The Fall and Collapse of American International Group - Assignment Example

The listing is not dependent on whether the company intends to sell its assets and incur profit or loss. AIG lacked accuracy and fairness in the valuations of its assets on its accounting and financial report. It experienced material weakness five months prior to an $ 85 billion bailout by the American government. The financial crisis also attributes to a lack of regulation on credit default swap. A swap is an accounting act of drafting the price or value of collateral or account to replicate the existing market value rather than a corporations’ book value.

The swapped market-based measurement will not accurately reflect the underlying asset’s actual value (Lasser 2013). The situation frequently occurs when a company gets an obligation to calculate the selling price of its assets and liabilities during a financial crisis. The liquidity of AIG became low, a condition that scared the investors. The prevailing AIG’s contemporary selling price of assets was much lower than the actual value. The mark to market accounting rule hence led to AIG’s huge unrealistic losses.

Like AIG, Enron Company, an American energy company based in Texas collapsed because of the mark to market accounting policy (Mizrach 2006). The policy prompted the corporation to misrepresent information on their assets and liabilities that led to bankruptcy and the fall of the corporation. The company had to base its valuations on inflated market values.