AIG 2005 Annual Report Download - page 191

AMERICAN INTERNATIONAL GROUP, INC. AND SUBSIDIARIES
Part II – Other Information
income tax accounting. Subsequent to that announcement, and
ITEM 9.
in connection with its ongoing remediation efforts, AIG
Changes and Disagreements with Accountants on
identified certain additional errors principally relating to
Accounting and Financial Disclosure internal controls over reconciliation of certain balance sheet
There have been no changes in accountants during the accounts in the Domestic Brokerage Group. Due to the
twenty-four months ended December 31, 2005. significance of these additional errors, AIG restated its
consolidated financial statements and financial statement
ITEM 9A. schedules for the years ended December 31, 2004, 2003 and
Controls and Procedures 2002, along with 2001 and 2000 for purposes of preparation of
the Selected Consolidated Financial Data for 2001 and 2000,
Evaluation of Disclosure Controls and Procedures
and quarterly financial information for 2004 and 2003 and will
In connection with the preparation of this Annual Report on restate the first three quarters of 2005 (the Second Restate-
Form 10-K, an evaluation was carried out by AIG’s manage- ment). AIG’s September 2005 Form 10-Q will not be amended
ment, with the participation of AIG’s Chief Executive Officer because the adjustments to correct the additional errors to the
and Chief Financial Officer, of the effectiveness of AIG’s financial statements included therein are not material to those
disclosure controls and procedures (as defined in financial statements.
Rules 13a-15(e) and 15d-15(e) under the Securities Exchange As of December 31, 2005 and as described under Remedia-
Act of 1934 (Exchange Act)) as of December 31, 2005. tion of Material Weaknesses in Internal Control Over Finan-
Disclosure controls and procedures are designed to ensure that cial Reporting below, the material weaknesses relating to the
information required to be disclosed in reports filed or control environment and controls over the evaluation of risk
submitted under the Exchange Act is recorded, processed, transfer were remediated, and the material weaknesses relating
summarized and reported within the time periods specified in to controls over certain balance sheet reconciliations, controls
SEC rules and forms and that such information is accumulated over the accounting for certain derivative transactions and
and communicated to management, including the Chief controls over income tax accounting remained, as they were
Executive Officer and Chief Financial Officer, to allow timely not fully remediated.
decisions regarding required disclosures. As a result of these remaining material weaknesses in
During the evaluation of disclosure controls and procedures internal control over financial reporting, described more fully
as of December 31, 2004 conducted during the preparation of below, AIG’s Chief Executive Officer and Chief Financial
AIG’s financial statements to be included in the 2004 Officer concluded that, as of December 31, 2005, AIG’s
Form 10-K, five material weaknesses in internal control over disclosure controls and procedures were ineffective.
financial reporting were identified, relating to control environ- Notwithstanding the existence of these three remaining
ment, controls over the evaluation of risk transfer, controls material weaknesses, AIG believes that the consolidated
over certain balance sheet reconciliations, controls over the financial statements in this Annual Report on Form 10-K fairly
accounting for certain derivative transactions and controls over present, in all material respects, AIG’s financial condition as of
income tax accounting. As a result, AIG’s new Chief December 31, 2005 and 2004, and results of its operations and
Executive Officer and Chief Financial Officer concluded that, cash flows for the years ended December 31, 2005, 2004 and
as of December 31, 2004, AIG’s disclosure controls and 2003, in conformity with U.S. generally accepted accounting
procedures were ineffective. principles (GAAP).
Upon identification of the material weaknesses and under
the direction of its Chief Executive Officer and Chief Financial Management’s Report on Internal Control Over Financial
Officer, AIG developed a comprehensive plan to remediate the Reporting
material weaknesses.
AIG’s remediation efforts were governed by a Steering Management of AIG is responsible for establishing and
Committee, under the direction of AIG’s Chief Risk Officer maintaining adequate internal control over financial reporting.
and also including AIG’s Chief Executive Officer, Chief AIG’s internal control over financial reporting is a process,
Financial Officer, Comptroller and Senior Vice President for under the supervision of AIG’s Chief Executive Officer and
Strategic Planning. The status of remediation of each material Chief Financial Officer, designed to provide reasonable assur-
weakness was reviewed with the Audit Committee and this ance regarding the reliability of financial reporting and the
Committee was advised of issues encountered and key decisions preparation of AIG’s financial statements for external purposes
reached by AIG management relating to the remediation in accordance with GAAP.
efforts. Because of its inherent limitations, internal control over
On November 9, 2005, AIG announced that it had financial reporting may not prevent or detect misstatements.
identified certain errors, the preponderance of which were Also, projections of any evaluation of effectiveness to future
identified during the remediation of the material weaknesses in periods are subject to the risk that controls may become
internal control over financial reporting described above, inadequate because of changes in conditions or that the degree
principally relating to controls over accounting for certain of compliance with the policies or procedures may deteriorate.
derivative transactions and related assets and liabilities under AIG management conducted an assessment of the effective-
FAS 133, reconciliation of certain balance sheet accounts and ness of AIG’s internal control over financial reporting as of
AIG m Form 10-K 139