Thursday, November 10, 2005
Insurance giant American International Group, Inc. announced that, for the second time this year, it will restate its results from prior years and delay the filing of its 10-Q report, although this time only for five days. AIG had to restate results for prior years due to improper accounting for certain reinsurance transactions, among other things, after an extensive internal investigation that led to the retirement of Maurice Greenberg as chairman and CEO in March 2005. The latest restatement is related to continuing internal control weaknesses, as described in a company press release (here):
The most significant errors identified relate to the previously disclosed material weaknesses in internal controls surrounding accounting for derivatives and related assets and liabilities under FAS 133, reconciliation of certain balance sheet accounts and income tax accounting. AIG continues to believe its hedging activities have been and remain economically effective, but do not qualify for hedge accounting treatment. AIG's remediation of the material weaknesses in internal controls disclosed in its 2004 Form 10-K is continuing and further remediation developments will be described in future filings with the Securities and Exchange Commission. AIG estimates that the errors identified in the third quarter of 2005 resulted in an understatement of previously reported consolidated retained earnings at June 30, 2005 of approximately $500 million. The effect on net income in prior periods may be positive or negative in a particular period and will vary in amount from period to period. Due to the significance of these corrections, AIG will restate its financial statements for the years ended December 31, 2004, 2003 and 2002, along with affected Selected Consolidated Financial Data for 2001 and 2000 and quarterly financial information for 2004 and the first two quarters of 2005. AIG's prior financial statements for those periods should therefore no longer be relied upon.
I suspect the securities fraud and shareholder derivative suits filed in the wake of AIG's revelation of significant financial reporting issues earlier in 2005 will be amended shortly to reflect this latest round of accounting woes at the company. (ph)