Highlights

HIGHLIGHTS

FASB issued an exposure draft that calls for expanded disclosure about financial guarantee insurance contracts. The ED, Accounting for Financial Guarantee Insurance Contracts—an Interpretation of FASB Statement No. 60, would, among other things, reduce diversity in the way financial guarantee insurance contracts are accounted for by insurers. That diversity has led to differences in the recognition and measurement of claim liabilities and, FASB says, can result in different financial statement information for similar transactions.

The ED, which would apply only to insurance enterprises included within the scope of Statement no. 60, proposes requiring more consistent claim liability measurement based on the present value of expected cash flows. It would require the recognition of a claim liability prior to a default, under certain criteria. “Today’s proposal provides investors and other financial statement users with clearer, consistent and more comparable information about financial guarantee insurance contracts,” Mark Trench, FASB project manager, said in a news release.

The proposal would take effect for financial statements issued for fiscal years beginning after Dec. 15, 2007. Comments are due by June 18. The draft is available at www.fasb.org/draft/ed_fin_guarantee_ins_contracts.pdf.

An IRS compliance check of tax-exempt organizations found excessive compensation to executives and officers resulting in tens of millions of dollars in penalties. More than 30% of the 1,223 organizations that received letters by the Exempt Organizations Office of the IRS amended their form 990 as a result. The IRS then selected 782 organizations to be examined. Forty people in 25 organizations were assessed penalties totaling more than $21 million. Besides lavish salaries and bonuses, the examinations uncovered payments for meals, gifts, automobiles and even vacation homes not reported as compensation.

IRC section 4958 imposes an excise tax of 25% on an “excess benefit” provided by an exempt organization to a person who exercises, or is in a position to exercise, substantial influence over the organization’s affairs. If the excess benefit is not corrected within the tax period in which it is initially assessed, the penalty increases to 200%. An excess benefit is one that exceeds the value of a person’s service to the organization. Section 4958 also imposes a 10% tax on excess benefits to officers, directors or trustees of organizations.

The organizations were chosen to be examined based in part on the compliance checks, which in turn were selected because of missing information on form 990 or other red flags, so the findings don’t reflect a representative sample of organizations, the IRS noted. Even so, they suggest that significant reporting issues exist, the IRS said, and it recommended educating public charities about section 4958.

Initial public offerings of stock on U.S. exchanges roared back in 2006, according to a report by PricewaterhouseCoopers LLP. The number of IPOs rose 10% to 236, and their value surged to the highest level in three years, increasing by 28% over the prior year. Larger deal size contributed to nearly $20 billion raised in the fourth quarter alone, double the average of the previous seven quarters. Foreign exchanges also saw robust action, especially in China, where 140 IPOs raised $62 billion in 2006, exceeding U.S. exchanges by $12 billion. The trend showed signs of continuing this year, with 64 domestic IPOs raising more than $12 billion in the first quarter of 2007, PwC said.

The SEC announced the availability of a new tool to assist broker-dealers in their anti-money laundering (AML) compliance efforts. The AML Source Tool, developed by the SEC’s Office of Compliance Inspections and Examinations, compiles and organizes key AML laws, rules and related guidance applicable to broker-dealers and provides links to these materials to promote easy accessibility. The AML Source Tool is available at www.sec.gov/about/offices/ocie/amlsourcetool.htm.

Home loan data for 2006 is now available, according to the Department of Housing and Urban Development. Under the Home Mortgage Disclosure Act (HMDA) of 1975, mortgage lenders in metropolitan communities are required to collect and report annual data, presented in a Loan Application Register report, on their housing-related lending activities. These data can provide housing investment guidance to both public and private investors. Also, when used in conjunction with other information, the HMDA loan data may help determine whether institutions are complying with lending anti-discrimination laws. More information is available on the Federal Financial Institutions Examination Council (FFIEC) Web site at www.ffiec.gov/hmda/faq.htm.