AIG 2005 Annual Report Download - page 139

AMERICAN INTERNATIONAL GROUP, INC. AND SUBSIDIARIES
Partners Have Certain Rights’’. The Issue addresses what rights
1. Summary of Significant Accounting Policies
held by the limited partner(s) preclude consolidation in
Continued
circumstances in which the sole general partner would
compensation on a straight-line basis over the scheduled consolidate the limited partnership in accordance with gener-
vesting period. Upon adoption of FAS 123R, AIG will ally accepted accounting principles absent the existence of the
recognize compensation expense to the scheduled retirement rights held by the limited partner(s). Based on that consensus,
date for employees near retirement. AIG does not expect the the EITF also agreed to amend the consensus in Issue
effect of this change to be material to AIG’s results of No. 96-16, ‘‘Investor’s Accounting for an Investee When the
operations. Consistent with the requirements of FAS 123R, Investor Has a Majority of the Voting Interest but the
AIG will recognize the unvested portion of its APB 25 awards Minority Shareholders Have Certain Approval or Veto Rights.’’
as compensation expense over the remaining vesting period. The guidance in this Issue is effective after June 29, 2005 for
In December, 2005 and January, 2006, C.V. Starr & Co., general partners of all new limited partnerships formed and for
Inc. (Starr) made tender offers to AIG employees holding Starr existing limited partnerships for which the partnership agree-
common and preferred stock. In conjunction with AIG’s ments are modified. For general partners in all other limited
adoption of FAS 123R, Starr is considered to be an ‘‘economic partnerships, the guidance in this Issue is effective beginning
interest holder’’ in AIG. As a result, AIG expects to include January 1, 2006. The effect of the adoption of this EITF Issue
the compensation expense related to the 2006 tender offer in on existing partnerships that were modified and new partner-
its consolidated financial statements for the first quarter of ships entered into after June 29, 2005, was not material to
2006. AIG’s financial condition or results of operations. For all other
AIG is currently assessing the effect of FAS 123R and partnerships, AIG is currently assessing the effect of adopting
believes the effect will not be material to AIG’s financial this EITF Issue.
condition or results of operations. On June 29, 2005, FASB issued Statement 133 Implementa-
On December 16, 2004, the FASB issued Statement tion Issue No. B38, ‘‘Embedded Derivatives: Evaluation of Net
No. 153, ‘‘Exchanges of Nonmonetary Assets — An Amend- Settlement with Respect to the Settlement of a Debt
ment of APB Opinion No. 29’’ (FAS 153). FAS 153 amends Instrument through Exercise of an Embedded Put Option or
APB Opinion No. 29, ‘‘Accounting for Nonmonetary Transac- Call Option.’’ This implementation guidance relates to the
tions.’’ The amendments made by FAS 153 are based on the potential settlement of the debtor’s obligation to the creditor
principle that exchanges of nonmonetary assets should be that would occur upon exercise of the put option or call
measured based on the fair value of the assets exchanged. option, which meets the net settlement criterion in FAS 133
Further, the amendments eliminate the narrow exception for paragraph 9(a). The effective date of the implementation
nonmonetary exchanges of similar productive assets and replace guidance is January 1, 2006. AIG is currently assessing the
it with a broader exception for exchanges of nonmonetary effect of implementing this guidance.
assets that do not have ‘‘commercial substance.’’ Previously, On June 29, 2005, FASB issued Statement 133 Implementa-
APB Opinion No. 29 required that the accounting for an tion Issue No. B39, ‘‘Application of Paragraph 13(b) to Call
exchange of a productive asset for a similar productive asset or Options That Are Exercisable Only by the Debtor.’’ The
an equivalent interest in the same or similar productive asset conditions in FAS 133 paragraph 13(b) do not apply to an
should be based on the recorded amount of the asset embedded call option in a hybrid instrument containing a debt
relinquished. The provisions in FAS 153 are effective for host contract if the right to accelerate the settlement of the
nonmonetary asset exchanges beginning July 1, 2005. The debt can be exercised only by the debtor (issuer/borrower).
adoption of FAS 153 did not have a material effect on AIG’s This guidance does not apply to other embedded derivative
financial condition or results of operations. features that may be present in the same hybrid instrument.
On June 1, 2005, the FASB issued Statement No. 154, The effective date of the implementation guidance is Janu-
‘‘Accounting Changes and Error Corrections’’ (FAS 154). ary 1, 2006. AIG is currently assessing the effect of implement-
FAS 154 replaces APB Opinion No. 20, ‘‘Accounting ing this guidance.
Changes’’ and FASB Statement No. 3, ‘‘Reporting Accounting On September 19, 2005, FASB issued Statement of Posi-
Changes in Interim Financial Statements.’’ FAS 154 requires tion 05-1, ‘‘Accounting by Insurance Enterprises for Deferred
that a voluntary change in accounting principle be applied Acquisition Costs in Connection with Modifications or Ex-
retrospectively with all prior period financial statements changes of Insurance Contracts.’’ SOP 05-1 provides guidance
presented on the new accounting principle, unless it is on accounting for deferred acquisition costs on internal
impracticable to do so. FAS 154 also provides that a correction replacements of insurance and investment contracts other than
of errors in previously issued financial statements should be those specifically described in FASB Statement No. 97,
termed a ‘‘restatement.’’ The new standard is effective for ‘‘Accounting and Reporting by Insurance Enterprises for
accounting changes and correction of errors beginning Janu- Certain Long-Duration Contracts and for Realized Gains and
ary 1, 2006. Losses from the Sale of Investments.’’ The SOP defines an
At the June 2005 meeting, the EITF reached a consensus internal replacement as a modification in product benefits,
with respect to Issue No. 04-5, ‘‘Determining Whether a features, rights, or coverage that occurs by the exchange of a
General Partner, or the General Partners as a Group, Controls contract for a new contract, or by amendment, endorsement,
a Limited Partnership or Similar Entity When the Limited or rider to a contract, or by the election of a feature or
AIG m Form 10-K 87