Metcalf Report

What Is the Metcalf Report?

The Metcalf Report was a critical report on the U.S. accounting calling and the influence of the "Big 8" accounting firms, delivered in 1976 by Senator Lee Metcalf, who had led a U.S. Senate committee that inspected the accounting industry.

The report's principal center was around the requirement for change in the structure of the accounting system. The genuine title of the report was "The Accounting Establishment."

Understanding the Metcalf Report

The U.S. Senate Subcommittee on Reports, Accounting, and Management of the Committee on Government Operations (Metcalf Committee) led a study of the accounting calling and distributed a report entitled "The Accounting Establishment" in 1976.

Among the Metcalf Report's discoveries was that independent accounting oversight was deficient in the accounting industry. The report found that the "Big Eight" accounting firms controlled the American Institute of Certified Public Accountants (AICPA). The AICPA lays out standards for certified public accountants (CPAs) to guarantee that they meet core capability and performance standards.

The AICPA had endorsement authority for delegated Financial Accounting Trustees, and the Trustees, thusly, named the individuals from the Financial Accounting Standards Board (FASB), which is responsible for laying out the financial accounting standards for U.S. companies. In this way, the "Big Eight" firms controlled the standard-setting process.

During the 1970s and 1980s, the Big 8, alluded to eight large multinational accounting firms that led the majority of auditing for publicly-traded companies. The Big 8 firms were as per the following:

1. Arthur Andersen
2. Coopers and Lybrand
3. Deloitte Haskins and Sells
4. Ernst and Whinney
5. Peat Marwick Mitchell
6. Price Waterhouse
7. Well played Ross
8. Arthur Young

The Metcalf Report Findings

The primary reactions of the accounting industry contained in the Metcalf Report were that national firms ruled the foundation of auditing standards. An audit is an objective examination of the financial statements of a company. Audits are intended to guarantee that the financial accounts are accurate and are a fair representation of the company's financial performance.

Additionally, there was no mechanism in place for public participation in laying out these standards. The report suggested that the federal government lay out auditing standards through the Government Accountability Office (GAO), which monitors government spending and the Securities and Exchange Commission (SEC). The SEC directs the financial markets yet additionally guarantees that corporations file the legitimate financial statements so investors approach accurate and transparent data. While perhaps not through those agencies, the report suggested that auditing standards be laid out by federal statute.

The second analysis of the accounting industry that the Metcalf Report featured was that the SEC had not satisfied its liabilities in laying out accounting and auditing standards. At the end of the day, there was too much dependence on the private sector.

The Metcalf Report Recommendations

The Metcalf Report contained several proposals, among which were:

• Correct securities laws to reestablish the right of people to sue accounting firms for negligence.
• The federal government ought to lay out accounting and auditing standards.
• The federal government ought to audit the auditors.
• The federal government ought to lay out a code of ethics for auditors.
• Accounting firms ought to just be recruited by the federal government to perform auditing and accounting services.

The Metcalf committee brought about a number of moves initiated by the AICPA, the SEC, and the Financial Accounting Foundation (FAF). The Financial Accounting Foundation (FAF) is an independent organization that is accused of creating and further developing financial accounting standards. The FAF, in part, gives oversight and administration of the Financial Accounting Standards Board (FASB).

Because of the Metcalf Report, the FAF named a Structure Committee to study the organization and activities of the FAF and the FASB. Likewise, various changes took place inside the AICPA, and the SEC did an intensive self-appraisal of its part in accounting standards-setting.

Features

• The Metcalf Report likewise suggested that securities laws ought to reestablish the right of people to sue accounting firms for negligence.
• Among the Metcalf Report's discoveries was that accounting oversight and auditing standards were lacking in the accounting industry.
• The Metcalf Report suggested that the federal government lay out and monitor auditing standards for accounting firms.