AIG 2011 Annual Report Download - page 240

American International Group, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Reconsideration of Effective Control for Repurchase Agreements
In April 2011, the FASB issued an accounting standard that amends the criteria used to determine effective
control for repurchase agreements and other similar arrangements such as securities lending transactions. The
standard modifies the criteria for determining when these transactions would be accounted for as secured
borrowings (i.e., financings) instead of sales of the securities.
The standard removes from the assessment of effective control the requirement that the transferor have the
ability to repurchase or redeem the financial assets on substantially the agreed terms, even in the event of default
by the transferee. The removal of this requirement makes the level of collateral received by the transferor in a
repurchase agreement or similar arrangement irrelevant in determining whether the transaction should be
accounted for as a sale. Consequently, more repurchase agreements, securities lending transactions and similar
arrangements will be accounted for as secured borrowings.
The guidance in the standard must be applied prospectively to transactions or modifications of existing
transactions that occur on or after January 1, 2012. Early adoption is prohibited. Under this standard, which AIG
adopted on January 1, 2012, $2.1 billion in repurchase agreements will continue to be accounted for as sales
unless modifications of these transactions occur subsequent to adoption, which would result in an assessment of
whether they should be accounted for as secured borrowings under the standard.
Common Fair Value Measurements and Disclosure Requirements in GAAP and IFRS
In May 2011, the FASB issued an accounting standard that amends certain aspects of the fair value
measurement guidance in GAAP, primarily to achieve the FASB’s objective of a converged definition of fair value
and substantially converged measurement and disclosure guidance with International Financial Reporting
Standards (IFRS). Consequently, when the standard becomes effective on January 1, 2012, fair value measurement
and disclosure requirements under GAAP and IFRS will be consistent, with certain exceptions including the
accounting for day one gains and losses, measuring the fair value of alternative investments using net asset value
and certain disclosure requirements.
The standard’s fair value guidance applies to all companies that measure assets, liabilities, or instruments
classified in shareholders’ equity at fair value or provide fair value disclosures for items not recorded at fair value.
While many of the amendments are not expected to significantly affect current practice, the guidance clarifies how
a principal market is determined, addresses the fair value measurement of financial instruments with offsetting
market or counterparty credit risks and the concept of valuation premise (i.e., in-use or in exchange) and highest
and best use, extends the prohibition on blockage factors to all three levels of the fair value hierarchy, and
requires additional disclosures.
The standard is effective for AIG for interim and annual periods beginning on January 1, 2012. The new
disclosure requirements must be applied prospectively. The standard will not have a material effect on AIG’s
consolidated financial condition, results of operations or cash flows.
Presentation of Comprehensive Income
In June 2011, the FASB issued an accounting standard that requires the presentation of comprehensive income
either in a single continuous statement of comprehensive income or in two separate but consecutive statements. In
the two-statement approach, the first statement should present total net income and its components, followed
consecutively by a second statement that presents total other comprehensive income and its components. This
presentation is effective January 1, 2012 and is required to be applied retrospectively.
226 AIG 2011 Form 10-K