News - Audit flaws wipe $2.7bn from AIG
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Discoveries of improper accounting at American International Group are to knock $2.7bn (1.4bn) off the value of the world’s biggest insurer.
AIG said it would restate its accounts for each of the last five years from 2000 onwards, lowering the company’s value by 3.3%.
It said it had found “material weaknesses” in its control systems, and postponed filing its 2004 accounts.
AIG is under investigation by New York Attorney General Eliot Spitzer.
The insurance industry probe by New York’s chief law officer and US market watchdogs reflects the new, tougher attitude towards standards on Wall Street since the Enron and Worldcom scandals.
Under scrutiny
A dozen AIG directors received subpoenas from the US Securities and Exchange Commission (SEC) in March.
They included AIG’s boss of nearly 40 years, Maurice “Hank” Greenberg, who stood down as AIG’s chairman soon afterwards.
Mr Greenberg led AIG from 1967 to earlier this year
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He has since refused to answer questions from regulators, invoking rights under US law which protect people from self-incrimination.
AIG has already accepted that its accounting for a transaction with reinsurance firm General Re in 2000 - which appeared to boost AIG’s revenues at a time when the market was uneasy about the insurer’s liabilities - was improper.
By restating its accounts from 2000 onwards, it said it would “correct errors in prior accounting for improper or inappropriate transactions”.
AIG’s board acknowledged its accounts may have been massaged by misrepresenting some deals.
These transactions “appear to have had the purpose of achieving an accounting result that would enhance measures important to the financial community and that may have involved documentation that did not accurately reflect the nature of the arrangements”, it said.
‘Control shortcomings’
AIG’s board issued the statement after a weekend spent in talks with its auditors PricewaterhouseCoopers (PwC), the Wall Street Journal reported.
PwC would be issuing an “adverse opinion” of AIG’s internal controls over financial reporting, AIG said.
AIG said the “control deficiencies” unearthed by its internal review included “the ability of certain former members of senior management to circumvent internal controls over financial reporting”.
AIG is “working diligently” at filing its delayed 2004 annual accounts - known as form 10K - with the SEC, the insurer’s chief executive Martin Sullivan said, adding that AIG “remains one of the world’s most financially strong and stable companies”.
AIG’s beleaguered ex-chairman Mr Greenberg got public backing from US investment guru Warren Buffett over the weekend, whose nostrums are closely followed by an army of small investors.
Mr Buffett told the annual meeting of shareholders in his own firm, Berkshire Hathaway, that Mr Greenberg had built an “extraordinary company” and risen to be “the most important figure” in the property casualty insurance business.
He declined to comment on the current investigations into AIG.
Last month, Mr Buffett met Mr Spitzer to assist with the inquiry into AIG. However, regulators stressed that Mr Buffett was not a target of the probe.
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Filed by at October 27th, 2007 under Property insurance