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Nobody Is Going to Hand You Power, So Here’s How to Build Executive Presence on Your Own Terms

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Lindsay Patterson’s very first day as a reporter should have been routine. Twenty years ago, she walked into a small community meeting in Uvalde, Texas, fresh out of college, holding a notepad and recorder, ready to cover a state representative’s remarks for the local paper. She sat down, pen ready. Then the representative stood up, scanned the room, and asked whether anyone from the Uvalde Leader-News was present. When Lindsay raised her hand, he announced he wouldn’t speak as long as she was in the room.

She didn’t stand her ground or fight back. She walked out, sat in her car, and cried.

Today, Lindsay is the CEO of CPA QualityPro, a compliance platform that helps firms navigate licensure and CPE requirements. She’s served as executive vice president at the Institute of Internal Auditors and spent years at the AICPA working on accounting standards and the CPA exam. She holds multiple certifications, including CPA, CIA, and CAE, all earned while working full time and raising kids.

In Episode 30 of She Counts, the real-talk podcast for women in accounting, Lindsay joined hosts Questian Telka and Nancy McClelland to unpack a frustrating phrase in professional development: executive presence. It’s the vague feedback that shows up in performance reviews as the reason you didn’t get promoted, without anyone explaining what it means or how to get it.

Women are often told that executive presence means adopting traits traditionally associated with male leaders. Lindsay argues that the real measure is much simpler: whether the people around you leave interactions believing you’re the right person for the job.

 

Redefining Executive Presence

Many of us absorbed a version of executive presence without questioning it. “I had a very traditional view of executive presence. It’s like the three-piece suit guy pulling out a pocket watch,” Lindsay said, admitting where she started. “He’s speaking aggressively and assertively. I’m like, oh, that guy has executive presence.”

Nancy shared her own assumptions. For women, she thought it meant Chanel bags, specific jewelry, and perfect polish. “I will tell you, if we’re going to judge me on my ability to make that happen, I will fail,” she said. “I look like I’m dressed up for a high school play or something.”

But Lindsay’s working definition is simpler. “If you were to distill it into simple terms, it’s just instilling confidence in people. Are people confident I can do a good job? Can I lead the team? Can I deliver results or do what I say I am going to do?”

The research backs this up. Lindsay cited the Coqual findings that gravitas, or how you present yourself, is what people overwhelmingly evaluate for executive presence. Communication makes up about a third. Appearance is only 5%.

This is good news for anyone worried their personal style disqualifies them from leadership. Lindsay owns a fully sequined black suit and has worn floor-length tutu gowns to office meetings. She’s also been a CPA Practice Advisor 40 Under 40 honoree and runs a successful company. The two things work together just fine.

But Lindsay was clear that executive presence is not “overtalking people, interrupting, being really aggressive and mean.” She added an important caveat. “I say that’s not what it should look like. But we have to recognize it is viewed that way in some office cultures.”

She shared a story that made Nancy ask if it was real. At one company, a man criticized another executive for wearing a Rolex because it showed “new money.” If you wanted to instill confidence as a leader, apparently you needed at least a Patek Philippe. “What?” Lindsay said. She didn’t last long in that culture.

The story might be absurd, but it shows something important. In many places, executive presence gets defined by an unspoken code written by and for one specific kind of leader. When that code becomes the standard for measuring women, the game is rigged from the start.

The Double Bind: When the Rules Work Against You

Even with a better definition, women face a structural problem. The same behaviors that signal confidence in men get labeled as aggression in women.

“How often do you hear in performance reviews that a male was aggressive? Never. That gets assigned to women,” Lindsay stated plainly. Being direct, standing firm, and pushing back in meetings gets men praised for “standing up for their beliefs” while women get called “difficult” (or worse).

Then there’s what Questian called the competence-warmth trap, referencing Vanessa Van Edwards’ research. If you’re warm and approachable, people see you as less competent. You need both warmth and competence to hit the sweet spot, but too much warmth works against you.

The research on competence perception is even tougher. Lindsay delivered her “good news, bad news” moment. “If I show up and I am just as good as my male colleague, I’m probably going to be viewed as less competent. And there is a whole body of research to show this.”

Women don’t just need to meet the bar. They need to clearly exceed it, just to be seen as equal. That means overpreparing is essential.

The dynamics shift with race, too. Lindsay acknowledged their position, noting, “We’re all three white women.” She’s seen firsthand what she can get away with that a Black female colleague cannot. Nancy put numbers to it. If white women prepare at 120%, Black women face pressure to deliver at 170%.

Then came the episode’s most provocative moment. Questian asked if coaching women on executive presence puts the burden on them to fix a structural problem. Lindsay’s answer was direct. “Yes, we’re asking women to do this. You know why? Because nobody else is going to do it for us. People in power are not just going to hand us power. That’s not how power systems work.”

“The world’s not going to dominate itself,” Nancy said, summing it up.

But Lindsay distinguished between assimilation and strategy. The goal is to work strategically within existing systems by pushing boundaries, gaining influence, and reshaping culture from within. “As we rise to power, not only are we going to instill our own cultural norms, but then you’ll start to see cultures change.”

Your Practical Playbook: Build Presence Through Preparation

Lindsay’s closing advice was the episode’s most powerful line. “Confidence is just preparation. If you do something enough times, you will come across as confident. You will have that executive presence.”

Executive presence is a skill built through practice. Here’s Lindsay’s concrete playbook:

  • Start with an audit. Record yourself before a difficult conversation or presentation. Watch the playback and ask, Does my body language say what I want? Do I sound knowledgeable? Am I the confident person I want this audience to see? You likely already have the material, since most meetings are now recorded on Zoom.
  • Separate sound from sight. Listen to your recording with no video. Just evaluate your speaking. Then watch with no sound to evaluate body language. Then watch both together. This lets you see what each channel actually communicates.
  • Rehearse with your circle. If you have trusted professional friends, use them. Practice difficult conversations. Do dress rehearsals for interviews. Ask for feedback on how you plan to challenge your boss. Lindsay does this with her own circle, and she extended an invitation to listeners. “If you don’t have that and you’re listening and you’re like, ‘I have this interview coming up,’ literally connect with me on LinkedIn. I’m happy to help. Other women did that for me.”
  • Prepare for disruption. Anticipate what typically derails you. “Is Bob going to interrupt me like he always does? Well, how am I going to respond?” Plan your response. When the moment comes, hold your ground without escalating.
  • Master the context. Your presence should shift based on your audience. As Nancy noted, the best version of you when meeting with nervous small-business owners differs from the one you use when meeting with a board chair. Both are authentic, but context defines what instills confidence.

For virtual meetings, have the camera on (especially when presenting), use good lighting, choose a quiet location, and avoid multitasking. Nancy made the trust connection clear. If she can’t see someone’s eyes on Zoom, she doesn’t trust them.

In person, make sure your shoulders are back and your head is up. Look confident and take up space. Lindsay admitted to intentional “manspreading” in meetings. “I have every right to be here, and I’m going to show that with my body.”

Don’t forget the practical details. Rehearse in the shoes you’ll actually wear. Nancy learned this after nearly injuring herself while presenting in heels. Now she presents in go-go boots that match her Dancing Accountant brand. Lindsay shared a cautionary tale about a team member who wore a tube top to an external Zoom meeting. Over a year later, the client still talked about the tube top instead of the meeting content.

The Scared Child Inside Us All

Lindsay shared what she wishes someone had told her 20 years ago. “Most people are faking it. We are just doing our best, trying to get by.”

Nancy connected this to waiting for the moment she’d become a confident adult. “When I realized that line doesn’t exist and a lot of us are carrying that scared child inside us until we die, then you’re like, oh, cool. Well, then I can start taking care of that scared kid because I’m also a confident adult.”

Lindsay offered one more insight from experience. “You could be the most round, juiciest peach on the tree. And there’s always going to be somebody who doesn’t like peaches.” You won’t be everyone’s cup of tea. The sooner you accept that, the sooner you can focus on instilling confidence in the people who matter to your goals.

Your Presence Is What People Remember

Executive presence has been weaponized for too long as vague feedback that holds women to standards built for someone else. But Lindsay’s definition offers us something useful: instilling confidence in the people around you.

The double bind is real. The bar for perceived competence is measurably higher for women and higher still for women of color. These are structural realities, not personal failures. Recognizing them means understanding the terrain so you can navigate it.

The antidote is preparation. Record yourself. Rehearse with trusted peers. Anticipate the disruptors. Adapt to context. You build confidence through repetition.

No one will hand women the keys to power. The work of getting inside the system and reshaping it falls on us. As more women rise by carrying their own authentic executive presence, they can redefine what leadership looks like for those to come.

Questian closed with Maya Angelou’s words: “I’ve learned that people will forget what you said. People will forget what you did. But people will never forget how you made them feel.”

That’s executive presence.

Listen to the full episode, and if you take one thing from this conversation, share it on the She Counts Podcast LinkedIn page. What will you try differently the next time you walk into a room or join a Zoom call?

Beyond the Stock Sale: Allocating Purchase Price When S Corp Assets Sell Individually

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When a buyer offers $1 million for your client’s S corporation, the simplest path is a stock sale. There’s one transaction, one gain calculation, and you’re done. Purchase price minus stock basis equals gain. You could calculate it on a napkin. But most buyers don’t want simple. They want to crack open the corporate shell, pick out only the income-generating assets, and leave the entity (and its liabilities) behind. That’s when your job as a tax practitioner gets exponentially more complex.

In Episode 30 of Tax in Action, Jeremy Wells, EA, CPA, walks practitioners through the intricate mechanics of S corporation asset sales, building directly on the stock sale fundamentals he covered in Episode 29. Using Lighthouse LLC, a fictional single-shareholder S corp with a $1 million offer on the table, Jeremy demonstrates how to classify assets across seven categories, allocate purchase price using the residual method, calculate gains with proper character for each asset, and report everything correctly on Form 8594.

The shell versus what’s inside

Jeremy opens with a metaphor that captures the distinction. “One way to think about this is buying the shell and everything that’s inside the shell, or just cracking open that shell and buying only the stuff inside of it and leaving the shell behind.”

In a stock sale, the buyer acquires the entire entity. Every asset and liability, the brand name, the corporate history, etc. It’s one transaction. For Jessica, the 100% owner of Lighthouse LLC with a $250,000 stock basis, a $1 million stock sale means a $750,000 gain. Simple capital gain calculation. Done.

But the buyer in Jeremy’s example wants something different. Lighthouse LLC carries significant liabilities tied to its property and equipment. The buyer wants the income-producing assets, including the equipment, building, land, customer relationships, and goodwill, but not the debt. Not the entity itself.

This preference flips everything for the tax practitioner. Instead of one gain calculation, you now have to analyze every individual asset on the balance sheet and beyond.

Why buyers insist on asset sales (and why sellers often resist)

Jeremy explains buyers push for asset sales for two compelling reasons.

Stepped-up basis opportunity

When buyers purchase assets directly, they own them outright, not through a corporate intermediary. “It’s as if the buyer purchased those assets from the manufacturer or from the retailer. It’s going to be an original placement into service of those assets by the buyer,” Jeremy explains.

This means depreciation starts fresh. The buyer’s basis in each asset equals the allocated purchase price, not whatever the seller paid years ago. This reset can be enormously valuable for a building the seller has been depreciating for a decade. Nothing changes in a stock sale. The buyer inherits the existing depreciation schedule exactly as it stands.

Avoiding unwanted liabilities

In an asset sale, debts stay with the corporate shell. The buyer takes the assets clean. This is an important distinction for Lighthouse LLC, with its property-related debt.

Sellers, meanwhile, generally prefer the simplicity of stock sales. Jeremy notes they “often produce just a single capital gain, and they avoid the complexity of having to allocate purchase price among assets.” But when buyers insist on asset purchases (and they usually do), sellers often agree, especially when they want to retain the entity for future use or restructuring opportunities.

The residual method

Once both parties agree to an asset sale, IRC Section 1060 takes control, and Jeremy emphasizes this isn’t optional. If you’re selling assets that constitute a trade or business and the buyer’s basis will be determined by the purchase price, Section 1060 always applies.

The section mandates the use of the residual method to allocate the purchase price across seven asset classes, working sequentially from Class 1 through Class 7. Jeremy compares this to reading down a balance sheet because the most liquid assets come first and the least liquid come last.

Here’s how Lighthouse LLC’s assets break down:

  • Class 1 (Cash): $50,000. No gain possible. Cash is just cash.
  • Class 2: None in this example (would include actively traded securities, CDs, foreign currency)
  • Class 3 (Accounts receivable): $100,000 fair market value, but zero tax basis for this cash-basis taxpayer. That means $100,000 of ordinary income.
  • Class 4 (Inventory): None in this example
  • Class 5 (Tangible assets):
    • Equipment: $100,000 tax basis, $50,000 FMV
    • Building: $300,000 tax basis, $400,000 FMV
    • Land: $100,000 tax basis, $150,000 FMV
  • Class 6 (Intangibles except goodwill): Customer list valued at $100,000, zero basis
  • Class 7 (Goodwill): The residual is whatever’s left after allocating to Classes 1-6

With $850,000 allocated to identifiable assets and a $1 million purchase price, the remaining $150,000 becomes goodwill.

But Jeremy offers a crucial warning: “You can’t just treat all Class 5 assets the same because they’re Class 5.” Each asset needs individual analysis. Equipment might trigger Section 1245 recapture. Buildings might trigger Section 1250 recapture. Land never has recapture because it’s never depreciated. Every asset has its own character of gain.

The invisible assets that drive real value

Jeremy dedicates some time to intangible assets because, especially in service businesses, “goodwill actually is the largest asset.”

Treasury regulations define goodwill as “the value of a trade or business attributable to the expectancy of continued customer patronage.” It includes reputation, brand recognition, a trained workforce, documented procedures, modern technology application, and consistent lead generation.

However, “It’s never appropriate to add goodwill, especially self-generated goodwill, to a balance sheet, unless you have a sales transaction,” Jeremy shares. Goodwill doesn’t get a balance sheet value until a buyer actually pays for it.

Practitioners must also watch for personal versus corporate goodwill. Jeremy references Martin Ice Cream Company v. Commissioner, where the Tax Court held that when goodwill exists because of one individual’s personal relationships with customers and vendors, it belongs to that individual, 

not the corporation. This distinction has a big impact on reporting in small professional firms where the owner is the brand.

Covenants not to compete present another wrinkle. They’re Class 6 intangibles, not goodwill, so you must separately identify and value them. Jeremy explains these are especially common in professional firm acquisitions, where the buyer doesn’t want the seller to start a competing practice nearby.

For the buyer, goodwill becomes a Section 197 intangible, subject to 15-year straight-line amortization with no acceleration through bonus depreciation or Section 179. For the seller, it’s Section 1231 property with zero basis, meaning the entire allocated amount is gain.

Your workflow

Jeremy provides a clear workflow for every practitioner to follow:

  1. Get all documents first. You should have a copy of the signed purchase agreement and allocation schedule or proforma Form 8594. Both parties must report identical allocations.
  2. Allocate the purchase price using Section 1060’s residual method
  3. Calculate gain and character for each asset
  4. Report on Form 8594 attached to the return
  5. Pass gains to shareholders via Schedule K-1
  6. Adjust shareholder basis for the pass-through gains
  7. Handle liquidating distributions. Typically long-term capital gain at preferential rates

Jeremy shares a moment of professional conviction. “The client wanted me to just make up some numbers, and I simply would not go along with that.” He won’t prepare the return without proper allocation documentation agreed to by both parties.

His due diligence checklist adds crucial considerations:

  • Review prior depreciation schedules and shareholder basis calculations
  • Check state transfer taxes and sales taxes on tangible property
  • Evaluate installment sale benefits under Section 453. But remember, no help with depreciation recapture or inventory.
  • If the S corp was ever a C corp, check for built-in gains tax under Section 1374

Jeremy also mentions two elections that can treat stock sales as asset sales: Section 338(h)(10) and Section 336(e), though their complexity puts detailed discussion beyond this episode’s scope.

Bringing it all together for your practice

Asset sales are some of the most complex transactions you’ll handle as a tax practitioner. Where a stock sale for Lighthouse LLC requires one line of math, the asset sale demands individual analysis of every asset across seven classes, each with its own basis, fair market value, gain character, and recapture rules.

The residual method provides structure, but it’s not simple. Intangible assets are often the most valuable components of service businesses, and they’re invisible on the balance sheet until the sale takes place. You risk serious reporting errors if you don’t follow the documentation requirements.

Jeremy developed his systematic approach through classroom teaching and real-world practice. And it gives you the framework to handle these transactions correctly. The key is recognizing that in asset sales, you’re not selling one thing; you’re selling every individual asset, and each one has its own tax story to tell.

For the complete technical discussion and to hear Jeremy work through the full Lighthouse LLC example, listen to Episode 30 of Tax in Action. And if you haven’t already, start with Episode 29 on stock sales. Understanding that simpler transaction makes the complexity of asset sales much clearer.

Private Equity’s Big Bet on Accounting Firms Is Starting to Look Shaky

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CBIZ stock has lost half its value in the past year. Starbucks just killed its AI inventory counting tool after nine months of miscounts. And Microsoft, after investing $13 billion in OpenAI, had to cut off its own engineers from AI coding tools because costs went through the roof.

These stories from the latest episode of The Accounting Podcast paint a picture of where the accounting profession is heading, and it’s not what private equity investors or AI vendors promised.

CBIZ’s Stock Tells a Story About Private Equity’s Future

CBIZ is the only publicly traded accounting firm in the U.S., so its stock price is the closest thing we have to a market report card on the profession’s consolidation strategy. Right now, that report card shows failing grades.

“The stock price of CBIZ, Inc. today is $34.68. That is down 51% over the past year,” host Blake Oliver noted during the episode. When CBIZ bought Marcum at the end of 2024, the stock was at $78. It hit $90 in early 2025, then crashed to about $27 by March before recovering slightly.

What makes this even more interesting is that CBIZ isn’t alone. Co-host David Leary asked Blake to pull up Intuit’s chart for comparison. “Similar chart,” Blake confirmed. Intuit is down 53-54% over the same period. Meanwhile, the S&P 500 is up 28%.

The problem is what’s behind the stock price. CBIZ forecasts only 2% – 5% revenue growth for 2026. “That’s less than inflation. So basically, no growth,” Blake explained. “Why would investors be excited about buying stock in a company that’s not really growing much?”

Blake sees a more serious threat to large firms from smaller, more nimble competitors. “The larger the organization, the harder it is to change a business model or to integrate new technology,” he said. “I see smaller, more agile firms becoming a real threat to the large accounting firms. The smaller ones can integrate AI into their systems and switch their billing models.”

The math is simple but meaningful. AI lets a 10-person firm work like a 100-person firm. The traditional advantage of midsize firms (having an expert for everything) disappears when smaller firms can use AI to expand their capabilities.

Private equity firms typically look for efficiencies, not complete reinvention. “They figure out how to get marginally more efficient. They don’t completely reinvent the business model. That’s not what private equity is all about,” Blake explained.

When AI Meets Reality: Starbucks and Microsoft Learn the Hard Way

Starbucks spent nine months trying to make AI inventory counting work. The idea was that employees would walk past shelves, filming with an iPad, and AI from a company called NomadGo would automatically count everything. The company claimed 99% accuracy.

Reality hit hard. “Reuters reported the app often miscounted or mislabeled inventory, including confusing similar milk varieties or failing to recognize them,” Blake noted. Starbucks killed the project. Stores went back to counting by hand.

These failures hit the bottom line. “They were getting product shortages because they thought they had coffee, but didn’t have coffee to sell,” David explained.

Meanwhile, Microsoft discovered that AI coding tools come with a shocking price tag. Despite investing $13 billion in OpenAI and using AI to write 30% of its code, Microsoft had to cut off engineers from these tools because costs exploded. The same thing happened at Uber, where the CTO said they burned through a year’s worth of budgeted tokens in just four months.

The token problem is growing. Blake shared a striking statistic from Forbes: “Anthropic’s annualized net dollar retention exceeds 500%.” That means customers end up spending five times more than they initially expected.

“Nobody knows what they’re buying,” David said. “If I sign up for a monthly plan that gives me 20,000 tokens a month, it feels like enough. And then I’m six days into the month and I have to spend another 40 bucks for more tokens.”

“We’re going to hear a story like this in the next year,” David predicted. “Some firm will say, ‘Our five-person firm spent $300,000 on AI tokens, and we didn’t know it until it was too late.'” 

The Small Firm Revolution: XeroForce and AI Architects

While big firms struggle with their business models and AI costs spiral, something interesting is happening with smaller practices. Xero just launched XeroForce, a tool that could change the game.

“It’s a no-code AI agent builder that lets small businesses and accountants automate repetitive financial tasks using plain language, no technical skills required,” David explained. Unlike chatbots that give one-time answers, these are permanent automations that run on schedule.

Blake immediately saw the potential. “Every week, look at all transactions over $75 in any expense account, and then search my email for receipts and attach those receipts to the transactions. That’s a whole category of apps right there.”

“Accountants have engineer brains. You just don’t know how to write code. And if this can let you create ‘permanent’ code that runs routinely for a client inside Xero, it’ll help you scale,” David said, putting it in terms every accountant can relate to.

But tools alone aren’t enough. Firms need someone to manage this transformation. Donnie Shimamoto, CPA and founder and managing director at Intraprise Techknowlogies, calls this role an “AI architect.”

“Every CPA firm that’s big enough should create an AI architect role,” Blake said, comparing it to the cloud transition. “All the leading firms created these technology roles that were not IT. They were basically operations roles.”

An AI architect would handle security reviews, evaluate different tools, monitor token spending, and train the team. Without this role, firms risk security issues or shocking year-end bills.

For young accountants, Blake had direct advice. “If you’re a student or a young accountant and you want a job, learn this AI stuff. Every firm is going to be hiring an AI architect.”

What History Tells Us About What’s Coming

Blake drew a parallel to when electronic spreadsheets arrived. “The number of bookkeepers employed at accounting firms dropped by about half. We lost like a million bookkeepers over a generation,” he said. “What happened? We had more accountants and, in particular, we had a whole new category of job: financial analysts.”

His prediction for AI follows the same pattern. The number of traditional accountants will decline, but new roles will emerge. “Small businesses will be able to afford controllers and CFOs. They’ve always wanted them but could never afford to hire one.”

Both hosts emphasized the importance of experimenting now. David spent Memorial Day building a production assistant that saves him four hours a week. Blake spent two months creating a tool that automatically reconciles bank accounts.

“Don’t try to build anything groundbreaking,” David advised. “Just solve a simple problem that you have to deal with week after week.”

The Bottom Line

The accounting profession is changing fast, but not in the ways many expected. Large firms with private equity backing face serious challenges if they can’t reinvent their business models. AI implementation is proving harder and more expensive than promised. But smaller, agile firms that experiment with new tools and create AI architect roles could gain a huge competitive advantage.

“If you’re a firm with a few dozen people, you can now compete with firms that have hundreds of staff,” Blake said. That’s an opportunity for firms ready to embrace it.

Want to hear the full discussion, including how the hosts are building their own AI tools? Listen to the complete episode of The Accounting Podcast.

Accountants Rush to Adopt AI While Ignoring the Security Risks That Come With It

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Nearly nine out of ten accountants using AI report positive returns. But another statistic is more troubling. Over half of accounting firms have experienced data breaches recently, yet fewer than half have guidelines for how AI handles sensitive financial data. The productivity gains are real, but so are the risks we’re ignoring.

Blake Oliver, host of the Earmark Podcast, recently sat down with David Jani, Senior Content Analyst at Capterra, to unpack Capterra’s 2026 Accounting Software Trends report. The survey of 500 U.S. accounting managers shows the profession has moved beyond testing AI and into territory where the gap between adoption speed and security readiness is becoming dangerous.

 

The Productivity Gains Are Real (With a Catch)

AI in accounting has crossed from experiment to standard practice. More than half of accountants now use AI in their accounting software, and it appears across all company sizes, not just enterprises with big tech budgets. As David noted, “We’ve gone beyond the point of it being companies testing the water with this stuff.”

The most common uses for AI are chatbots and AI assistants, followed by data entry automation and fraud detection. AI is also making headway in predictive analytics, cash flow forecasting, smart invoicing, and bank reconciliation. David described it as “a coalescence around analytics and process-driven tasks.”

The 89% positive ROI figure comes from two main benefits. Half of respondents cite productivity gains, and nearly as many report reduced errors. So firms see real time savings and quality improvements.

But 48% of accountants manually check every single AI output. Not spot-checking, but checking everything. And about a third catch errors in their AI outputs more than half the time.

How do you square 89% positive ROI with error rates that high? David’s practical take is AI is “creating some gains in some areas, creating some extra work in others,” but the net result stays positive. Even when you add review time, firms come out ahead. But he cautioned, “It’s important that businesses still keep a close eye on the ROI of these situations and confirm it is delivering those gains.”

Meanwhile, plenty of work remains manual. More than half of respondents still handle financial reporting through spreadsheets or manual processes. Accounts payable and receivable, billing, invoicing, and payroll are all heavily manual. And yes, 51% of accountants still use Excel or Google Sheets for financial data. As Blake observed, spreadsheets have survived 40 years and aren’t going anywhere soon.

The Security Gap No One’s Taking Seriously

While firms celebrate productivity wins, the security picture is alarming, and almost nobody seems concerned enough to act.

Consider 52% of accounting managers surveyed have experienced a data breach in the last two years. That’s more than half. While David doesn’t have data linking these directly to AI, what he found about AI and sensitive data should worry every firm leader.

“Most companies don’t have clear guidelines on how they use AI tools with sensitive data,” David revealed. Fewer than half (49%) have guidelines for employee and payroll information. Coverage of bank reconciliation and customer billing data is even lower.

The perception gap is striking. Nearly half view AI cybersecurity risk as “minor,” another 12% as “insignificant,” and only 3% as “critical.” This might be “why so many people don’t have guidelines. Unfortunately, they just don’t perceive the risks at play,” David said.

Blake painted a scenario that’s probably happening now. Someone uploads payroll reports into free ChatGPT, where the terms of service may allow the vendor to train on that data. “We really need to step up,” he said.

The risks go deeper. Blake raised the issue of prompt injection, which involves hidden text in documents that manipulates AI agents into leaking data or changing payment information. It’s sophisticated and hard to defend against. As David acknowledged, “It’s a very new and rather sophisticated way of extracting information from a company. We still don’t really know enough about it.”

David didn’t sugarcoat his advice. “Guidelines around this don’t seem like much, and obviously, everyone is rushing to get AI tools. But it’s a huge risk factor we need to address.”

AI Is Raising the Bar

If AI makes accountants more productive, you’d expect fewer jobs. But the data tells a different story, and it came as a surprise to David.

“Despite a lot of reports predicting the end of accountants, it’s not really what we found,” he said. Companies are adopting AI, but “it’s not necessarily affecting hiring decisions in the same way. A lot of companies are actually more focused on upskilling.”

Blake offered a historical perspective. The same panic hit when VisiCalc and Excel arrived 40 years ago, yet accounting jobs grew. When cloud computing transformed the industry, client accounting services didn’t shrink. Instead, it’s grown year over year for a decade.

The talent shortage persists, with 73% of firms reporting trouble with retention and hiring. The hardest roles to fill are mid-career positions. About a third struggle to find financial analysts, with specialized accountants (tax and cost accounting) close behind.

The paradox is AI actually increases the need for experienced professionals. Someone must review those AI outputs that are wrong half the time. Someone must understand the AI well enough to catch mistakes. Someone must manage the security implications. All that requires judgment and experience, and that’s exactly what’s hardest to hire right now.

The data backs this up. Upskilling existing staff is the dominant strategy at 40%, double the 21% using AI to fill staffing gaps. Traditional hiring sits at 31%, with graduate programs at 23%. The profession is betting on people, not automation, to solve its workforce problem.

Looking Ahead: Challenges and Choices

What keeps accountants up at night? Budgeting and forecasting in an uncertain economy tops the list, followed by figuring out how to use AI effectively. As David put it, firms are trying to understand AI “in a way that makes sense.”

David has specific advice for where firms should invest their AI dollars. Map investments to your particular needs rather than chasing trends. For general guidance, he pointed to data entry automation and predictive modeling tools, especially cash flow forecasting and analysis dashboards, as areas delivering the most value.

When asked to predict what might change by the 2027 survey, David hopes to see more firms with updated security guidelines. “I think as these tools become more mature, more people will update their guidelines, especially for handling sensitive data like payroll and cash flow,” he said.

A Gap Between Speed and Safety

The Capterra data shows the profession is getting AI both right and dangerously wrong. The 89% positive ROI is genuine. Firms are saving time and reducing errors, even after factoring in review burdens. But that headline obscures the fact that over half have experienced breaches, fewer than half have AI data guidelines, and most dismiss the cybersecurity risk as minor, even with threats like prompt injection that the profession barely understands.

AI isn’t solving the talent crisis either. It’s raising the bar for what accountants need to know, making experienced reviewers more critical while the mid-career talent shortage intensifies.

Firms must build guardrails, write guidelines, and invest in upskilling their people to successfully work alongside technology that’s powerful but imperfect.

Want to dig deeper into these findings? Listen to Blake’s full conversation with David on the Earmark Podcast, and earn free NASBA CPE while you’re at it. 

Why an S Corporation’s Retained Earnings, AAA, and Stock Basis Rarely Match

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S corporations sit at an awkward intersection of tax law. As Jeremy Wells, EA, CPA, explains in Episode 28 of Tax in Action, they’re hybrid entities that blend the tax and accounting rules of corporations with pass-through entities like partnerships. This blending creates something that exists solely in federal tax law. There’s no such thing as an “S corporation” in everyday business activity. It’s a creation of Subchapter S of the Internal Revenue Code, a tax fiction that forces us to track three different ledgers, often confusing even experienced practitioners.

Jeremy frames these three ledgers with a simple framework: retained earnings answers what happened, AAA (Accumulated Adjustments Account) determines what kind, and stock basis tells us how much. Each serves a distinct purpose, and understanding their differences is critical to avoiding costly errors in S corporation taxation.

Three Measures, Three Different Questions

The confusion starts because these ledgers often produce identical numbers, especially in simple scenarios. This similarity lulls practitioners into thinking they should always match. But as Jeremy emphasizes throughout the episode, each ledger answers a fundamentally different question about the S corporation and its shareholders.

Retained Earnings: What Happened Over Time

Retained earnings is the most familiar concept. It shows accumulated undistributed profits over the corporation’s lifetime. At the end of each accounting period, net income and distributions close out to retained earnings, leaving you with a running total of everything the corporation earned but didn’t pay out.

Critically, retained earnings has no floor. It can be a negative number if a corporation distributes more than it ever earned, or if it has accumulated losses over time. As Jeremy notes, some GAAP rules suggest calling negative retained earnings “accumulated losses.”

Unlike the C corporation’s Form 1120, Form 1120-S doesn’t include a retained earnings reconciliation. The IRS knows this. Jeremy points to IRM 4.10.3.8.2.2, which instructs examiners to review retained earnings for unexplained increases, as such jumps often indicate unreported income. If you can’t explain every change in retained earnings, an examiner will ask you to.

AAA: What Kind of Income

The Accumulated Adjustments Account might be, as Jeremy calls it, “one of the most misunderstood concepts of the S corporation as a whole.” It tracks the accumulated undistributed pass-through taxable income of the S corporation. That doesn’t include all profits, just the S corporation’s pass-through earnings.

History can explain why this distinction matters. Subchapter S was added to the tax code in the late 1950s, roughly two decades before Wyoming passed the first LLC law. Most early S corporations weren’t LLCs electing S status. They were C corporations converting to S status. AAA exists to separate the old C corporation earnings (which generate taxable dividends when distributed) from the S corporation’s pass-through income (which comes out tax-free).

Jeremy hammers home that AAA is a corporate-level measure. Even with a single 100% shareholder, AAA tells you nothing about how distributions affect that specific person’s tax return. It only tells you whether the corporation is distributing S corp earnings or C corp dividends.

Stock Basis: How Much

Only stock basis determines actual tax consequences for individual shareholders. This ledger answers the questions that matter to your clients, such as whether their losses will be deductible or suspended and whether their distributions are tax-free or trigger capital gain.

Stock basis differs from the other two ledgers because it’s shareholder-specific. While retained earnings and AAA belong to the corporation, basis belongs to the person. Since around 2021, it’s been reported on Form 7203, with Part 3 being especially critical for tracking allowable losses, deductions, and carryover amounts.

Jeremy notes that Form 7203 is filed at the shareholder level, not the corporate level. Even if the K-1 package includes a corporate version of the form, the official filing happens with the shareholder’s return, and the preparer needs to verify every number.

Where the Three Ledgers Split Apart

To demonstrate how easily these ledgers diverge, Jeremy walks through a first-year example. Jessica registers Lighthouse LLC as the sole member, funds it with $1,000 from her savings, and elects S corporation status. In year one, the corporation earns $84,000 of ordinary income, receives $500 in municipal bond interest, incurs $4,000 in nondeductible meals and entertainment expenses, and pays Jessica $35,000 in distributions.

Here’s where each ledger lands:

  • Retained Earnings: The $84,000 income increases it. The $500 tax-exempt interest increases it. The $4,000 nondeductible expenses and $35,000 distributions decrease it. Total: $45,500.
  • AAA: The $84,000 income increases it. The $4,000 expenses and $35,000 distributions decrease it. But the $500 tax-exempt income doesn’t touch AAA. It goes to the Other Adjustments Account (OAA) instead. The $1,000 capital contribution also bypasses AAA. Total: $45,000.
  • Stock Basis: Everything affects basis, including the $1,000 contribution, the $84,000 income, the $500 tax-exempt income, minus the $4,000 expenses and $35,000 distributions. Total: $46,500.

Three different numbers from perfectly ordinary transactions. As Jeremy emphasizes, “there is nothing locking these three ledgers together.”

The specific items that cause divergence aren’t unusual:

  • Capital contributions increase only stock basis. Jeremy sees preparers incorrectly running these through AAA or retained earnings, but they should go directly to the balance sheet as capital stock or additional paid-in capital.
  • Tax-exempt income increases retained earnings and basis but not AAA. If you worked with businesses during the COVID-19 pandemic, you’ve seen this with PPP loan forgiveness and the pre-EIDL grants. Both created tax-exempt income that went to OAA, not AAA.
  • Distributions affect all three ledgers differently. They reduce retained earnings without limit, reduce AAA but not below zero, and reduce basis with tax consequences if exceeded.

The Costly Errors That Follow

Understanding the theory is one thing. Recognizing the practical mistakes is where Jeremy’s guidance becomes invaluable for practitioners.

The “Loans to Shareholder” Trap

Jeremy sees this error often. When distributions exceed a shareholder’s basis, IRC Section 1368 requires treating the excess as capital gain. Instead, preparers record the excess on the balance sheet as “loans to shareholder” without any promissory note, repayment schedule, or reported interest income.

This is a misclassification. As Jeremy notes, both the IRS and courts consistently reject these arrangements when no bona fide debtor-creditor relationship exists. If you’re reviewing a return with loans to shareholders that never decrease or only increase, start asking for documentation. Without it, you’re likely looking at misclassified distributions that should have triggered capital gain.

Missing Capital Contributions

There’s a trap for 1040 preparers who don’t also prepare the 1120-S. Nothing on the K-1 explicitly reports capital contributions. Unless the corporate preparer adds a note, that contribution is invisible. Jeremy recommends asking every S corporation shareholder client every year, “Did you make any contributions to this S corporation?” Skip the question, and you’ll understate the basis.

Suspended Losses at Termination

This one catches clients by surprise. IRC Section 1366(d)(3)(A) permanently disallows suspended losses due to insufficient basis when the S election terminates. They don’t release like passive activity losses. During the post-termination transition period, shareholders can contribute capital to create basis and claim those losses. After that window closes, they’re gone forever.

The Order-of-Operations Election

Jeremy highlights an often-overlooked election under Regulation 1.1367-1(g). Normally, nondeductible expenses reduce basis before deductible losses. If those expenses use up remaining basis, the deductible losses suspend while the nondeductible amounts simply disappear.

Shareholders can elect to flip this order, preserving deductible loss carryovers at the expense of nondeductible items. The election is permanent, so revoking it requires IRS permission. Jeremy specifically mentions this could benefit cannabis businesses operating under IRC Section 280E, which face substantial nondeductible expenses.

Practical Takeaways for Your Practice

Jeremy emphasizes that S corporation shareholders need to know their basis and should perform mid-year tax projections. Basis is calculated at year-end or upon stock disposal, but projecting it mid-year helps avoid surprises like taxable distributions or suspended losses.

The three ledgers framework provides clarity in a complex area. Retained earnings shows what happened over the corporation’s life. AAA shows what kind of transactions occurred. Stock basis shows how much in limitations apply to each shareholder. Keep these distinctions clear, and you’ll avoid the errors that trip up even experienced practitioners.

Listen to the full episode for Jeremy’ complete discussion, including additional nuances about basis calculations and real-world applications that go beyond what’s covered here. The next episode of Tax in Action builds directly on these basis concepts, explaining what happens when shareholders actually sell their S corporation stock.