doing about this? Or, I suppose, why [00:04:00] is that a problem?

Ethan Rouen: Well, I'm nervous about the 'what should we be doing?' Because, I don't necessarily have solid answers. I'm good at pointing out the problem, but-

Blake Oliver: So, I'll change my question, then - why is that a problem?

Ethan Rouen: Well, it's a problem from- first of all, from an investor point of view, it's a huge problem because investors are definitely interested in how companies invest their capital, and we know that labor is a huge investment. It's a huge cost center. But we [00:04:30] know nothing other than the boilerplate saying, "We have good relations with our employees."

We know that most of that cost is embedded in COGS and SG&A. Then we have about 10 to 15 pages of information about how the top five executives are paid, but that's about it. We now have the CEO pay ratio, as well, which gives us the pay of the median employee. But again, there's lots of- there's a growing body of evidence showing that that's not very useful.

If [00:05:00] companies want to invest in employees, if they want to find ways that this is effective, and they want their investors backing, they need to start communicating this better. They need to say, "Look, this is how we're investing in our employees; whether it's training; whether it's recruiting; whether it's increasing wages to reduce turnover; and that will allow us to start to measure how these kinds of initiatives impact the company performance."

David Leary: Is this gonna eventually possibly [00:05:30] become a political issue? Because-

Ethan Rouen: I think it's already a political issue. Part of what sparked this was I was at a conference where Mark Warner was talking about this very issue. He's the Senator from Virginia. This is something that I've been thinking about in my teaching, as well as my research. But hearing him talk about it made me realize that there might be a taste for it outside of the 10 academics who read accounting journals. He's already talking about it. The SEC [00:06:00] has been fielding comments about what human-capital disclosures should look like-

David Leary: By not tracking it this way, is the impact ... Really, employees are impacted, because then companies don't ... I guess, if they're ... If I have a bunch of robots working for me, they're assets, and then I invest in maintenance of those-

Blake Oliver: Yeah, you get to capitalize the robots, right? But you don't get to capitalize training-

Ethan Rouen: Yeah-

David Leary: I'm not incentivized to take care of my employees.

Ethan Rouen: Well, I mean, that's not totally true because you get a tax- you get a break on your taxes [00:06:30] immediately for your employees, just by lowering your taxable income. But, at the same time, you're not ... There's no way to communicate this. There's no feedback loop outside of whatever is happening internally, usually in very siloed management decisions. Putting it on the financial statements, whether that's a turnover measure, or whether that's information about how they train, and retain workers, that [00:07:00] can start to tell a more compelling story.

It could start to encourage companies to really investigate whether all of the truisms and folk wisdom that we have about employees, such as that it doesn't make sense to invest in training employees, because you make them more marketable, and they're just gonna leave for a higher-paying job at your competitor. These things, we say are true, but there's no evidence to support this. In fact, the anecdotal evidence is starting to say this [00:07:30] might actually be the opposite of what's happening.

David Leary: Well, Ron Baker says that all the time ... These people are like - for accounting firms, "I don't wanna train the employees in my accounting firm, because they're gonna get training, and they're just gonna leave my firm and go somewhere else." But the real scary thing Ron Baker always says is what if you don't train them and they stay?

Ethan Rouen: That's a good point.

Blake Oliver: There's the argument that, if you have good employee development and training programs, that really attracts the best and the brightest, because the best employees want to learn. It's an [00:08:00] investment not only in your current people, but in the people that you are hoping to attract down the road.

Ethan Rouen: I think, also, it's a long-term investment that allows companies to ride out tough times, like the time we're facing right now, where the labor market is incredibly tight. One of the articles I mentioned in my article is from The Wall Street Journal, talking about KitchenAid, where they have, for decades, had [00:08:30] a very thorough and generous training program that has allowed them to bring people up through the ranks. They're still manufacturing the KitchenAid mixers in the United States, and have plenty of employees to do this, in part because they have this reputation for taking care of their workers.

Blake Oliver: I want to read something from the article that you wrote that may ... It's a pretty bold statement. "U.S. Generally Accepted Accounting Principles (GAAP) is an outdated and inadequate tool for documenting the behaviors of the modern corporation." Taking [00:09:00] it a little bit broader, we started, just dove deep into human capital and the way that's represented in accounting. What do you mean by GAAP being outdated and inadequate, in general? Because that's what ... Really, this is one sub-topic in that broader conversation, right?

David Leary: Did you tweet that? Is that out there? That's the official statement?

Blake Oliver: I should.

Ethan Rouen: It's [00:09:30] always painful to hear your own writing being read back to you.

Blake Oliver: Oh, I love it. I love it. It's great.

Ethan Rouen: In our Intro to Financial Accounting class that we teach to the MBAs, one of the frequent takeaways is this - it's that GAAP cannot tell the whole picture. This has always been the case. GAAP sacrifices the specific for a mediocre, generalizable story that you can tell across companies, because you can't [00:10:00] create individual rules for every single company; even though every single company does things differently.

I think that that has become a more severe problem, as we move into this technology-driven world, where many of the assets are intangible; where we invest heavily in employee- or we rely heavily on employees who aren't assets, because we don't have control over them and that they can leave their companies.

One [00:10:30] thing that regulators and rule-makers should start to think about is how we can tell the stories of these businesses using a broader set of rules; more narrative rules; less specific measurement ... Because we're still always estimating, and GAAP is always an estimate. But these estimates are becoming more and more wrong, as the concrete assets become smaller, and the less tangible ways in which companies generate profits become larger.

Blake Oliver: Right. The rise of intangibles [00:11:00] is a big theme of Baruch Lev's book, "The End of Accounting," which I just finished reading. Are you familiar with it?

Ethan Rouen: Yes, I am.

Blake Oliver: So, if I understand his thesis - to summarize - I'm probably gonna do this very badly ... He says that GAAP really hasn't changed all that much in a hundred years ... GAAP hasn't been around for a hundred years, but accounting, essentially - the income statement, balance sheets, statement of cash flows - hasn't changed a lot, but businesses really have; that we've [00:11:30] moved from a capital-intensive machinery - where your machines generate your profits - to one where it's our knowledge generates our profits; knowledge economy. That's where the people come in, being such an emphasis. GAAP hasn't changed. All we've done over the last several decades is make it increasingly more complicated with more and more rules, and more and more disclosures. But fundamentally, it's still very similar. I'm [00:12:00] wondering, what's your hot take on that?

Ethan Rouen: I think it's not just GAAP accounting, but also tax accounting, where we're seeing this and where it's starting to really surface as a problem, because we have ... Again, a company formerly could've built a plant in Ohio, and a lot of its profits would be generated by pushing out product from that plant.

Now, a lot of these profits come from patents that can be moved around the world. We [00:12:30] have tons and tons of company subsidiaries that are created largely to lower tax burdens, but yet where most of the valuable assets of the firm are now held. I agree 100 percent with Baruch Lev's book that we are basically reading- or using a rulebook that was created at a time when the corporation looked nothing like it does now, and it [cross talk]

Blake Oliver: You can't see this right now, but [00:13:00] David's eyes are kinda glazing over a little bit, because [cross talk] We're getting nerdy on the CPA thing, right?

David Leary: No, no! Oh ... No, I have a point of view on this.

Blake Oliver: I wanted to just bring an example here for our listeners who ... Because I'm saying intangibles, capital, all this stuff. A great example that Baruch Lev uses in the book is R&D expense - research and development. The vast majority of the time, whenever you do research, you're just expensing it. But the whole point of that research is to build some sort of intangible asset that you have that generates profits down the road, right? So, by [00:13:30] just expensing it and that being the rule, we're distorting the picture of the business on the balance sheet side. Revenue is no longer matching expense, and all that stuff. I don't know if I did a good job explaining that-

Ethan Rouen: You're 100 percent ... I'm about to make David go take a nap for five minutes, because-

David Leary: No, no, no, I [cross talk]

Ethan Rouen: I want to give an example of where this is actually somewhat being overcome, which is Boeing. Boeing is ... There is a [00:14:00] rule under GAAP that applies only to Boeing, and it's called program accounting. With program accounting, Boeing is allowed to treat the lifetime of production of a type of plane as a single asset.

What I mean by that is, instead of the first five years of any new plane that they create, they're gonna be selling at a loss. But they know that as they tool up, as they gain experience to more efficiently manufacture these planes, they're gonna start selling at a profit, eventually. So, instead [00:14:30] of saying, "For the first five years, we're gonna record losses on every plane we sell; instead, we are going to make an estimate of the margin of this plane over its entire life, and that's what we're gonna use for every plane from day one.”

This requires a lot of judgment on the part of Boeing, and they've done a very good job of this, over the last century. But, at the same time, it also holds management really accountable, because they're basically capitalizing [00:15:00] their development costs. They're saying, "Look, we are developing this skill. It's gonna take a while, but if we are successful, this is how much money we're gonna make."

David Leary: So I feel like GAAP, it was created to compare three companies side-by-side in a very logical, unemotional way. If everybody counts their numbers the same way, obviously Blake's company is worth more than my company, because his numbers are higher.

Blake Oliver: Right.

David Leary: But the reality is, in this world we live in, investing's emotional. [00:15:30] People compare companies emotional. There's cultures involved. There's, in theory, of what awesome product they're gonna release eventually. People are ... They're not using GAAP to make investment decisions, so what is GAAP being used for, then?

Blake Oliver: That's a very good question.

David Leary: By anybody?

Blake Oliver: Well, and that was one of the shocking figures in that "End of Accounting" book is something like only five percent of investment decisions are made using GAAP, or GAAP is only responsible for about [00:16:00] five percent of investor decisions these days. Is that what you ... When you teach people at The Harvard Business School how to ... Do you teach investments? [cross talk]

Ethan Rouen: I don't. I have a colleague who I work with, who teaches a financial statement analysis class.

Blake Oliver: Gotcha. I've never really ... I'm not an analyst, but I've kind of scratched the surface of it. I understand that it's a process whereby you take the GAAP financials, and then you deconstruct [00:16:30] them and rebuild them into something else completely. That seems kind of funny to me.

David Leary: Well, I sat next to, at dinner last night, with an analyst. He was at the conference going to sessions to get the vibe from the users of the software to find out if the company is worth investing in. He doesn't give a shit about GAAP.

Blake Oliver: Right, because, in the subscription economy, your users are one of those intangible assets. Those subscriptions, those aren't on the balance sheet-

David Leary: Vibe or sentiment [cross talk]

Blake Oliver: -do you even have to disclose that [00:17:00] in the footnotes - the details about the subscriptions and whatnot? I'm not sure you do.

Ethan Rouen: I think that would more often come up in conference calls. Let me try not to put myself out of business here ... I do think that GAAP is still very relevant. It's just the face financials are becoming less relevant. I actually have some research in this area, where we rely on some data that uses machine learning to basically analyze the entire [00:17:30] 10-K and pull out every single number that impacts net income.

You have the recurring part, basically the operations of the business, that happen every day. This is how we make our money. Then, you have the non-recurring parts, and this is M&A stuff; this is pension adjustments - factors that you don't expect to happen every single period.

We find that these non-recurring items continue to grow over time and have grown ... In the last 10 [00:18:00] years, have grown- almost doubled, and that, when you control for those; when you take those out and create a measure of core earnings, you actually still get a very good sense of what the business is doing. How much money they're making this period is very predictive of what they're gonna make next period.

Blake Oliver: Ethan Rouen, thank you so much for joining us. Give us a picture, before you go - what do you do at The Harvard Business School? What's your day-to-day like?

Ethan Rouen: I am teaching a course called Reimagining Capitalism [00:18:30] that very much brings accounting and measurement into trying to teach future managers how to think about broader societal implication of business operations. And I focus on research on inequality, human capital, and measuring what workers do.

Blake Oliver: I love the title of that course, I would definitely take that course, if I were a student.

Ethan Rouen: Well, when you're in Boston, come on by. You can sit in.

Blake Oliver: Maybe I can audit [00:19:00] your course.

Ethan Rouen: That'd be great.

Blake Oliver: Wonderful.

David Leary: Besides attending Harvard, if somebody wanted to learn more from you, track you down, talk to you on the internet and the social media, how would they do that?

Ethan Rouen: I do not have social media. I am on LinkedIn. You can find me there [cross talk]

Blake Oliver: That counts.

Ethan Rouen: -and my contact information is also on my website, which is EthanRouen.com.

Blake Oliver: All right. Thank you so much for joining us. We look forward to more fascinating articles from [00:19:30] you and HBR.

Ethan Rouen: You're too kind. Thank you so much for the time, guys. I really appreciate it. This was fun.

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Blake Oliver: Wow, that [00:21:00] was great. What a great interview.

David Leary: GAAP, man ... It's a little crazy.

Blake Oliver: Mind the GAAP.

David Leary: It's so quiet now. Did you notice this?

Blake Oliver: I know. Well, because it's the last full day of Intacct Advantage, and it's almost 5:00, so people are in the final sessions [00:21:30] before the big Sage Intacct official party at Caesars Palace.

David Leary: But I saw they have sessions tomorrow, so some people are gonna be going sessions, possibly [cross talk]

Blake Oliver: -but it's just half a day-

David Leary: Half a day. Easy-peasy.

Blake Oliver: -but the people who sign up for the Friday sessions are generally the ones who are responsible adults, right?

David Leary: So, we can get into the news, and all the announcements that happened at Sage Intacct this week, but I must say, just ... First time at this conference ... People queue up lines; the lines for sessions, it's like going to the hottest brunch spot [00:22:00] in San Francisco.

Blake Oliver: Yeah. You have to reserve a spot at the most popular sessions-

David Leary: Or you won't have a seat. Literally, you will not get a seat. You cannot get in.

Blake Oliver: -or you won't have a seat. There's a standing-room-only waiting line.

David Leary: I was very impressed by that. I was amazed at the level of attendance, and the level of people really trying to get solutions to their problems. Somebody mentioned to me they went into revenue-recognition type thing, and they were saying how the company they're working with- they have 600,000 subscribers they have to manage. So, real serious problems here at Sage Intacct. It's a whole level up [00:22:30] than my experience [cross talk]

Blake Oliver: Yeah. These are mid-market businesses with significant challenges that they have to overcome. The accounting system, financial management system, whatever you call it, ERP, is essential and critical to that. So, it's fun to come here. It's not just a party. People are really here to learn and not just get some CPE to check the box. We're here at Intacct Advantage in Las Vegas. We've been doing interviews. How many interviews have we done over the last two [00:23:00] days? Something like 10-

David Leary: We planned six. We may have done eight. We knocked out a lot.

Blake Oliver: We've attended the keynotes, as well, and we wanna give you guys an update on what's new with Intacct Advantage, or the highlights ... We haven't planned this out. We're just gonna sorta go through our notes and talk about what stood out the most for us this year. You wanna go first, David?

David Leary: The one that stood out the most for me was two terms - Finance 3.0, that concept of the-

Blake Oliver: Moving [00:23:30] from thinking about what happened to why did it happen. Then, the 3.0 part is what will happen, and how can we make it happen? I think it was Mark Linden who got up on stage, talked about that, and said this is where the product is going is we have ... Intacct has been around for 20 years, and they've spent the first 10 years building the 'what happened' part. The track- the GL stuff [00:24:00] in the cloud. They spent the next 10 years talking about or building the 'why did it happen' stuff - the analytics, all that. Now, they're building - AI was very hot this year - all the stuff that's going to help controllers, VPs of finance, CFOs figure out what's going to happen, and how to make it happen ...

David Leary: The other thing that stood out for me was the other term they used, which I thought was very, very strong. [00:24:30] From a marketing standpoint, they've trademarked the word 'Intelligent GL.' What does that imply?

Blake Oliver: They're going to be using artificial intelligence throughout the whole product. I'm wondering, as AI is super-hot, right now, David ... We talk about this all the time - is it real AI? What's going on? Is it aspirational? How much are they actually building? We did see some actual AI demonstrated at the show in product. They have two new big things, I think, that [00:25:00] are using it. One is ... It's timesheets ...

David Leary: Yeah, a lot of time-tracking based on what you do. It looks like it's heavily tied to the Office 365 stack. So, if you're sending emails to clients, if you're using some- you're working on a spreadsheet tied to a client; what was the third one? Meetings. If you had meetings with the client, you could just ... It tracks these, and you just drag them [cross talk]

Blake Oliver: It pulls them in as draft entries, and then, you just drag and drop into the day that you wanna book it to. That's pretty cool. Actually, I love the story ... It's always fun [00:25:30] when they bring up the developers.

David Leary: That was the cool. A lot of keynotes, it's always a VP, or head of marketing, or something like that. They brought the developers that actually worked on the product to come talk to why they created that feature at Intacct.

Blake Oliver: I don't remember his name, but my favorite was one of the developers who said that the idea came to him ... He was hanging out with his ex-girlfriend - well, his girlfriend at the time - and she worked in professional services. It must've been a big accounting firm, it sounded like. She [00:26:00] was doing an entire month of timesheets all at once, one night; like on the deadline. He was watching her do this, and he thought to himself, "This is insane." He observed how she was doing it, because, obviously, she didn't remember how she spends her time. She was going through the calendar; she was going through her email and reconstructing her days, and then, entering the time. He was like, "Well, we could do that." I like just knowing why it was developed. It's always fun.

David Leary: The other piece was- [00:26:30]

Blake Oliver: But I have to say, I think it's funny ... We were talking about this after the keynote that, wow, the big announcement is, "We're building time-tracking," which is something that the QuickBooks of the world, the Xeros ... They've already solved for, right? I think it shows the development path is very different in the mid-market versus in the smaller side, the small business side, because the pain points are different. Intacct has been focused on analytics and dashboards [00:27:00] integrated into the product, and all the budgeting, and forecasting, and stuff-

David Leary: And then consolidating 15 business units that are all over the world [cross talk]

Blake Oliver: Yeah, the consolidations, right, which is something that you don't even think about, as a small business with one entity. They're tackling things in different orders.

David Leary: Yeah. So, something like time-tracking has always been lower priority, because they're trying to solve these big, massive, gigantic things. Something they were talking about - getting rid of the continuous audit ... They brought up?

Blake Oliver: Yes, and using AI to automatically ... What [00:27:30] was it?

David Leary: Detect, review, and assure was the terms that he threw out there.

Blake Oliver: Yeah. The example was journal entries that are posted, or draft journal entries that are ready for approval by the controller. Intacct has a cool feature, where you can have your staff put journal entries into the system as drafts and then, send a notification to the controller to go, and review, and approve, and only they can post it.

Now, instead of seeing a big list of journal entries, Intacct is going to assign [00:28:00] a risk to those journal entries based on the history in the company. If it's a new account and department combination on a journal entry, it'll assign risk to that, saying, "Hey, this is new; we've never done this before." That's pretty neat, right? You can avoid mis-postings; stuff like that.

David Leary: They're taking that similar ... We've talked about this in the past, some expense-reporting apps are detecting possible fraudulent, or, yeah, fraudulent expense reports, or expense reports that are outside of the normal. They're kind of applying that to all the journal-entry transactions that are coming into the accounting system - similar thought [00:28:30] process.

Blake Oliver: Another phrase that stuck out to me from the keynotes was that their goal is to eliminate the close.

David Leary: That almost got a standing ovation.

Blake Oliver: Well-

David Leary: For as reserved as everybody was.

Blake Oliver: We talked more to Aaron Harris, the CTO of Sage Group-

David Leary: Watch for those interviews.

Blake Oliver: -about this statement. Yeah, he's gonna talk more about it. It's one of those big, bold statements. It kinda brings up the question, too, though - what happens if Intacct does eliminate the close? A lot of people, that's their job is closing the [00:29:00] books. So, I think that makes moving to a future-forward function-

David Leary: They get into advisory, right? That's the theme of all-

Blake Oliver: We can tie it all together. Everyone's talking about moving to advisory. They're just talking about it in different terms.

David Leary: One thing I think that was interesting, they demoed their Budgeting and Planning tool. [inaudible] their Insights tool. That's very drag and drop. The key takeaway, which really stuck with me is this not having to wait for updates. Because they're directly connected to the source of truth, people [00:29:30] can get instant insights, instant answers. They're not having to like, "Okay, take these; export it to Excel; somebody fix the formula," that dance that happens currently in processes.

Blake Oliver: Yeah, and that's pretty cool. That was a new functionality in Sage Intacct Budgeting and Planning, which was formerly Budgeta, which they acquired and have now integrated directly into the product. That was neat to see. Again, that's like one of those features that a CFO needs [00:30:00] for a big multi-entity business plus departments that needs to do budgets and have contributors handle those budgets. That is the kind of functionality you get in the mid-market.

AutoEntry came up a little bit. They mentioned- they had one slide on the AutoEntry acquisition, though; not a lot of details yet, but it is very new. Maybe next year, we'll see some something about AutoEntry getting integrated. It would make sense. We also saw a demo of AI on the analytics [00:30:30] side with predicted billing - forecasts of predicted billing.

The idea being that, if you put all of your customer contracts into Intacct, which if you've got recurring revenue or customer contracts, you really ... That's one of the big value-adds of Intacct is you put those in, and it can forecast the revenue for you, and then warn you if you're predicted billing, using AI, is gonna be different than your budget forecast.

David Leary: And not just from a [00:31:00] budget standpoint, they get into whether or not a customer is gonna renew possibly or what the churn rate ... You could possibly detect in Surfaces, like, these customers might churn.

Blake Oliver: These customers are at risk. That's pretty neat.

David Leary: I think that's all the product-type announcements that-

Blake Oliver: Actually, I got one more for you-

David Leary: Oh, you've got more than this one?

Blake Oliver: Sage People.

David Leary: Oh, yes-

Blake Oliver: Their HR product, which has been separate and is part of the bigger Sage Group, is going to be integrated into Intacct. Now you'll have your HR information flowing automatically into Intacct [00:31:30] and, in particular, those non-financial statistical accounts ... Getting your employee headcount automatically updating into Intacct, as opposed to me having to go find out what it is and put it in every month kinda thing-

David Leary: Because Sage People was a completely separate acquisition that had nothing to do with Intacct, I think [cross talk]

Blake Oliver: Well, broadly speaking, that's Sage's operating procedure is they historically have gone out and bought a bunch of companies that are successful. The company's literally called Sage Group. [00:32:00] It's a group of companies - put the Sage logo on it, and market it, and sell it. A lot of times, they're completely separate products that are completely different; different styles. I get the feeling that that is changing at Sage, now, because it doesn't work anymore. Products need to integrate. They need to have a similar look and feel. And now, with a lot of the Intacct execs taking leading roles in Sage Group, maybe we'll see more of that is my prediction. [00:32:30]

David Leary: This definitely felt like a ... Well, they are a San Francisco-based, Bay Area company. It felt very [inaudible] the experience in the very Bay Area, tech-forward, cloud-based company and conference. It definitely felt like that. The other announcement, I guess, is Intacct Advantage 2020 will be in Orlando next October 12th through the 16th, so book your calendars, if you're interested; if you have mid-market clients and you wanna learn more. [00:33:00]

Blake Oliver: Yeah. For those who have CAS practices doing client accounting services, or outsourced accounting, Intacct does have an Accountants program, and they have a special day at the conference just for accountants. So, that's a good one to attend, if you want to learn more about what they're doing here. I've always felt that it's good for an accounting practice to have at least two offerings to cover [00:33:30] those ... If you wanna work with mid-market clients, you're gonna need to be able to handle consolidations.

That's just a great example. There's many more use cases where it's, you know, QuickBooks is breaking, Xero is breaking. You just can't scale it up anymore. If you have that offering, you're less likely to lose ... If you have an offering like Intacct for the mid-market, you're less likely to lose that client when they grow. You wanna keep those clients.

David Leary: Because those clients are probably very profitable if you're trying to value-build [cross talk]

Blake Oliver: Yeah, and they can be massive contracts [00:34:00] that just dwarf anything else that your firm does. You can be that outsourced controller still, but you gotta have the solutions to do it.

David Leary: Should we jump into other news that happened this week?

Blake Oliver: Yeah. Let's talk about-

David Leary: I have a follow-up from last week. We were talking about ... We got into a discussion about QuickBooks Desktop Payroll being discontinued.

Blake Oliver: Oh, yes.

David Leary: We saw a headline, but we didn't know anything about it. I found out- I talked to Valerie Heckman, who's on the team at QuickBooks. It's [00:34:30] actually QuickBooks Desktop Payroll in the UK.

Blake Oliver: There we go. We missed that. That was a key, key aspect of journalism that we missed.

David Leary: Yep, and we'll put a link in the show notes to the FAQ, but it was like ... To be honest, I didn't even know there was a QuickBooks Online Desktop Payroll in the UK ... So, the impact may not be as significant as, last week, we were thinking.

Blake Oliver: Yeah, yeah.

David Leary: Like, oh, my God, they're shutting down Payroll!

Blake Oliver: Well, and they do ... This is no surprise to anyone who's been using Desktop for a while, they did discontinue Payroll for the older versions of QuickBooks, too. This year, [00:35:00] I think if you're on 2017, or '16, or earlier, then it's discontinued in the U.S.-

David Leary: It works, it's just you don't get to have support, and you don't get updated tax tables. It's not supported. There's a ransomware ...

Blake Oliver: Another company got ransomwared?

David Leary: Maybe this is like ... You remember I talked about it, like, hey, I haven't really seen an example of a SaaS company getting ransomwared. Well-

Blake Oliver: Now it happened?

David Leary: I'll just put my foot in my mouth.

Blake Oliver: What happened?

David Leary: Billtrust, they have about 550 employees. They're in Lawrence Township, New Jersey. They are a cloud-based [00:35:30] service that lets customers send out invoices, request payments for those. They're in our space [cross talk]

Blake Oliver: Yeah, I've seen them around.

David Leary: I've seen their logo. I think they connect to QuickBooks. They may even connect to Xero. But they had a ... This was on Krebs on Security. They got hit by ransomware.

Blake Oliver: What was the impact of that?

David Leary: One of Billtrust's customers actually did a day-by-day chronology of what's been happening and what they've been communicated from Billtrust about. Billtrust [00:36:00] has said that they have been hit. and they've been [cross talk]

Blake Oliver: When did it start?

David Leary: This started, it looks like Friday, October 18th. There was the first communication from Billtrust ... Assuming that I'm going in the right direction in the order, here. Yeah. It looks like they've been notified that the data has not been compromised. At least that's what this customer is claiming. That's what they were told - that it's not been compromised. They're working around the clock to restore their service levels.

Blake Oliver: But [00:36:30] the service is down?

David Leary: They're coming back on ... As of Monday, October 21, 8:00 a.m., they're coming online. We've been inside a casino for five straight days, a conference center ... It's not Monday anymore.

Blake Oliver: Right. So, they were down for, what, three days?

David Leary: It looks like it. Yeah, so ... We don't have a lot more details beyond that, other than they have been hit.

Blake Oliver: Right. Well, that's the thing is when you get hit by ransomware, there's no rules about what you have to disclose or how much you have to disclose, specifically, about an attack [00:37:00] like that.

David Leary: One of the interviews we did yesterday was about HIPAA compliance, but also, we touched a little bit on the new privacy laws out of California. I imagine when there's ransomware, or breaches like this, things are gonna have to be disclosed.

Blake Oliver: Yeah, I'm curious to know more about that. Hey, I've got a story that relates to what we saw today, here at Intacct Advantage. This is an article in Korn Ferry's blog titled, "Want Higher Profits? Hire a Female [00:37:30] CEO, CFO." This is really relevant, because we were ... It was great to see the main event this morning at the conference featured a panel discussion with five female execs, right-

David Leary: Finance professionals, yep.

Blake Oliver: -leaders in finance- finance leaders. We were talking, actually, with Sage Intacct's VP of Finance, Laura Wiler, about a lot of this stuff, in an interview that's forthcoming. [00:38:00] This is really interesting, this stat ... I think we're all pretty much aware that female representation at the top of finance organizations, as partners in accounting firms, is pretty terrible. It's very low.

Companies with female CEOs, according to a new study saw a 20-percent increase in stock-price momentum, a measure of positive price trend, compared to their male counterparts in the executives' first 24 months in office. Female CFOs brought an even [00:38:30] more significant impact. Companies that appointed a woman to the top finance role saw a six-percent increase in profitability and eight-percent larger stock returns during the first 24 months in office. Over the 17-year period for the study, firms with female CFOs generated $1.8 trillion more in gross profit than their sector average.

David Leary: If I'm an investor, I should just [cross talk] companies.

Blake Oliver: If you start a hedge fund ... Yeah, just invest in female-led companies, right?

David Leary: That's the exit plan.

Blake Oliver: The question we asked Laura was, "Why [00:39:00] do you think this is?" Her answer was really simple - just more diversity at the top of an organization creates more diversity of thought; more ideas ... That leads to better outcomes. I love that.

David Leary: I have an article that that's the opposite of that.

Blake Oliver: Okay.

David Leary: This was in The Huffington Post.

Blake Oliver: Good old HuffPo.

David Leary: Yeah, so I'll read you the headline. It's a little jaw-dropping, actually. "Women at Ernst & Young Instructed on How to [00:39:30] Dress, Act Nicely Around Men.”

Blake Oliver: Oh, God, I saw this, too. This is so bad.

David Leary: At the height of the #MeToo movement, the message in the training seminar was, "fix the women." So, this wasn't a training seminar from 25 years ago. This is fairly recent. A 55-page presentation.

Blake Oliver: Yeah, not that long ago. A few years ago, right?

David Leary: Yeah, on a day-and-a-half seminar on leadership.

Blake Oliver: There's some really terrible juicy tidbits in there, but, yeah ... What's the highlight [00:40:00] for you?

David Leary: I mean, literally, this is typed in there: "Don't flaunt your body.”

Blake Oliver: Wow.

David Leary: There's screenshots; clips from this document. It's a decently- it's a long read that's on The Huffington Post ... I don't know if you can read it without ... Your skin kinda crawls a little bit; like, are you kidding me? Really? But it's worth checking out. Shame on EY for doing this.

Blake Oliver: Yeah, seriously.

David Leary: It's just so bizarre. Clueless, [00:40:30] at some level.

Blake Oliver: Yeah. We've got a lot to talk about - we could talk about - but I think we should save it for our next episode, David, because it is ... It's after 5:00 here in Las Vegas, so you know what that means.

David Leary: Let's end on a light note.

Blake Oliver: Okay. Let's end on a light note.

David Leary: The U.S. military will no longer use floppy diskettes to coordinate nuke launches.

Blake Oliver: But, you know, the floppy diskettes, you can't hack those, right?

David Leary: It has, now, a highly secure, solid-state digital-storage solution.

Blake Oliver: Wow. Good for them. I [00:41:00] think I saw an article a few years ago that they were the last department ... Oh, yeah, we were talking of the IRS modernization effort. So, other than the IRS, our nuclear command was the last government- federal government agency using that ancient technology-

David Leary: They're using eight-inch floppy diskettes, not 5 1/4 ... Eight-inch floppy diskettes.

Blake Oliver: They must have seen what the IRS was up to and said, "Oh, we can't be the last ones to modernize. We'd better do something about it."

David Leary: Yeah. Now this puts the pressure on the IRS. But the more I've been thinking about the IRS- like we talked about last [00:41:30] week, about California's ERP fiasco, trying to build that, I've actually started thinking about this ... If the IRS tries to modernize, the odds of it actually happening and getting done ... Are we gonna spend $5.6 trillion, and let it take 30 years" How is this actually gonna even get done?

Blake Oliver: It's a very good question. We'll have to see. Maybe it'll take 20 years, and then, they'll be able to do it again. It's a 20-year cycle.

David Leary: Oh, boy ... On that note, we should call it a night, I think.

Blake Oliver: All right. Thanks, everyone, for listening. This is Blake [00:42:00] and David from Intacct Advantage at the MGM Grand in Las Vegas. And David, if people want to get in touch with you, how do they do that?

David Leary: Twitter is one way. It's easy. I'm @DavidLeary. How did they get a hold of you on there?

Blake Oliver: I am @BlakeTOliver.

David Leary: What if they wanna get in touch with us in person?

Blake Oliver: Track us down at a conference, because we are going to be at ... Well, if you work for the firm Acuity, we're gonna be at your conference next week in Atlanta. Acuity is a firm that is having their [00:42:30] own accounting conference. We've been invited to do a live episode there. That's exciting. We will also-

David Leary: What's special about that is Acuity has almost 100-percent remote employees, so they're bringing them all in for a conference. If you have a cool future-thinking accounting firm, and all your employees are remote, throw your own conference.

Blake Oliver: Yeah. And we'll be a QuickBooks Connect. Wouldn't miss that.

David Leary: Yes.

Blake Oliver: That's in San Jose. And the following week ... Gosh, I don't even know where I'm gonna be anymore.

David Leary: Seattle, at Digital CPA.

Blake Oliver: Digital CPA. That's in December, actually. I'll be at Digital CPA conference in December. [00:43:00]

David Leary: We'll be at the Practice Ignition party at QuickBooks Connect.

Blake Oliver: Oh, yeah.

David Leary: We'll be there. Then, there's another party-

Blake Oliver: Jirav-

David Leary: Jirav has a party.

Blake Oliver: -and Gusto and Routable are having an a first-night event. Yeah, track us down. Look for The Cloud Accounting Podcast shirts and get a sticker.

David Leary: Hit our merch store! Four of you have bought shirts. It's so amazing to me!

Blake Oliver: We've made, I think, $20 on our merch store, David. We might be able to retire.

David Leary: The merch store is really about just having people take part, and be a part of our ... It's like it's a secret club-

Blake Oliver: It's a club.

David Leary: There's limited-edition shirts. They're gonna [00:43:30] be cool. Nobody else is gonna have them.

Blake Oliver: Yeah. I mean, seriously, when you are walking around your town with a Cloud Accounting Podcast shirt on, everybody's gonna know that you're the boss.

David Leary: Somebody bought the classic Love Mix shirt.

Blake Oliver: I love that.

David Leary: On that note-

Blake Oliver: On that note-

David Leary: Peace, everybody.