Here are some high-profile cases over the past 80 years, based on historical articles, books and news reports.

1930s – President Franklin Roosevelt used the IRS against political enemies, launching investigations into the finances of publisher William Randolph Hearst, Louisiana Governor Huey Long and controversial radio priest Charles Coughlin.

1940s and 1950s – Corruption and bribery became widespread at the IRS, resulting in hundreds of staffers being dismissed or indicted. The agency went through a major reorganization during the administration of President Harry Truman. Employees were put under the civil service to prevent political influence.

1960s – During the administration of President John Kennedy, the IRS created an “Ideological Organizations Audit Project” that investigated conservative groups and challenged their tax-exempt status. The IRS started the project after Kennedy complained about right-wing groups getting tax-exempt status during a news conference. Targets included the American Enterprise Institute and Christian Anti-Communist Crusade.

1960s, 70s – The Nixon administration created an IRS unit called the Special Services Staff, or SSS, to target activists and political dissidents. The White House drafted an “enemies list” of political opponents to be targeted for IRS audits, although then-IRS Commissioner Donald Alexander resisted pressure to audit Nixon’s enemies and ordered the SSS dissolved.

1990s – During hearings by Senator William Roth’s Finance Committee, the IRS was accused of “Gestapo-like” conduct and myriad taxpayer abuses. Congress passed a 1998 IRS Restructuring and Reform Act that shored up taxpayer rights and put limits on IRS enforcement powers. An investigation demanded by the committee found no evidence of systematic abuses.

(Reporting by Dena Aubin; Editing by Kevin Drawbaugh and Christopher Wilson)

Here are some high-profile cases over the past 80 years, based on historical articles, books and news reports.

1930s – President Franklin Roosevelt used the IRS against political enemies, launching investigations into the finances of publisher William Randolph Hearst, Louisiana Governor Huey Long and controversial radio priest Charles Coughlin.

1940s and 1950s – Corruption and bribery became widespread at the IRS, resulting in hundreds of staffers being dismissed or indicted. The agency went through a major reorganization during the administration of President Harry Truman. Employees were put under the civil service to prevent political influence.

1960s – During the administration of President John Kennedy, the IRS created an “Ideological Organizations Audit Project” that investigated conservative groups and challenged their tax-exempt status. The IRS started the project after Kennedy complained about right-wing groups getting tax-exempt status during a news conference. Targets included the American Enterprise Institute and Christian Anti-Communist Crusade.

1960s, 70s – The Nixon administration created an IRS unit called the Special Services Staff, or SSS, to target activists and political dissidents. The White House drafted an “enemies list” of political opponents to be targeted for IRS audits, although then-IRS Commissioner Donald Alexander resisted pressure to audit Nixon’s enemies and ordered the SSS dissolved.

1990s – During hearings by Senator William Roth’s Finance Committee, the IRS was accused of “Gestapo-like” conduct and myriad taxpayer abuses. Congress passed a 1998 IRS Restructuring and Reform Act that shored up taxpayer rights and put limits on IRS enforcement powers. An investigation demanded by the committee found no evidence of systematic abuses.

(Reporting by Dena Aubin; Editing by Kevin Drawbaugh and Christopher Wilson)

If the revised draft the International Accounting Standards
Board and U.S. Financial Accounting Standards Board issued on
Thursday is adopted, tens of thousands of firms worldwide will
have to add all leases over a year to their balance sheets.

The proposals signal their refusal to back down further in
the face of opposition from companies, who worry that bigger
balance sheets will make them look more indebted and bump up
their borrowing costs.

The bulk of leases are currently only mentioned in
footnotes.

“The proposal is responsive to the widespread view of
investors that leases are liabilities that belong on the balance
sheet,” FASB Chairman Leslie Seidman said in a statement on
Thursday accompanying a revised draft of the rules.

The reform, which may not take effect until 2016 in view of
the corporate opposition it faces, is part of efforts to align
international and U.S. book-keeping rules so markets can compare
firms more easily and get a clearer view of their liabilities.

“At present, investors must take an educated guess to
determine the hidden leverage from leasing by using basic
disclosures in financial statements and applying arbitrary
multiples,” IASB chief Hans Hoogervorst said in the statement.

More clarity on lease liabilities could break some
corporations’ loan covenants, which are linked to balance sheet
size limits, or even trigger credit rating changes, accounting
experts say.

And the sums involved are huge.

In Europe, outstanding leases totalled $928 billion in 2011,
according to Leaseurope, which represents over 90 percent of the
European leasing market.

In the United States, companies have about $1.5 trillion of
operating leases according to a study commissioned by the U.S.
Chamber of Commerce and real estate groups.

The two boards have backed down from their original plan to
treat all leases in the same way, and confirmed on Thursday that
they would pursue a “dual track” approach to distinguish between
property and equipment leases, as reported by Reuters.

Instead of the current “straight line” rental expense that
stays the same throughout the life of a lease, the new standard
would treat most equipment leases like loans, with the highest
costs in the earlier years.

Property leases would still be treated as a straight line
expense, but there is no change to the basic principle that all
types of leases longer than a year must be put on balance
sheets.

Industry bodies had been hoping for further concessions.

“Leaseurope consider that they will not bring about a
sufficient improvement in financial reporting to warrant the
cost and complexity of changing the existing approach,” the
industry body said.

A key reform arising out of the 2007-08 global financial crisis, the proposal would require banks to look ahead and reserve for expected losses on the day a loan is made.

Currently, banks do not have to reserve for risky loans until there are signs of a loss.

Reserves were criticized as being “too little, too late” during the global crisis, when major banks were buffeted by defaults on loans and other debt. Many had to be bailed out because they had not set aside enough for losses.

Numerous banking regulators have called for more timely reserves, though critics have also warned that proposed accounting changes would make quarterly earnings more volatile as banks adjust their expectations for losses.

In a letter to accounting rule-makers, banks suggested that trying to predict losses too far ahead would be unreliable.

Banks signing the letter included Bank of America Corp, Citigroup Inc, JPMorgan Chase & Co and Morgan Stanley. Spokesmen for the banks either declined to comment or did not respond to requests for comment.

The letter, dated May 10, was addressed to the Connecticut-based Financial Accounting Standards Board, which sets U.S. accounting standards, and the London-based International Accounting Standards Board, which sets international rules.

FASB is seeking comment on its proposal through May 31, and its details may change. Analysts said it would likely not be effective before 2015. A separate rule on loan losses was proposed by the IASB in March.

50 PCT JUMP IN RESERVES POSSIBLE

The letter intensified pressure on the two boards to align their rules. U.S. companies use FASB’s generally accepted accounting principles, or GAAP. Much of the rest of the world uses IASB’s international financial reporting standards (IFRS).

The two boards have been working for over a decade to merge their standards. Financial accounting has been a key focus since the global crisis, but the boards parted ways on loan loss accounting last year.

“Relative to the IASB’s proposal, the FASB’s proposal would generally require entities to recognize allowances for credit losses sooner and in larger amounts,” said Bruce Pounder, director of professional programs at Loscalzo Associates, a Shrewsbury, New Jersey-based accounting education company.

The balance sheets of U.S. banks could look significantly worse than that of banks using international standards, even in identical economic conditions, he said.

FASB officials have estimated some U.S. banks may have to increase their reserves by 50 percent under its proposed change.

BANKS SUGGEST ALTERNATIVE

Donna Fisher, a senior vice president at the American Bankers Association, said banks are trying to get standard-setters to agree on a middle ground.

“The FASB model will result in significantly larger, more volatile and less reliable (loan loss) allowances,” Fisher said.

FASB’s proposal would require businesses to look at both past experience and reasonable estimates of future losses, and reserve for those losses the day a loan is originated.

The IASB’s proposal would only make banks consider losses expected over the next 12 months, unless a loan’s credit has deteriorated significantly. If that is the case, reserves would have to be made for the full expected loss.

Friday’s letter said banks had concerns with both models. It suggested losses be estimated over 12 months, or the period that could yield reliable estimates, whichever is greater.

FASB spokeswoman Christine Klimek said the board will consider the bank’s suggestions along with other feedback.

(Reporting by Dena Aubin; Additional reporting by Huw Jones in London; Editing by Richard Chang)

The long-term analysis of frauds from 1998 through 2010 found that auditors sometimes did not question documents that appeared to be fabricated or that they overlooked discrepancies between real inventory and amounts on the books.

In at least one case, an auditor trusted managements’ word that no fraud had occurred, the study found.

“It’s not that auditors failed to execute some esoteric procedures, or didn’t understand complex accounting rules,” said Joseph Carcello, one of the study’s four co-authors and a University of Tennessee accounting professor. “It’s really pretty basic in these cases.”

The study looked at 87 sanctions against auditors brought by the U.S. Securities and Exchange Commission in fraud cases involving public companies.

The most common auditor failings were lack of competence and diligence, lack of professional skepticism, and failure to assess and respond to fraud risks.

Auditors could be missing basic steps because of time or budget constraints, or fear of alienating clients by pushing too hard, Carcello speculated.

The study also showed auditor sanctions declined sharply after enactment of 2002′s Sarbanes-Oxley Act, designed to curb accounting abuses after the Enron and WorldCom frauds.

Of the 87 sanctions studied, 76 occurred in 1998-2002; only 11 occurred in 2003-2010, although some investigations from those years may still be pending, the study noted.

Large national firms accounted for 35 of the 87 sanctions. Nine were brought against Arthur Andersen, which went out of business in 2002 after being convicted for its role in Enron Corp’s fraud, a verdict that was later overturned.

(Reporting by Dena Aubin; Editing by Kevin Drawbaugh and Kenneth Barry)

The overseas earnings stockpile has climbed by 70 percent over the past five years, said research firm Audit Analytics. Data in its report covers the Russell 3000 index of the largest U.S. corporations.

U.S.-based multinationals do not have to pay U.S. corporate income tax on foreign earnings as long as the earnings do not enter the United States. Accounting rules also let the companies avoid recognizing a tax expense if management intends to keep the earnings indefinitely reinvested overseas.

“It would probably be nice to have this money in our country being used in our economy, but at the moment we see it growing elsewhere,” said Don Whalen, general counsel and director of research at Audit Analytics.

Conglomerate General Electric Co (GE.N: Quote, Profile, Research, Stock Buzz), had the most indefinitely reinvested overseas earnings, at about $108 billion, while drugmaker Pfizer Inc (PFE.N: Quote, Profile, Research, Stock Buzz) was next with $73 billion, according to Audit Analytics.

Businesses have been lobbying Congress for a new law that would let them bring foreign profits home on a regular basis with little or no tax due, or for a one-time “tax holiday” on foreign earnings.

Most Democrats oppose a tax holiday on overseas profits, citing studies showing that a tax holiday enacted under former President George W. Bush did bring profits into the country, but that money was not widely used for hiring or capital investment.

Some tax activists have argued for repealing the tax deferral law that lets corporations park profits offshore tax-free, though this proposal has made little political headway.

Some companies have been borrowing money in the U.S. bond market rather bring their overseas earnings home.

Computer giant Apple Inc (AAPL.O: Quote, Profile, Research, Stock Buzz) last week raised $17 billion in a record U.S. bond sale to help fund its plan to return money to its shareholders. The bond sale let Apple avoid taxes that would have been due if it had used some of its $102 billion in foreign cash instead.

Microsoft Corp (MSFT.O: Quote, Profile, Research, Stock Buzz), the world’s largest software company, sold $2.7 billion in the bond market last month. It has about $74 billion of cash and short-term investments, but most of that is held outside the United States.

(Additional reporting by Kim Dixon; Editing by Kevin Drawbaugh and Jackie Frank)

(Reuters) – Corporate auditors would be required to look more closely at insider business deals, like those used in many Chinese company frauds, under a rule the audit regulator proposed on Tuesday.

The Public Company Accounting Oversight Board’s rule takes aim at so-called “related party transactions,” or deals between a company and corporate insiders. These kinds of transactions have played a role in many accounting frauds.

Over the past two years, investors have suffered massive losses after U.S.-listed companies based in China funneled company assets to insiders in improper business deals.

In February, China-based petrochemical company Keyuan Petrochemicals Inc agreed to pay $1 million to settle securities fraud charges involving related-party transactions.

Greater auditor scrutiny “can help to avert the corporate failures and job losses we read about all too often once it’s too late,” PCAOB Chairman James Doty said at a PCAOB meeting.

The board is seeking comments from the public on the proposed rule through July 8. It could take effect as early as next year, a PCAOB staff member said at the meeting.

Auditors are allowed too much latitude in how they deal with related-party transactions under current rules, PCAOB Chief Auditor Martin Baumann said at the Washington meeting.

Baumann cited a long history of frauds committed through unusual transactions. Former energy trader Enron Corp, for example, set up joint ventures that drained company funds and were not well-understood by investors, he said.

Enron’s devastating collapse in 2001 helped spur Congress to create the PCAOB and toughen regulation of corporate auditors.

In addition to related-party transactions, the new PCAOB rule would require auditors to take a closer look at executives’ pay to see if it creates incentives to manage earnings.

Auditors would not assess if executives’ pay is reasonable, but would review it to see if it puts pressure on executives to meet financial targets, board member Jay Hanson said.

Many executives’ bonuses are tied to earnings targets, a structure meant to align their interests with shareholders. But pressure to meet targets for bonus pay has often been a motive for accounting fraud, according to academic studies.

Tuesday’s proposal was a revision of an audit standard first proposed in February 2012. The rule was tweaked to clarify some requirements but follows the same basic approach, Hanson said.

Auditors would have to review related-party transactions, determine if they pose a significant risk and discuss them with the audit committee, he said. They would also have to look at significant unusual transactions to be sure they were not used for fraudulent purposes, he said.

(Reporting by Dena Aubin; Editing by Kevin Drawbaugh and David Gregorio)

The Public Company Accounting Oversight Board’s rule takes
aim at so-called “related party transactions,” or deals between
a company and corporate insiders. These kinds of transactions
have played a role in many accounting frauds.

Over the past two years, investors have suffered massive
losses after U.S.-listed companies based in China funneled
company assets to insiders in improper business deals.

In February, China-based petrochemical company Keyuan
Petrochemicals Inc agreed to pay $1 million to settle
securities fraud charges involving related-party transactions.

Greater auditor scrutiny “can help to avert the corporate
failures and job losses we read about all too often once it’s
too late,” PCAOB Chairman James Doty said at a PCAOB meeting.

The board is seeking comments from the public on the
proposed rule through July 8. It could take effect as early as
next year, a PCAOB staff member said at the meeting.

Auditors are allowed too much latitude in how they deal with
related-party transactions under current rules, PCAOB Chief
Auditor Martin Baumann said at the Washington meeting.

Baumann cited a long history of frauds committed through
unusual transactions. Former energy trader Enron Corp, for
example, set up joint ventures that drained company funds and
were not well-understood by investors, he said.

Enron’s devastating collapse in 2001 helped spur Congress to
create the PCAOB and toughen regulation of corporate auditors.

In addition to related-party transactions, the new PCAOB
rule would require auditors to take a closer look at executives’
pay to see if it creates incentives to manage earnings.

Auditors would not assess if executives’ pay is reasonable,
but would review it to see if it puts pressure on executives to
meet financial targets, board member Jay Hanson said.

Many executives’ bonuses are tied to earnings targets, a
structure meant to align their interests with shareholders. But
pressure to meet targets for bonus pay has often been a motive
for accounting fraud, according to academic studies.

Tuesday’s proposal was a revision of an audit standard first
proposed in February 2012. The rule was tweaked to clarify some
requirements but follows the same basic approach, Hanson said.

Auditors would have to review related-party transactions,
determine if they pose a significant risk and discuss them with
the audit committee, he said. They would also have to look at
significant unusual transactions to be sure they were not used
for fraudulent purposes, he said.

Already pared back once to reduce its impact on real estate
leasing, a proposed new international lease accounting standard,
under development for years, will reach a turning point in May
when standard setters unveil a detailed draft rule.

The standard could potentially affect leases of assets
ranging from passenger jets and storefronts to cargo containers
and photocopiers. But it is unlikely to be finalized until next
year, possibly taking effect in 2016 or 2017.

In the meantime, the standard setters can expect to be
challenged by an assortment of lease-dependent businesses, such
as airlines, restaurants, drugstore chains and other retailers.

Many such companies are accustomed to being able to consign
their lease commitments to footnotes of financial statements,
where they get less attention than they would if they were
included in the balance sheet.

For instance, U.S. retailer Walgreen Co. leases most
of its more than 8,000 drugstore properties. The Illinois-based
company has $35 billion of operating leases that are not shown
on its balance sheet. A Walgreen spokesman declined to comment.

To some accounting experts, putting leases off the balance
sheet obscures the portrayal of a company’s liabilities.

“Significant reform for lease accounting is crucial for the
credibility of all financial reporting and for those who
regulate it, use it, audit it and implement it,” said Paul
Miller, a University of Colorado accounting professor.

Without recognizing leases, he said, “the balance sheet is
not complete, and if it’s not complete, then it’s not useful.”

ONE-YEAR CUT-OFF SEEN

The expectation is that, if it is completed as planned, the
standard would force many companies to reflect lease commitments
that extend for more than a year on the balance sheet, like
debt. Tens of thousands of companies would be affected.

Opponents of the standard question if changing it is worth
the effort and the costs it would impose on businesses.

“There should be a cost-benefit analysis that attaches here
if we’re going to go through this,” said Tom Quaadman, a vice
president at the U.S. Chamber of Commerce, a Washington,
D.C.-based business lobbying group opposed to the new standard.

For investors, such a change could be a shock. More clarity
on lease liabilities could conceivably break some corporations’
loan covenants or trigger credit rating changes.

The new rule’s impact on leverage in banking and retailing
would likely be significant, said Peter Hogarth, a partner at
accounting firm PricewaterhouseCoopers in London.

The standard is being developed jointly by the Financial
Accounting Standards Board, based in Connecticut, and the
International Accounting Standards Board, in London.

FASB writes the United States’ Generally Accepted Accounting
Principles, known as GAAP. IASB’s International Financial
Reporting Standards, or IFRS, prevail in much of the rest of the
world.

Merging GAAP and IFRS has been a goal of standard setters
for years and recently was backed by Group of 20 world leaders,
but it has proved to be elusive. The lease standard is seen as a
showcase meant to prove accounting “convergence” can be done.

OVERHAUL OVERDUE?

Lease accounting has not had a major overhaul in the United
States since the 1970s.

Leases were once used mostly by companies unable to afford
buying equipment or real estate, but today they account for over
a third of capital investment. Leases give companies purchasing
power and flexibility in upgrading worn-out or obsolete assets.

In Europe, outstanding leases totaled $928 billion (712
billion euro) in 2011, up from $838 billion(634 billion euro)in
2006, according to Leaseurope.

In the United States, companies have about $1.5 trillion of
operating leases, according to a 2012 study commissioned by the
U.S. Chamber of Commerce and real estate groups. Real estate
leases made up about $1.1 trillion of the total.

Lobbyists expect some sort of new rule to result from the
standard setters’ efforts, but more watering down seems likely,
possibly by raising to two or three years from one year the term
of leases exempted from stricter treatment.

IASB and FASB backed down last year from requiring all
leases to be treated the same way by agreeing to make an
exception for property lease rental expenses.

Peter Cosmetatos, director of finance policy at the British
Property Federation, said there was a sense of slowing momentum.

Some regulators said there may not be a converged final
standard if it is too complex. At FASB, support is fragile. The
proposal cleared the board by just 4-3 in an April 10 vote.

Opponents of the standard include Leaseurope, a leasing
industry lobbying group, and a U.S. coalition led by the U.S.
Chamber of Commerce and real estate groups.

These opponents have secured allies in Washington. Urged on
by lobbyists, 60 members of Congress wrote to standard-setters
last year to push them to rethink the rule.

Real estate firms have been opponents, warning that the new
standard could undercut a commercial real estate recovery.

FOR SALE OR LEASE

Balance sheet debt is not the only worry for businesses. The
impact on the income statement and profits is also a concern.

Instead of the current “straight-line” rental expense that
stays the same throughout the life of a lease, the new standard
would treat most equipment leases like loans, with higher costs
in the earlier years. One important exception to this would be
real estate lease costs, which would still be straight-lined.

For instance, an airline that signs a 17-year, $100-million
lease for aircraft would see expenses jump by $2.4 million or 26
percent in the first year of the lease, according to data from
the Equipment Leasing and Finance Association.

“It has the effect of looking like an increase in the cost
of debt to a company,” said Bill Bosco, a consultant working for
the U.S. Equipment Leasing and Finance Association. “It eats
into capital and it reduces earnings.”

George Canellos, who was named co-director of the U.S.
Securities and Exchange Commission’s enforcement division on
Monday, said the commission will look at publicly traded
companies for instances of “earnings management” – when firms
take advantage of gray areas in accounting rules to make
earnings look better than they really are.

He made the remarks in New York at a seminar about
regulatory enforcement trends sponsored by the Practising Law
Institute, an organization that provides continuing education
classes for lawyers.

Canellos said the effort would occur over the next two
years, and would be a new application of technology it has
already used to find aberrant trading patterns and insider
trading at hedge funds.

“There are many other projects of this nature,” Canellos
said, noting that the SEC intends to draw data from EDGAR, the
electronic data system companies use for SEC filings, to compare
companies’ financial performance data and analysts’
expectations. Unusual findings that deviate from the norm could
signal that a company is managing earnings.

“It’s very much in the planning stages,” Canellos told
Reuters after his remarks. “It’s an area where we’re hoping to
make great strides.”

The SEC in recent years has been trying to make corporate
financial filings easier to analyze. It now requires companies
to tag filings with so-called XBRL computer codes, akin to the
bar coding used by retailers.

With machine-readable tags on company data, numbers that
often get buried in reams of footnotes can be quickly culled.

Canellos, when questioned by a moderator, declined to outline
specific enforcement priorities, citing the agency’s recent
leadership changes.

New SEC Chairman Mary Jo White was sworn in on April 10.
Canellos’ co-director, Andrew Ceresney, a former federal
prosecutor and partner at law firm Debevoise & Plimpton LLP,
starts on Monday, Canellos said.

The SEC, however, will shift away from cases related to the
2008 credit crisis and to those more relevant to current
markets, Canellos said. Its focuses will include checking for
abuses among fiduciaries overseeing risk on Wall Street, he
said.

Canellos was the enforcement division’s acting director
since January and deputy director since June 2012. He served as
director of the SEC’s New York regional office from 2009 to
2012.