Monday, May 2, 2005
American International Group issued a statement (here) discussing the accounting adjustments that will be taken as a result of an internal investigation prompted by state and federal regulators inquiring into transactions involving the company. AIG will restate its financials going back to 2000 that will include a $2.7 billion charge to shareholder equity. The statement described the reasons for the adjustments for accounting errors:
The restatement will correct errors in prior accounting for improper or inappropriate transactions or entries that 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. In certain instances, these transactions or entries may also have involved misrepresentations to members of management, regulators and AIG's independent auditors. The adjustments also include transactions or entries that should be restated as a result of quantitative and qualitative factors or as a result of errors, some of which had been previously identified but considered not to be material to require correction.
Translated from legalese and accounting-speak: everything was not as we made it appear. This is the stuff of criminal prosecution these days, especially when it involves a number of smaller transactions designed to meet short-term expectations spread over a number of reporting periods. An interesting question will be whether federal prosecutors will try to use the CEO/CFO financial statement certification provision 18 U.S.C.§ 1350 here) against former CEO Maurice Greenberg and former CFO Howard Smith. (ph)