Metcalf Report

In 1976, Senator Lee Metcalf laid down the law with the Metcalf Report. The Metcalf Report criticized the accounting industry, as well as how the Securities and Exchange Commission related to the accounting industry.

The report criticized the “Big Eight” accounting firms of the time (Arthur Andersen, Arthur Young, Coopers and Lybrand, Deloitte Haskins and Sells, Ernst and Whinney, Peat Marwick Mitchell, Price Waterhouse, and Touche Ross) for having too much influence and control over accounting standards.

While the American Institute of Certified Public Accountants (AICPA) was supposed to be a separate entity creating these standards, Metcalf called out the Big Eight accounting firms and the AICPA for too much power overlap, creating only the illusion of separation. Plus, the SEC was supposed to be the one establishing and enforcing these standards, and they weren’t really doing it. They were just kind of letting the private sector do it’s thing.

The Metcalf Report suggested that the federal government should audit auditors, set accounting standards, and establish a code of ethics for auditors. It also suggested that individuals have the right to sue accounting firms for negligence to encourage accountant and auditor accountability. Many changes in federal laws and structures surrounding accounting ethics, enforcement, and standards were made as a result.