D (7:30)

Rebalance.

C (7:31)

Yeah, it is a rebalance. You know what we've said time and again, it's gotten way too punitive. It was all about the number of I gotchas to the profession. We all know we all try and do a great job in the profession and we want a more effective audit. And hopefully we're going to work together to get to that. Having a QC focus to the audit and the inspection process actually could have lend itself to, I think, a real positive outcome. So we continue on that. And the SEC has been vocal around really wanting more issuers. When you look at and Mark's going to talk about this in his update, when you look at a number of issuers we have today, we have something like 3,300 publicly traded companies on U.S. exchanges. That number used to be 8,000. We're less than half of what we used to have. And so now you see these other capital markets around the world that are starting to grow more. There's going to be this question of relevance for us as we go forward. So the SEC is encouraging that We've had conversations with some of our member firms. The SEC has reached out very directly with a number of firms just to gain perspective of the market and to have conversations and to gain understanding. That's what I like about it. They're as independent as ever, but they're out there trying to gain an understanding of the marketplace. And then finally AI can't help but talk about AI, right? Everyone's talking about it. I keep getting the question, are we going to be relevant? Are we going to be around? I say yes, absolutely. We are going to be even probably more important than ever before. Because when you look at AI and controls over AI, where should controls live? And I've already seen conversation around how do you have SOX level controls or how do you have COSO involved in it inside the organization, the cfo, the finance position. But then you also have the assurance services and the firms providing assurance over it as we go forward. And so a lot of, you know, we have a lot of different committees that are working on frameworks to help our members along with that and make sure that the CPA community and the accounting and finance community continues to be the ones, the arbiters of trust around being able to use AI, just like we're the arbiters of many other things that are trusted. You know, you have AVNI here on Cyber trust in Cyber Trust, in our SOC engagements all become part of the ecosystem of who we are.

B (9:52)

Thank you. Spot on in that last point, especially Mark. I think so much of, I mean, I think the trust is going to be the main the staple of profession going forward. But even with AI, almost to a person, probably the biggest anxiety there is around reskilling and less about jobs going away, but more about jobs changing, roles changing and how do we reskill for these different jobs. So I think. And we're gonna have a good conversation on that later. But that's a great list. Appreciate that update. A lot of good insights and it sets up a lot of what our good friend Mr. Peterson. I'll call you Mr. Peterson since. But you look great there in the new DC Studio, Mark, So welcome. Good to see you.

E (10:37)

It is. It's great here in D.C. michael.

B (10:41)

Well, with that, Mark, I'll go ahead. You got a beautiful picture of the Capitol building.

E (10:46)

It's actually warmer. It's warmer than that picture would let you. The snow is melting here. So, yeah, you know, lots going on. Believe it or not, we're heading back into election season. I know that, you know, we're just at the end of February, but the primaries start in early March. And actually, you know, it's something that we watch because it will have a significant impact. You don't, can't, you can't review or look at or consider policy without understanding the politics. And honestly, both the gavels of the leadership in the both the House and the Senate are in play here. Early in March, we're gonna see a primary, big Senate primary in Texas that is running very close. That'll be again, interesting to see. And as that plays out over the summer, we're gonna assess retirements, redistricting, all those things to kind of figure to see how it plays out. Now, remember, the size of the margins are a big deal, obviously, because it's the majority. But they also dictate the size of the margins on the committees. And that has influence on the kind of policies that can pass, have the availability to pass because the votes are there. So we'll be talking more about that, obviously, as the as we get into November, for sure.

B (12:00)

Well, your favorite topic.

E (12:03)

Yeah, I know.

B (12:04)

Government shutdown.

E (12:05)

It's either one we're in or one that's coming or one we have. Right. So this is a partial government shutdown. There was about half the government had to get funded. But because of controversies related around ICE and some tragic loss of life in Minnesota, there is a difference of opinion and some concessions being asked for around the funding of the Department of Homeland Security. So as it relates to the funding, the good news was many of the other areas that would impact the profession, the sec, gao, irs, all did get their funding Department of Homeland Security has hung up, but there is still an impact on the profession that we'll watch closely. When we say partial, it's partial because it's a very narrow segment of the government. But it's also many of the employees of Department of Homeland Security, because of the nature of their roles, are actually considered essential. That means they have to go to work although they will not get paid. They do have back payment. So they will ultimately get back pay whenever this is resolved. However, for those that are contractors with Department of Homeland Security, if their contracts or their engagements are paused, there is not back pay for the contractors. But there are other impacts as it relates to fema. So, you know, pending disaster issues, payments that go out could be slowed down. Visas, as it relates to, you know, mobility of getting employees and talent in and out of the country. There could be some delays there. E verification related to employment is another one that comes up depending on again, the roles that you're in. There's a slowdown of inspections of merchant vessels that are coming into the country. So there is still an impact even though this is a narrow portion of the government. We hope they get back. They've been out of session this week. Get back next week. They'll be discussing this. And whether they can come to terms or not is yet to be seen.

B (14:06)

And Mark, we've got a special website, I guess, in case people can't see it there embedded in the picture.

E (14:11)

We do. I should have mentioned the resource. Michael, thank you for mentioning that. Again, there are impacts on the profession and we want to make sure that we're sharing as much information as possible. And so here's a resource center that the community town hall community will have access to.

B (14:25)

Thanks, Mark.

E (14:28)

All right, Mark.

B (14:29)

And student, this new student and draft room.

E (14:32)

Yeah. So we've got. This is the Department of Education issue that that Mark teed up for us. It's in the record. We got some very good language that came in the summary of the proposed rule that really does clarify. It has no intention to articulate us as a non profession. The caps are still intact in this proposed rule. Lots of comments are coming in. We are working very closely with our partners in the state societies directly to make sure that comments come in. We're also working with others in the accounting family, the internal auditors and the state boards of accountancy association as well as the state societies that I mentioned and the engineers and the architects. So we're all having conversations. We are very engaged both with Capitol Hill and the Department of Education and the White House on this issue as it plays out with the intent of getting the best possible outcome.

B (15:36)

And Mark also set up some of the progress being made at the SEC

E (15:39)

in the Atkins hearing, two hearings, both oversight hearings, both in the House Financial Services Committee and the Senate Banking Committee, really kind of having oversight over his agenda. As you can imagine, there's partisan conflict of, you know, is enforcement enough or are you doing enough to create the right environment for capital formation? Lots of discussion around framework for, for crypto and the role of the sec. There again, controversy over is there a strong enough framework or, you know, is it, is it creating the correct environment? Capital formation, as Mark said, is a significant priority for this sec. Also, interestingly, a focus on making sure that the US Exchanges can be healthy and competitive. Right. The profession, not a profession, is part of that health, but it's making sure that you can create issuers, but also that we're competitive. You don't have to go on an exchange in the US there's competition around the world. And how do you handle that? There's a lot of discussion about Chinese companies that are on US Exchanges and are they meeting the compliance requirements they need to, and some challenges around that, but then also challenges of, you know, there are other places you can go, like the Hong Kong exchange. And is our environment creating an incentive to leave our exchanges to go to those others? And so real focus on that. A back and forth. Good conversation, though, with the chair, Atkins chair.

B (17:14)

Thanks, Mark. And scotus.

E (17:17)

Yeah, we're waiting for, and we've talked about this in the past, the Supreme Court, there's a case before the Supreme Court about the utilization of emergency powers by President Trump to enact reciprocal tariffs. Those are tariffs between the US and another country individually. He utilized these emergency powers because they were the most expedient and the broadest that was challenged. And so there is some speculation that we might even hear as soon as tomorrow. Now, you know, you hear that the Supreme Court is going to come out with a ruling and it gets delayed, but we are hearing that it may be tomorrow. So we'll be watching that closely. It will have an impact on the tariffs. However, there are other tariff authorities that can be utilized and there is a plan B for the administration. So there will be a continuation of tariffs, even though there may be some disruption. There's discussions going on around, you know, potential refunds to companies or even rebates of some of the revenue from the tariffs to the taxpayer. So again, we'll be watching that closely. Lots of tariff conversations going on engagement. You know, we heard it just this past week at the Munich, Munich Security Council conversations because it's, you know, the economic issues related to tariffs are just as important as security and conversations going on between our trading partners and alternatives. Right. There was a candidates talking to China about some deals. There was a significant deal that was cut between India and the eu, but the US Also cut a significant deal with India, reducing tariffs from 25% down to 18. That was just recently penned. So lots of activity, some, hopefully some certainty is coming as these roll out and the individual deals are signed. We'll see what happens at the Supreme Court.

B (19:10)

And Mark, we've got a State of the Union, I guess, next week, with or without, regardless of the shutdown or not. I know you're gonna give us a sense of some things that they might be talking about.

E (19:21)

Yeah, I think you're gonna hear about the president's kind of pillars, which is tax, tariff, deregulation and immigration. Those are kind of gonna be some of the areas. But they'll put in a theme of peace and prosperity. I think there's gonna be, honestly, just because of everything that's going on in the world, a lot related to foreign issues, foreign conflict. Iran is obviously one. Rebuilding Gaza, as a discussion, the tariffs will be one, but it will be put in the context of which is the administration's purpose for the tariffs is rebuilding the manufacturing base in the US So I think we'll hear a lot about that. There will be issues that he will be focused on because it's very acute for the upcoming elections, which is affordability and what are the things that the administration can do. I will, I suspect, and almost sure there will be announcements. There won't be things that Congress can do because that's going to be a challenge to get things through. But the things that the administration can do with their powers to try and address the affordability issues that are going to be a significant debate during the elections. Affordability around commodities, groceries, health care, those types of things. Michael.

B (20:34)

And last but not least, Mark, there is a ton going on with AI, both at the state and the federal level.

E (20:40)

We all have to talk about it. So, you know, I'm going to introduce James here in a second. He's going to talk about things going on at the state level, a lot of it. At the, at the federal level, the administration's focus is on competition, and it's competition by innovation. And you get innovation in their opinion, by making sure that you don't restrict it or create burdens through regulation. So that's kind of the framework. One of the things that they're concerned about is a patchwork coming from the states. They focused DOJ on several states to make sure that there is a if in to, to be honest, to try and mandate that they don't move forward with their own legislation in the states. That could create complexity as it relates to AI. Again, James will talk a little about that, but there are lots of other things that are going on. The Department of Labor just came out with a framework for reskilling and there's going to be a lot of discussion around that. I will say that this is bipartisan discussion around tax credits for upskilling and training for businesses. And those are bipartisan. So regardless of the election that we talked about, the outcome of that election, I think we're going to see this conversation going on and a focus on skilling and upskilling and utilization of AI as we move forward, which is going to impact not only the profession when you think about audit or you think about tax, also the business models of firms and then dealing with our clients as well. So lots going on there. And this is only going to continue to be a discussion from policymakers.

B (22:18)

Thanks, Mark. That's a great update. I'm going to let you go ahead and introduce James. I know there's a lot going on at the state level, so let you guys take this away.

E (22:25)

Absolutely. So I've got James here right next to me in the DC studio. James came out of the Florida state legislature, got his experience there, worked with several other organizations and associations setting up their state legislative and regulatory operations. And then we've gotten him. He's been with with us about 15 years in different capacities. He runs a phenomenal team that is, is focused on legislation at the state level, regulation and then relationships with the societies. And it's really important to talk about our partners in the state societies because all of this activity at the state level, regulatory and legislative is in partnership with those state societies. Right, James? Yep.

D (23:07)

And you know, Mark, you mentioned the, the, you know, the hope at the federal level was that, you know, for consistency. Unfortunately, you know, I don't think states are going to give the federal government any grace when it comes to AI related bills. You know, the, the focus over the last three years has increased tremendously. You know, three years ago we saw, you know, the focus of AI legislation on deepfakes and chatbots, and that has only escalated over the last few years. And you know, what is really interesting from a policy perspective is that these are Big numbers that we're now seeing, you know, 1200 bills last year above 1300 bills this year. And you know, as states look at this issue and kind of look at all of the complexities, we begin to see some creepy into issues impacting the profession. So assurance services getting roped into state legislation, the language that is used to draft these bills often is not appropriate for how the profession handles an engagement. So we're seeing a lot of that happen over this year. It is really fascinating to kind of look at this from the 50,000 foot level from that trend perspective. The other big issue that we're seeing this year, pathways and mobility. Over the last two years, the profession has undertaken an effort to adopt an additional pathway to CPA licensure. So the Bachelor's and two that is in conjunction with the masters in one. And states are, you know, because this is all guided by, you know, accountancy statutes and rules, states have undertaken a massive effort over the last two years to see that these pathways are adopted. You know, looking at the map, 20, 25, 26 states, last year, around 20, you know, 20 plus this year, Louisiana will come on, kind of will turn blue I think in a few months when their session comes into effect. And the other, you know, the other states, they think there are what, two left that, you know, they haven't considered this language because their session or their legislature only meets every two years. So it's a function of legislative calendaring. You know, I do want to talk a little bit about mobility and the adoption that we're seeing in states that are running legislation around pathways. It's important to really understand that mobility is practice privilege. So that's the ability of a CPA licensee to practice across state lines, to provide services to CPA or to clients across state lines without the need to obtain a reciprocal license from another state. So the CPA profession has had this in place for 25 years. And the, you know, a key point in addition to adopting the additional pathway was to preserve the system of cross border practice that the profession that CPAs have enjoyed for decades. You know, it, it's going to be an interesting time moving forward. The bills, the states are all approaching it with different timelines. You saw the map, we had half of the country last year, we have half this year. And each state is including a different effective date. So how does that impact a licensee when they need to determine if they can still practice under mobility? And so, you know, when I look at this issue, it really creates a need for a heightened awareness about Licensing and about where these dates are coming into play, which states have adopted the new pathways, new mobility, what are the guardrails in place? So there are a lot of questions out there that I think licensees really need to be aware of. The other piece that is happening kind of while the profession is moving the additional pathway and protecting mobility is an effort within the states to deregulate licensing. This has been going on for about 10 years now. When I look at deregulation, it's a spectrum. So we see states looking at, kind of looking at board structure, board composition, where a board of accountancy falls within the state government framework, to the elimination of certain aspects of licensing, or the creation of a state specific exam for a candidate to become a license. So we see a broad swath of policy issues out there. The good, the good. You know, I'd like to kind of include some good news on such a, you know, challenging issue. But I think the good news is that state CPA societies are out there, they're fighting the good fight and they're protecting the CPA license. You know, the landscape of what's going on kind of is, is, is, you know, tremendous. Like we see kind of multiple states pursuing this and we look at kind of the, the impacts of what would a world look like if a state got rid of the CPA license? And that's something that I think about quite a bit. When you look at the license and you look at the pieces that are touched by licensing and everything really does emanate from the CPA license in the middle of that ecosystem. It really is fascinating when you think about these policy issues and the ramifications and the possibility that there could be a state somewhere down the road that could potentially get rid of that CPA license. And so I think that's something to really be aware of. And as state CPA societies send out the signal for help, I would really encourage folks listening today to get involved and to become advocates to protect the license. So I mentioned the landscape of licensing and the threats to licensure. We're looking at several states that have had significant bills. I mentioned a state considering a bill to adopt an additional exam for licensure. So think about that. The CPA profession has the uniform CPA examination. Everyone takes the same test. If a state were to include an additional license giving the candidate choice in terms of you can take the uniform CPA exam or you can take a state specific exam for licensure, the repercussions for that candidate are that they would not be able to down the road through their career would not be able to avail themselves of cross border practice because of the benchmarks put in place in states that all licensees must have passed the uniform CPA exam. So that's one of those connection points that this is really one big ecosystem emanating from the license. A lot of you have likely heard of what's going on in Florida and that is a worst case scenario. And without the tremendous leadership from the FICPA down there in my home state, you know, they are doing amazing work and you know, again, I can't stress enough the need for folks to become involved. There's nothing more impactful than a CPA working with their state CPA society and talking to a legislator about the profession and about the contribution of the profession to the economy in these states. I want to end with, you know, end kind of where I started with AI and the significant activity there. You know, we're also seeing activity related to ESG and to digital assets assets and this really is a function of there being a lack of federal activity on these issues. And you know, as much as the profession does not want to see a patchwork of regulations, this unfortunately may be where we're headed. Because of the inaction at the federal level. States are moving forward. States aren't waiting for the federal government to look at these issues. And so as they seek to establish a regulatory framework, they really are incorporating aspects that would impact the profession. And so this is something to really be aware of as we move forward.

C (32:49)

James, there was one question just on the deregulatory landscape and the blue states that we had on there. It isn't necessarily that they've looked to eliminate the profession entirely in those states, but there's some element of all the ones that you had in the wheel. There may be a piece of whether it's CPE or they want to have their own state based exam, or they want to have all of these factor in. I don't know if we have any resource somewhere, if someone's in a particular state to say this is what the why they're leaning toward deregulatory. It's not complete elimination, but there are elements of it.

D (33:28)

That's right. Mark, it's really helpful to look at the concept of deregulation on a spectrum. Right. And so when I look at it from a 50,000 foot level, I'm looking at the inability of a board of accountancy to conduct an investigation because a state is getting rid of all licensing fees or they're getting rid of penalty fees. And then it goes all the way over to, you know, what is happening in Florida with the potential loss of a state board of accountancy. And there are several aspects you mentioned the state with the far CPA exam. There are several pieces within that spectrum that we map because in some way there could be a diminishment of practice for licensees.

C (34:17)

Yep, perfect. Thanks, James.

B (34:21)

Great. Well, thank you, James. Great update and appreciate Mark's comments here. Lots of questions coming in on that area. So we'll have you back in open forum. James. So with that, I want to go ahead and bring in Melanie Lawrenson. Melanie, we are in the thick of of another tax season. So I know you're going to do your best kind of rapid fire on what folks need to know.

A (34:45)

Yeah.

F (34:45)

So let's go ahead and start on February 9th on this next slide, the IRS actually announced updates to the IRS Tax Pro account. Now those updates really are for practitioners who are part of a business entity. So what the IRS is doing is they're linking the business caf, which is the centralized authorization file number, with the business ein. And that really does create more flexibility and flexibility and just more alternatives for the business owners. So for example, they can assign people to work on certain clients. They can designate who is authorized to take actions on behalf of the entity, but they can also see real time all the authorizations that the firm has which allows them to know if they need to take some down, withdraw them or put them back up. So it really is meant to be really good for our members. But like all things with the irs, the intention is really good. I would love to hear feedback as we progress in this filing season to hear how this is going and if there's any feedback we can provide to the irs onto the next slide. Congress actually reached out to the Government Accountability Office on this next slide. You will see a link. Perfect. And in it they wanted to know and understand how the process with the ERC went and what lessons were learned that they can apply for the future. So specifically, GAO did find a few things. For example, they did say that the IRS was able to provide timely and urgent support to taxpayers during this emergency period. But there was a trade off with the swiftness that they did it with and that really came in with increased improper payments. And so the government really wants to know and understand what happened here. Now, one of the things that the GAO found was that one of the pitfalls for the irs, no shocker here, it's that the IRS didn't communicate very well and they even found that while they were doing that report, the IRS told them that they had ceased all claims that were not under examination or appeals, but yet they didn't communicate this to taxpayers. And there's no evidence of it. There's nothing in the webpages. And what people are finding might actually contradict that. So it creates an uncertainty. So again, communication is something they can improve on. And they also came forward with four recommendations, which the AICPA actually participated in that report and provided their opinions on it. And the IRS didn't necessarily agree with all those recommendations. So if you're looking for all the statistics and information on that report, there's a link to that. Moving on to the next slide. This is what Mark Kazeel talked about, the Kwong case. Like I said, a lot of members have been talking about it and there's a little bit of uncertainty around it. So essentially, like, like Mark explained, the Kwong case did say effectively during that emergency period during COVID the filing deadlines had been postponed to the end of that emergency, which took you through July 10th of 2023. Now fast forward on February 9th, there was another case, the Fleischer case, that came forward and they're asking for the payment of interest on some overpayments. But that's really the scope on that is really for a few months in 2021. But the real question comes in if you're, if those deadlines were postponed, then those late filing payment penalties, the underpayment or the failure to file penalties really shouldn't be addressed and impacting taxpayers. So can you claim a refund? And the question is the timing with that, which would bring you to July of 2026. So again, there's uncertainty. We just don't know there is a chance of appeals for this. All of this could be overturned. We haven't seen a court case specific to those refunds. And you really need to talk with the client about weighing the options here. How much is that penalty and the cost of requesting that refund and working with irs, which we know has been a hardship lately with them, is where's the balance? Where's the payoff? So if you have a large penalty, maybe this might be something to move forward with. And again, you need to have those conversations with the client to really make sure that they understand and let them choose. And one of the things that you can do on the practical side, if you think you're going to be moving forward with a refund, you can file a protective claim, which is more safe. But be aware that again, these court cases could overturn this and everything can be overturned. So the big takeaway with this is as it develops, we will continue to provide more information to you guys. So with that, let's jump into the round robin. Montana and Louisiana offer tax filing disaster relief. When you click on those links, you'll find more information. But we'll what's really interesting is Louisiana's tax relief was actually based on the new state trigger where the governor petitioned treasury for disaster relief and it was granted. So we'll be seeing more of that as unfortunately, we see more disasters with the CAAF authorizations. The IRS came forward with a list of reminders and also some tips of how to go about it, how to get it more efficiently. So take a look at that link. And late last night, IRS dropped interim guidance on the corporate alternative minimum tax affecting the applicable financial statement income. Now, obviously we can't take a deep dive, but next Wednesday, February 25th at 1pm we have our Washington tax brief and we will be taking a deeper dive into that. And that's one hour free cpe. And again, it's just tax focused. And then also we've talked about the Trump accounts, the newness. It's essentially a new ira, which really does create new opportunities for us with our clients. And so here you see some new resources that we have. One of them is a preview that you can take a look at. And then towards the end of the deck, and we'll be showing this later, we'll have a full slide with all the resources available around the Trump accounts. So with that, Michael, I turn it back to you.

E (40:55)

Wonderful. Thank you, Melanie.

B (40:56)

Great update. Lots happening. We'll have you back soon, I'm sure. So with that, we're going to go ahead and transition. I want to bring in Avni Desai, CEO of Shellman. Hello, Avni, how are you?

D (41:08)

Good.

A (41:09)

How are you doing?

C (41:11)

All right.

B (41:12)

Good to have you with us here today. So Avni, Avni again is the CEO of Shellman. It's a top 50 firm and they're kind of an interesting firm from the standpoint of the only one focused exclusively on IT compliance and cybersecurity. So Avni has a deep understanding and expertise in this area. And Avi, I just think about kind of the state of play today. It's the amount of technology changes like I've ever seen in my career. And I know that's going to have pretty broad implications maybe on the threat landscape. So I think you're going to have you in here today. Talk A little bit about that and maybe how firms can kind of navigate, navigate some of these waters right now.

A (41:52)

Yeah, perfect. Well, yeah, I'm excited. I mean, you know, you're right. AI is changing the threat landscape and what it means, I mean when you think about our profession, like what it means for trust, what it means for leadership, I think also what it means for professional services. So it's not a technology shift, I think it's a credibility shift. So if you work with technology companies like we do here at Shellman, I see it firsthand that it's what used to be theoretical is operational. So yeah, let's get into it first slide. So I want to start by saying if you thought like five years ago, cyber threats, I would say they're already sophisticated. I started off my career at a big four and I was a pen tester and they were sophisticated then and that was, was 20 plus years ago. But they were still really manual. Today though, with AI and all these emerging technologies, the best way to say it is threats have become industrialized. So I think of attackers now operate well funded startups. They actually have playbooks, they have automation, they have specialists, they actually have call centers once you have ransomware. And they also have AI copilots and that's what's making them much faster. So AI, when I talk about it, has lowered the barrier to attack dramatically. So attackers use generative AI to create phishing emails that are actually can't distinguish them from like legitimate client communications. So like before you probably remember like the deer sir, phishing, like these emails actually like reference your real product names. They're going to reference, you know, names of actual organizations within your company.

E (43:25)

Right.

A (43:27)

And so that's why I think it is really important that we have to say like even the tone, right? So it's important that the shift is just not technical. I actually think it's more psychological and like the social engineering now is so hyper personalized. So we work with tech companies and most of that information about them is public. LinkedIn profiles, job postings, conference bios, podcasts, press release, all of this stuff is on social media. And what AI can actually do now is scrape all of that and build like an extremely, I would say like a convincing narrative. And that speed is a multiplier. So like what used to take weeks and weeks to prepare now takes minutes. And now an attacker can run hundreds of variation of a scam in a day. See what works, what doesn't work, what they end up doing is they optimize it. The best way for me to think about this is like what we do for a marketing campaign. So that's why I always say the threat environment now looks less like hackers or bad actors and more like growth teams. So. And for your firms like yours, I think this really matters. Regardless of what size you are, what you're working on. You have clients and you sit in the center of their financial systems, their confidential information trust. And you're not just a service provider anymore, like you're actually providing, you're part of your client's operating model. So I think that's just a good way to start thinking about this.

C (44:59)

Yeah.

B (45:00)

And I think this discussion, look, we want firms to be vigilant, but we also won't want to be paralyzed by what's going on out there. And so that's, I think one of the biggest challenges. And we'll talk a little bit about that. But maybe Avni, what are the biggest risks that you see right now for firms and their clients?

A (45:17)

Yeah, the first I'm going to say, and you're probably all seeing this at your firms, it's the uncontrolled staff use of AI tools. And I want to be clear, it's not about people or your staff doing something wrong. It's really about people trying to move faster, like use these tools for efficiency. But here's what's happening in the tech environment. So engineers, finance teams, compliance teams, auditors, assessors, they're pasting real company data into the AI tools. And they're not doing it's, it's not malicious, it's to summarize it, it's to rewrite it. Sometimes it's to interpret it right or generate a response. So things that we've actually seen, so we're seeing things like internal strategy memos posted into AI to tighten it up. For instance, we're also seeing financial models uploaded to do just a quick analysis on the IT side, code snippets pasted like hey, let's debug something and actually, you know, like write ups to summarize for executives. But the question is, what we all have to think about here is where did that data go? Because once sensitive information is in a tool and it's not a wrong tool like any tool, especially like the free versions of these AI tools, you can't pull it back. So that's definitely number one that we all should be thinking about at our firms, the second risk. And it sounds like a little bit like to technology, like it sounds like probably like a little bit of a sci fi but it's deep fake enabled fraud. So I can tell you how we saw it. This is where it gets fun, but it also gets terrifying. So we've actually seen tech companies run internal demos where they clone the voice of their CFO using public available data. So this is from LinkedIn and this is from YouTube or even from earnings calls. And within 10 minutes you have this believable voicemail that sounds just like the CFO saying hey, I'm in a meeting or hey, I'm on vacation. I need you to prove this wire. Can you really do it now? Right? And the point is like if a company can do this as a proof of concept and we've seen these tech companies, and I'm not talking about like the big LLM companies, they're using these tools that are available out there, like the clauds and the OpenAI's. An attacker can do this in a business model. And the scary part is it doesn't have to be perfect, right? It just has to create this. Like again, I talk about. But it's not technological, it's psychological. It has to just create a sense of urgency and then that's it. Urgency actually breaks. Process happens all the time. And the third I'm going to say is we're the owners of trust. Right? Is the erosion of trust. So clients are now asking questions that they didn't ask two years ago. They're asking, are you using AI in your workflow? Are you training your staff? Where are you putting our client data? Are you putting it into an internal tool, an external tool? Who reviews the AI? Like, if there's hallucinations, how are you preventing it? And that's the key shift. The risk isn't just security anymore, it's credibility. And AI mistakes can create real. We've seen it, we saw it on the news. Right. Can create real reputational damage because clients assume it should have been preventable. So the risk today is not whether AI will be used, it's how we're using it at our firms. Are we using it intentionally and responsible? Like, are we being responsible for it or accidentally and quietly? And are we using it in a shadow IT environment?

C (48:41)

And that's kind of, that goes back into the. I think some of the issues around that risk, the uncontrolled usage. I mean, you know how many staff. I mean, I do it, do it myself. All of a sudden I just do a quick Google search. Was that an AI enabled answer or was it a factual answer just based on Gemini being attached? Yeah, you can turn it off, but I don't think everyone knows that. And this idea of trust, you know, that has to also start at the client. It needs to be in the finance team. We need controls over AI frameworks inside of organizations first. And I think that's where a firm like yours can come in and provide assurance over that. Are you seeing some companies starting to do that?

A (49:23)

Oh, we definitely are. So it's so interesting. So there's one certification out there called ISO 42001 that's based on its AI trust and governance. So usually we know when we're thinking about SOC reports or ISO reports, we're doing it for products that are externally facing. So now we're actually seeing Companies do an ISO 42001 on their internal chatbots because they want to make sure that they have the right guardrails in place and people are actually using them. And I've never seen that before. Can you imagine someone doing SOC2 for their internal products versus their external products?

B (49:56)

Well, I mean, the deep fake stuff's scary, but I think it goes to your point too. You've got this narrative out there in the public domain about how those that aren't educating themselves are going to get left behind. So there's a lot of encouragement to familiarize yourself with tools. But I think, and I know for not just firms, businesses are trying to create these kind of sandboxes that, that their employees complain, but they're kind of guarded. But I think it's going to come back to education and training because I think people don't know what they don't know. So they don't know that they're exposing themselves or their company. And so I think we just got to. The problem is the technology is moving at such a fast clip, it's hard for the training and the education to kind of keep pace. But, but with that, I guess that sets up just kind of some practical defenses that you suggest that will build trust.

D (50:56)

Yeah.

A (50:56)

So I think there's a couple of things. This is something that you guys can do right now as a firm and it's not going to cost a lot of money. Formalize an AI usage policy and training. So the best companies we work for don't write a 40 page policy. They actually write a one page framework for employees that are easy to read and they can actually remember. So what is it?

C (51:15)

What would happen?

D (51:16)

Have.

A (51:16)

What would you do here? These are approved tools. These are tools you can't use. What data can be used and what data can never be used and what requires Human review, super simple, right? That, that's the simplest thing. And I think everyone here can, can work on that. And then you train your teams with real scenarios. So not AI is dangerous like that. We have to like that AI is here to stay. But actual questions like, can I paste a soc report into ChatGPT? Can I summarize an incident report that was evidence from a client using AI? Can I draft an AI? Can I use AI to draft a response to a regulator? Right. Or can I use AI to write testing scripts? Right, that and then second, run simulation. So some tech companies are now doing these deep fake tabletop exercises. And I think that's good. Like they simulate an executive impersonating an event and test how fast the team actually escalates it. So instead of, hey, having those phishing campaigns, have I clicked the link, it's getting a lot more sophisticated. And test whether the finance team actually verifies the request and test whether people challenge that urgency. Because again, a lot of this is not a technology control, it's actually a behavioral control. Third, this is like table stakes. This is going back to the basics, like data classification and boundaries. Companies that are doing this really well are treating data like the best way, I would say, is like a muscle memory. Like, you make it extremely clear this is public data, this is internal data, this is confidential, and this is restricted. And then you tie that back to AI usage, because if you don't have these boundaries, at the end of the day, it doesn't matter what policies you have, they're going to be meaningless. And then finally it's going to come back. Mark, what we talked about, turning compliance into a client trust conversation. This is where I think firms have an opportunity. So instead of treating AI governance like, hey, this is something we have to hide, let's not talk about it externally. It becomes something you lead with because clients want to know that you're not improvising. They want to know that you're being thoughtful and that you're being disciplined. And I would say out of all of these, that's probably the most important one.

C (53:23)

I love that because that's where the clients do want to hear you being proactively stating what you're doing around AI to secure their data. So even if they didn't ask, providing that information, creating that level of trust, getting your client to think about it differently and developing that trust so that you can go in there and help them develop trust internally. You think about boards in large companies, boards of not for profits. They're worried about the risk around AI usage and what data is slipping out. Can you imagine a not for profit that falls under HIPAA that has all of this sensitive data and then people start using it differently to do this analysis that nobody knew they were doing. And then you sit on a volunteer board and all of a sudden you're at risk.

A (54:10)

Yep. Right.

B (54:13)

So Abni, a great, great overview and lots of great questions coming in and they want us to have you back for a much longer segment. I think it's like a lot for folks to digest, but it is so pervasive. But maybe a question for you is just you're across the firm landscape quite a bit talking to a lot of firm leaders. What would you say is the most dangerous misconception firm leaders have right now about AI?

A (54:44)

Yeah, well, look, I think everyone thinks AI is a shiny productivity tool or a technical risk, but regardless of what you think it is, they think it can manage it. And it's neither, actually. AI is actually an enterprise governance issue. So we worked with a company that tried to solve an AI risk by blocking access to public tools. But guess what? Within weeks, maybe even days, teams started using personal devices. Some were using browser plugins, some are actually using unsanctioned APIs. So the wrist and disappear, what happened? It became invisible. So invisible risk is always worse than regular risk that's out there. And so just making sure that.

B (55:24)

I think you called it shadow AI, Abni.

A (55:28)

Actually, what they call it, they call it shadow AI. I mean, it's a real thing, but you can't say that it's something that it has to manage. This has to come all the way from the tone at the top and then also make sure that it doesn't disappear.

C (55:42)

That reminds me of the days when firms were blocking Facebook for their employees. Like they weren't going to get to it from their office iPhone.

A (55:49)

That's right.

B (55:50)

And maybe a follow up to that because it's come in quite a bit in the Q and A and we're kind of rolling in the Q and A here. Yeah, it's, it's, you know, like. So as a CEO, how do you give your employees the right amount of, kind of latitude to experiment? But, but put these safeguards in place and what are your recommendations around the best way to do that?

A (56:12)

Yeah, so I actually use this phrase that at the office I say freedom inside a fence. Right. If you don't create boundaries, you're going to get chaos. So if you create too many restrictions, that's when you're going to get this underground usage so the three things that we should focus on, approve secured tools. So the right way is easy. Has to be easy. Set simple reminders so employees can remember this simple rule so employees can remember this and then normalize disclosure. So if something does happen, like I said, most of the time this isn't malicious. People aren't doing this. They're doing it for productivity. They're trying to keep up with their engagement. Just make sure disclosure is normalized and easy process so people don't hide it. At the end of the day, I tell regard. And this again is kind of like foundational. The goal is not perfection. Right. The goal is how do you make sure that you're creating trust with your employees so they're using these real good productivity tools in the right way.

B (57:10)

That's great. I mean, great update. We're going to go ahead and roll into open forum. I know you'll stick with us. We've kind of hit you with a couple of questions, but Melanie, maybe I'll open up to you. I don't know if you've had a chance. If there's anything on the tax side you may want to pull in. We probably only have time for one, but I didn't know if you were monitoring.

F (57:29)

You know, I've seen a couple things about the post office and that unfortunately has moved forward. And the best advice we have for people is to be aware of the steps they can take to manage that because it is something that can be managed. I know it creates a little bit of a shift at the beginning. I've seen a couple of questions coming in about the payments and the refunds, and that's actually been identified as one of the biggest issues from the National Taxpayer Advocate with the IRS with some of the delayed refunds, particularly the those that were identified with identity theft. So patience. We've seen a lot of hardships and we will be getting feedback how this season goes.

B (58:11)

Thank you. Melanie and Avi, I do have one final question for you since we've got time. Question came in. It's like for firm leaders who do feel overwhelmed. Where are you pointing? They should start.

A (58:23)

Yeah, I'm going to say go back to the basics. Start with simple policy training, good tools, accountability at the manager level. And then one culture point like it goes back to normalizing that transparency in the best companies. It's completely normal. Say I used AI to draft this and here's what I checked. Right. That's the future and we have to have that part of the culture. It's not going away, but the credibility still matters. And the firms that win are not the ones that are going to avoid AI. They're not even the ones that use AI most. Right. They're the ones that operationalize it and responsibly build governance into their culture and then turn that governance into client trust.

B (59:06)

Awesome. Well, thank you, Avni. Thank you, Mark, James and Melanie, Great job. And Mark and I'll go ahead and close this out with everyone, but thank you, guys.

C (59:14)

Thank you, guys.

B (59:15)

So, Mark, we have the AICPA member satisfaction survey. The deadline was extended to February 22nd. I know this is important to you.

C (59:22)

It is very important, very important to me. Again, we, we, we are listening to our members. We want to continue that. So please do click on that QR code and fill out that satisfaction survey. We do take that very seriously. We want to hear from our members. We want to do better. And we continue on the town hall. There's no doubt. I mean, everywhere I go around the country, I just get incredible compliments about, you know, what you've done, what Eric has done to put this together over all these years. It is a benefit that is going to continue indefinitely. People are like, please don't take down Holloway. I could, I'm stand today saying we are not going to take the town hall away.

B (59:57)

That's right. We sure aren't. Thank you, Mark. And so Trump Accounts, a bunch of you had asked for more information on how to navigate these. So the team has put together a whole bunch of resources, podcasts, toolkits to help you go ahead and make sense of that and get started. We talked a lot about AI today. Just want to point you to again, a bunch of free resources on the CPA.com site that just helps help. You know, we've, we've, we're, we've got an active AI working group that we're working with, made up of technology providers, but also firms and their chief AI strategists and practitioners. And I've just been rolling out a bunch of new, new content to help you all kind of get familiar with this. And then lastly, the next town hall will be Thursday, March 5th. We're going to have, I'll call out Dan Hood, the editor of Accounting Today. He's going to give a little bit of a preview to the annual Top 100 firm report that comes out every year to give a little bit of sense of the trends and where things are going with that. A big thank you, Mark. Really enjoyed my first town hall with you.

C (61:04)

Thank you, Michael.

B (61:05)

And I hope everybody has a great rest of the week and weekend and we will talk to you soon. Thank you.

C (61:10)

Have a great week. Thanks.

F (61:12)

Thank you for your participation.

A (61:15)

You can also subscribe to the AI CPA Town hall series on your favorite podcast platform, as well as watch archives on YouTube and find resources@cpa.com Townhall Tune in for live broadcasts Thursdays at 3pm Eastern Time.

D (61:33)

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C (61:36)

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B (61:43)

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D (61:46)

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