Introduction

The Metcalf Report was a critical report on the U.S. accounting profession and the influence
of the “Big 8” accounting firms, released in 1976 by Senator Metcalf, who had chaired a U.S.
Senate committee examined the accounting industry.
Key takeaways from the Metcalf Report
 Among the Metcalf Report's findings was that accounting oversight and auditing
standards were inadequate in the accounting industry.
 The Metcalf Report recommended that the federal government establish and monitor
auditing standards for accounting firms.
 The Metcalf Report also recommended that securities laws should restore the right of
individuals to sue accounting firms for negligence.
The case talks about a situation how necessary the above things are by taking an example
from the industry.
Although the case revolves around an accounting problem but the actual problem that the
protagonist Daniel Porter faced while working with Baker Greenleaf under the guidance of
Oliver Freeman, faced more of an ethical dilemma and corporate ethics. He was asked to
manipulate reports of a very important client of the company, which he was not able to
execute owing to his protestant work ethic and his upbringing as a man who had a strong
faith on his own-worth and responsibility.
Dilemma
Daniel Potter, a young trainee of Acorn Business School working with Baker Greenleaf, one
of the Big 8 Accounting firms in the US faced a problem while working for a high value
client. Dan was a man of ethics and kept his professional standards aligned with his work.
Dan was assigned a high-profile real estate client to work for on behalf Greenleaf. He was
given Gene Doherty, as a subordinate to work with him in the same project.

As the brilliant young man Dan was, he completed the report files three days prior to the
audit and presented it to his boss Oliver Freeman. In the report he was able to solve every
accounting problem that was present in the client’s file except one. One of the client’s
property was valued at $2 million but according to Dan, the valuation should not have been
more than $100,000 as it was a rundown property in an undesirable neighbourhood, so he
suggested a write down of $1,900,000 to the Sub’s Managers but the managers refused as
they were in the opinion of renting the property very soon.
After this the conversation with the client has stopped and the final call was left with Dan and
his actions were ambiguous as according to AICPA (American Institute of Certified Public
Accountants) regulations on materiality , any difference in opinion between the client and the
public accountant which affected the income statement by more than 3% was considered
material and had to be disclosed in the CPA’s opinion .Thus the $1.9 million write down
would have been a 7% impact on the Sub’s net income , but less than 1% on the client’s
consolidated net income.
Dan’s Report
After much consideration, Dan submitted the report to his boss, where he suggested a write
down of $1.9 million. Upon reading the report, Oliver fired a to do list to Dan which was a
normal practice at Greenleaf
The to do list directed Dan to
 To take out the pages in the files where he estimated the value of the real estate
property at $100,000.
 Put in an opinion that the estate properties were correctly evaluated by the Sub.
 Substitute the “subject-to-opinion’ to a “clen opinion”
Dan opposed the to do list as it was against his work ethics for which Oliver pointed out his
views to dan
 Oliver wanted the audit to go smoothly
 Dan was responsible for a “clean opinion”
 Any negligence in his duty would be viewed as an act of irresponsibility
 The problem was not material to the client and the Sub’s opinion would only be used
“in-house”
 Nobody cared about the financial statements
Dan understood the importance of this audit as well as he was aware of Oliver’s expertise in
the field but he knew that he needed to be loyal to Baker GreenLeaf
Later he came to know that Oliver has pulled out his report and substituted with a clean
opinion as well as he as given a negative evaluation on Dan’s performance on the project.
Suggested Solution
The overall financial dilemma had come down to be a classic case of violation of code of
ethics and in front of Dan he had the following alternatives in front of him
 Keep quiet and continue his job at Baker Greenleaf
 Report the incident either to another counsellor or higher authority
 Seek an independent audit committee to review his findings
 Resign from his post and protest against Baker
 Write to senator Metcalf about the issue and make the same public.