Metcalf Report

What Is the Metcalf Report?

The Metcalf Report was once a very important report on the U.S. accounting career and the impact of the “Large 8” accounting companies, introduced in 1976 by the use of Senator Lee Metcalf, who had chaired a U.S. Senate committee that examined the accounting industry.

The report’s number one point of interest was once on the need for alternate inside the development of the accounting system. The actual determine of the report was once “The Accounting Status quo.”

Working out the Metcalf Report

The U.S. Senate Subcommittee on Research, Accounting, and Keep watch over of the Committee on Executive Operations (Metcalf Committee) carried out a know about of the accounting career and printed a report entitled “The Accounting Status quo” in 1976.

Quite a few the Metcalf Report’s findings was once that unbiased accounting oversight was once lacking inside the accounting industry. The report found out that the “Large 8” accounting companies controlled the American Institute of Certified Public Accountants (AICPA). The AICPA establishes standards for certified public accountants (CPAs) to be sure that they meet core competency and serve as standards.

The AICPA had approval authority for appointed Financial Accounting Trustees, and the Trustees, in turn, appointed the folks of the Financial Accounting Necessities Board (FASB), which is in charge of putting in the financial accounting standards for U.S. companies. Because of this truth, the “Large 8” companies controlled the standard-setting process.

Inside the Nineteen Seventies and Eighties, the Large 8, referred to eight large multinational accounting companies that carried out the vast majority of auditing for publicly-traded companies. The Large 8 companies were as follows:

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

The Metcalf Report Findings

The primary criticisms of the accounting industry contained inside the Metcalf Report were that national companies dominated the status quo of auditing standards. An audit is an serve as examination of the financial statements of a company. Audits are designed to be sure that the financial recordings are proper and are an excellent representation of the company’s financial potency.

Moreover, there was once no mechanism in place for public participation in putting in the ones standards. The report recommended that the federal government resolve auditing standards all through the Executive Duty Place of business (GAO), which displays government spending and the Securities and Business Price (SEC). The SEC regulates the financial markets however as well as promises that companies file the proper financial statements so that investors have get right to use to proper and transparent information. If not through those corporations, the report urged that auditing standards be established by the use of federal statute.

The second grievance of the accounting industry that the Metcalf Report highlighted was once that the SEC had not fulfilled its tasks in putting in accounting and auditing standards. In several words, there was once a great deal of reliance on the private sector.

The Metcalf Report Tips

The Metcalf Report contained numerous tips, among which were:

• Amend securities rules to restore the best of other folks to sue accounting companies for negligence. 
• The federal government should resolve accounting and auditing standards.
• The federal government should audit the auditors.
• The federal government should resolve a code of ethics for auditors.
• Accounting companies should most efficient be hired by the use of the federal government to perform auditing and accounting services.

The Metcalf committee resulted in somewhat a couple of actions taken by the use of the AICPA, the SEC, and the Financial Accounting Foundation (FAF). The Financial Accounting Foundation (FAF) is an unbiased workforce that is charged with developing and bettering financial accounting standards. The FAF, in part, provides oversight and control of the Financial Accounting Necessities Board (FASB).

Because of the Metcalf Report, the FAF appointed a Development Committee to study the gang and movements of the FAF and the FASB. Moreover, a large number of changes took place all through the AICPA, and the SEC did an extensive self-assessment of its place in accounting standards-setting.