EY speeds audits 125%+ with AI while NVIDIA deal raises Enron red flags

Attention: This is a machine-generated transcript. As such, there may be spelling, grammar, and accuracy errors throughout. Thank you for your understanding! Blake Oliver: [00:00:05] Ai is auditing s biggest disruption since the corporate failures that led to the PCB's creation, which was Enron, and the separation of audit and consulting work. It's the biggest thing since Enron. David Leary: [00:00:18] Coming to you weekly from the OnPay Recording Studio. Blake Oliver: [00:00:25] Hello and welcome back to the Accounting Podcast, your weekly roundup of news in the profession. I'm Blake Oliver. David Leary: [00:00:31] And I'm David Leary. Blake Oliver: [00:00:32] And David today. Lots of news to cover. I've been tracking Nvidia, the AI stock market bubble. And Enron came up in the news in regard to Nvidia. Michael Burry, who predicted the financial crisis. The mortgage backed securities crisis, says that Nvidia's new 500 billion AI funding deal has shades of Enron. And I want to talk to you about that, because we've been talking about the cyclical financing arrangements on this show, and there's a lot there. David Leary: [00:01:05] And you can't like, you can't ever say Enron and not think accounting like they're forever tied. It's the same thing. Blake Oliver: [00:01:11] Oh, it's like the number one case study that you learn in accounting when it comes to like financial fraud and manipulation of, of accounting and financial accounting standards and all that. David Leary: [00:01:21] And half the thing, half the things that have to occur compliance wise are because of that event, right? Blake Oliver: [00:01:26] All the Sox compliance, they have to do all of that. David Leary: [00:01:29] Even existing right is because that's right. Blake Oliver: [00:01:31] That's right. So the fact that like this looks like that little sketch, um, E is saying that they have over doubled their productivity for audits. So audits are now 125% to 150% faster. But they're not having to cut fees. We've got a case of ancient tax fraud in ancient Rome. You've got coverage of the Pcob inspection reports from 2025. It's gotten better. Fincen ending BOE reporting. Tether finally got a full a full audit, and QuickBooks Live is dead. And we're going to try to get to all of that in this episode. But first, David, let's thank our sponsors. David Leary: [00:02:14] Our sponsors. This week. We have digits on pay. Thomson Reuters and cloud accountants staffing. Let's be honest, accounting software hasn't changed much in decades. The prices keep going up, but all the software still expects you to do all the work. Digits is different. Digits is the world's first AI native general ledger with built in AI agents trained on your firm's standards across every client. In your book, they code transactions, prepare schedules, reconcile accounts, run quality checks, even chase clients for open items. So your team moves out of prep and into reviews advisory in the work that actually grows your firm. And because everything runs, runs inside one platform, your ledger, reconciliation schedules, reporting bill pay, client collaboration. There is no more stitching together six tools just to close one client's books. Firms on digits are reporting a 70% gain in workflow efficiency, shipping actual cleanups in days instead of weeks, and running monthly bookkeeping in 1 to 3 hours per client. Accounting software that actually works for your firm. To see why hundreds of firms are making the switch to digits, head over to The Accounting Podcast dot promo digits. That is accounting podcast dot promo forward slash DIGITS. Blake Oliver: [00:03:25] You might not know the name Michael Burry, but I guarantee you know who he is. If you saw the movie The Big Short or you heard about. David Leary: [00:03:32] The drummer, right? The guy who's drumming. Blake Oliver: [00:03:34] Oh, yeah. He he, uh, that's how he got out his frustration. Yes. Well, he's the guy who predicted the financial crisis. Was it decades ago now? And he bet against the market, a lot of money and took an enormous risk to do that. And it paid off. He won that. I mean, nobody won. But, you know, he he predicted it and made a ton of money and did it. So when he speaks, people listen. And he is criticizing Nvidia's new $500 billion AI funding deal. Now what is this deal? It is Apollo, BlackRock, Blackstone, Brookfield, Goldman Sachs and KKR. Kkr. David we talked about on the show before. Yeah. Big private equity with one bank Goldman Sachs getting together to create a massive fund $500 billion to invest in AI data centers to fuel all this demand for compute power. And Nvidia, which makes the AI chips, needs these data centers to get built because it needs a place. David Leary: [00:04:45] Where if I sell them chips and they have no place for them to work, they're not going to buy my chips. So I have a vested interest in data centers now. Blake Oliver: [00:04:53] And this money would go to buying the chips and building the data centers. And so it's a it's a way for Nvidia to keep getting its customers to pay like they like. Right. Like it's giving money to its customers so its customers can buy its products. And the way they're going to do this is it's looking like they're going to use special purpose vehicles. These SPVs, which are separate entities that would then own the data centers and buy the chips and build the data centers. Those entities would then lease computing power to Nvidia's customers, right? So it would lease computing power to Anthropic or ChatGPT, OpenAI, these AI companies and the loans to build these data centers, all that debt would be secured by compute. So if the customer doesn't pay the, the, um the debt would be secured, meaning that, you know, these, these, these private equity companies would own the compute and they could lease it to somebody else. Right? That's, that's how they're going to be secured. And Nvidia is going to guarantee it sounds like 25% of the debt. So think about this, right. You've got the manufacturer of the AI chips guaranteeing a portion of the debt to build the data centers. So it's money is being loaned to these entities to buy chips from Nvidia. Nvidia is going to guarantee a certain portion of the debt that is used to buy the chips. And so Michael Burry is a little bit skeptical of this right. Because this is what Enron did right. They to keep debt off balance sheet they created other entities that controlled assets. And so Nvidia. They could do this themselves. They could build their own data centers if they wanted to, but they're not doing it. Why? Because they want to actually book the revenue by selling the chips to these other entities. If they built the data centers themselves and put in the chips. David Leary: [00:07:01] They'd have all those expenses and all this. Blake Oliver: [00:07:03] Yeah. And they. Exactly. They don't get to book the revenue until they actually sell the compute. But now this way they get to do it up front. So he has increased his short positions. Michael Burry has increased his short positions against major AI companies, although we don't know what ones those are. The quote with about Enron is that this structure has, quote, shades of Enron's effort to make wholesale power and investable class. Enron, for those who may be too young to remember, went bankrupt in 2001, and they used opaque funds to keep billions in toxic debt away from their main balance sheet. And they created all these complex products linked to energy contracts to inflate prices. And when it went bankrupt, it's $60 billion. Collapse was the largest U.S. bankruptcy. Burry described Nvidia's financing as a potential attempt to use unnatural credits to prolong momentum late in the bull phase, unquote. Calling it a, quote, sign of desperation. David Leary: [00:08:00] So yeah, because you have to keep exceeding the previous quarter, and then you get to the point where this is going to stop unless we create, we creatively come up with some other way to keep our revenue increasing. Blake Oliver: [00:08:12] Yeah. So this all goes to that circular financing, the money flowing around in a circle that we've all been following, where the AI startups, which are now huge anthropic and OpenAI, spend money with owners of data centers, uh, Amazon, Google, what have you. And then those companies then invest back into, uh, anthropic and OpenAI. So the money just goes in a circle and it books revenue on both sides. But there was, you know, the money's just moving around in a circle and revenue is going up. So that's the circular. That's the circular revenue. I forget what you call it. Exactly right. That's how the revenue gets created with the circular arrangement. And then this is a way to then keep that going with off balance sheet financing. Because one of the issues that these big public companies have is that these AI chips, the the useful life of them is very short. And they've already been pushing that up from an accounting standpoint, estimates are that these chips are only good for 2 to 3 years because everything's changing so fast, they're going to have to swap them all out, but they've been pushing them up to like 5 or 6 years, which allows them to have less depreciation each year, which increases profits. So they've like, we're already playing accounting tricks to, to stretch this out. And this these special purpose vehicles might just be another way to continue that. David Leary: [00:09:46] What do you think the accounting impact of this is going to be? So obviously this could completely crash the stock market. It might put our economy into a deep depression. Who knows. Right. But what do you foresee like an accounting thing occurring here? Is it going to be tied to a firm? Is it going to be tied to all the big firms? What. Blake Oliver: [00:10:04] Well, there's no fraud happening here. This is all happening in plain sight in that. David Leary: [00:10:09] So so it's it'