AIG 2005 Annual Report Download - page 123

AMERICAN INTERNATIONAL GROUP, INC. AND SUBSIDIARIES
tercompany accounts. As a result, premiums and other consid- quarters in 2005. In addition, these control deficiencies could
erations, incurred policy losses and benefits, insurance result in other misstatements to the aforementioned financial
acquisition and other operating expenses, premiums and statement accounts and disclosures that would result in a
insurance balances receivable, reinsurance assets, reserve for material misstatement to the annual or interim AIG consoli-
losses and loss expenses, reserve for unearned premiums, other dated financial statements that would not be prevented or
assets and retained earnings were misstated under GAAP. detected. Accordingly, AIG management has concluded that
Controls over the accounting for certain derivative transac- these control deficiencies constitute material weaknesses. These
tions: AIG did not maintain effective controls over the material weaknesses were considered in determining the nature,
evaluation and documentation of whether certain derivative timing, and extent of audit tests applied in our audit of the
transactions qualified under GAAP for hedge accounting. As a 2005 consolidated financial statements, and our opinion
result, net investment income, realized capital gains (losses), regarding the effectiveness of AIG’s internal control over
other revenues, accumulated other comprehensive income financial reporting does not affect our opinion on those
(loss) and related balance sheet accounts were misstated under consolidated financial statements.
GAAP. In our opinion, management’s assessment that AIG did not
Controls over income tax accounting: AIG did not maintain maintain effective internal control over financial reporting as
effective controls over the determination and reporting of of December 31, 2005, is fairly stated, in all material respects,
certain components of the provision for income taxes and based on criteria established in Internal Control — Integrated
related deferred income tax balances. Specifically, AIG did not Framework issued by the COSO. Also, in our opinion, because
maintain effective controls to review and monitor the accuracy of the effects of the material weaknesses described above on
of the components of the income tax provision calculations the achievement of the objectives of the control criteria, AIG
and related income tax balances and to monitor the differences has not maintained effective internal control over financial
between the income tax basis and the financial reporting basis reporting as of December 31, 2005, based on criteria estab-
of assets and liabilities to effectively reconcile the differences lished in Internal Control — Integrated Framework issued by the
to the deferred income tax balances. As a result, income tax COSO.
expense, income taxes payable, deferred income tax assets and
liabilities, retained earnings and accumulated other comprehen-
sive income were misstated under GAAP.
The control deficiencies described above resulted in the
PricewaterhouseCoopers LLP
restatement in 2005 of AIG’s 2004, 2003 and 2002 annual
New York, New York
consolidated financial statements and financial statement
March 16, 2006
schedules and the interim consolidated financial statements for
each quarter in 2004 and 2003 and for each of the first three
AIG m Form 10-K 71