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AIG accounting scandal (2005) - Income Statement report

AIG accounting scandal (2005) - Income Statement report - Essay Example

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These scandals have threatened business and led to shareholders loss of confidence and sometimes great loss of investments. The companies affected are…

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AIG accounting scandal (2005) - Income Statement report

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Subject: Finance & Accounting
Type: Essay
Level: Undergraduate
Pages: 5 (1250 words)
Downloads: 3
Author: okey11

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hese scandals, postmortem results indicate presence of a creative accounting process, a phenomenon characterized by complex methods of funds redirecting and misuse as well as overstated revenues and improper reporting of expenses and liabilities. According to Roddy (2011, pp 34), the most significant scandal of the last decade involved Tyco, HealthSouth, Enron, WorldCom, and AIG among others. This paper aims at exploring the accounting scandal that affected American Insurance Group in 2005. American Insurance Group (AIG) is a multinational insurance corporation.

It is regarded as the World’s largest insurance company with over 90,000 workers and offices in over 130 countries. The company is also involved in other forms of business including aircraft leasing and assets management in many parts of the world. During this time of the scandal, the company was led by Maurice Greenburg, the long-time serving leader, having led the company since 1968. He was named as the person involved in the scandal, and eventually pressured to step down in 2005. The company came under scrutiny first in 2001 after it was realized that a client company had been assisted to strengthen their balance sheet fraudulently.

Investigations were started and in 2003, a penalty of $10 Million was passed by SEC to settle the issue. The company’s income smoothing products were investigated in 2004 and a bid rigging complaint filed. Kay (2005) wrote that the company admitted to having conducted improper accounting exercises. When the company finally released the 2004 annual earnings, it was discovered that re-insurance deals with GenRe were not accounted for in the deposits. A restatement of this resulted to a decrease in the earnings by $1.

32 Billion. According to Martin and Wesley (2005), several lawsuits were filed against AIG starting with one by the Attorney General concerning misleading accounting which Greenberg dismissed as political war. Others were filed by the federal agency leading to

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