AIG 2007 Annual Report Download - page 200

American International Group, Inc. and Subsidiaries
Notes to Consolidated Financial Statements Continued
also establishes presentation and disclosure requirements for
1. Summary of Significant Accounting Policies
similar types of assets and liabilities measured at fair value.
Continued
FAS 159 permits the fair value option election on an instru-
Change in the Timing of Cash Flows Relating to Income Taxes ment-by-instrument basis for eligible items existing at the adoption
Generated by a Leveraged Lease Transaction’’ (FSP 13-2). FSP date and at initial recognition of an asset or liability or upon an
13-2 addresses how a change or projected change in the timing of event that gives rise to a new basis of accounting for that
cash flows relating to income taxes generated by a leveraged instrument.
lease transaction affects the accounting for the lease by the AIG adopted FAS 159 on January 1, 2008, its required
lessor, and directs that the tax assumptions be consistent with effective date. The adoption of FAS 159 with respect to elections
any FIN 48 uncertain tax position related to the lease. AIG made in the Life Insurance & Retirement Services segment is
adopted FSP 13-2 on January 1, 2007. Upon adoption, AIG expected to result in a decrease to opening 2008 retained
recorded a $50 million decrease in the opening balance of earnings of approximately $600 million. The adoption of FAS 159
retained earnings, net of tax, to reflect the cumulative effect of with respect to elections made by AIGFP is currently being
this change in accounting. evaluated for the effect of recently issued draft guidance by the
As a result of adopting SOP 05-1, FIN 48 and FSP 13-2, AIG FASB, anticipated to be issued in final form in early 2008, and its
recorded a total decrease to opening retained earnings of potential effect on AIG’s consolidated financial statements.
$203 million as of January 1, 2007.
SOP 07-1
Future Application of Accounting Standards In June 2007, the AICPA issued SOP No. 07-1 (SOP 07-1),
‘‘Clarification of the Scope of the Audit and Accounting Guide ‘Audits
FAS 157
of Investment Companies’ and Accounting by Parent Companies and
In September 2006, the FASB issued FAS 157, ‘‘Fair Value Equity Method Investors for Investments in Investment Companies.’’
Measurements’’ (FAS 157). FAS 157 defines fair value, estab- SOP 07-1 amends the guidance for whether an entity may apply the
lishes a framework for measuring fair value and expands disclo- Audit and Accounting Guide, ‘‘Audits of Investment Companies’’ (the
sure requirements regarding fair value measurements but does Guide). In February 2008, the FASB issued an FSP indefinitely
not change existing guidance about whether an instrument is deferring the effective date of SOP 07-1.
carried at fair value. FAS 157 nullifies the guidance in EITF 02-3
that precluded the recognition of a trading profit at the inception FAS 141(R)
of a derivative contract unless the fair value of such contract was
In December 2007, the FASB issued FAS 141 (revised 2007),
obtained from a quoted market price or other valuation technique
‘‘Business Combinations’’ (FAS 141(R)). FAS 141(R) changes the
incorporating observable market data. FAS 157 also clarifies that
accounting for business combinations in a number of ways,
an issuer’s credit standing should be considered when measuring
including broadening the transactions or events that are consid-
liabilities at fair value.
ered business combinations, requiring an acquirer to recognize
AIG adopted FAS 157 on January 1, 2008, its required
100 percent of the fair values of assets acquired, liabilities
effective date. FAS 157 must be applied prospectively, except that
assumed, and noncontrolling interests in acquisitions of less than
the difference between the carrying amount and fair value of a
a 100 percent controlling interest when the acquisition constitutes
stand-alone derivative or hybrid instrument measured using the
a change in control of the acquired entity, recognizing contingent
guidance in EITF 02-3 on recognition of a trading profit at the
consideration arrangements at their acquisition-date fair values
inception of a derivative, is to be applied as a cumulative-effect
with subsequent changes in fair value generally reflected in
adjustment to opening retained earnings on January 1, 2008. The
income, and recognizing preacquisition loss and gain contingen-
adoption of FAS 157 was not material to AIG’s financial condition.
cies at their acquisition-date fair values, among other changes.
However, the adoption of FAS 157 is expected to affect first
FAS 141(R) is required to be adopted for business combina-
quarter 2008 earnings, due to changes in the valuation methodol-
tions for which the acquisition date is on or after the beginning of
ogy for hybrid financial instrument and derivative liabilities (both
the first annual reporting period beginning on or after Decem-
freestanding and embedded) currently carried at fair value. These
ber 15, 2008 (January 1, 2009 for AIG). Early adoption is
methodology changes primarily include the incorporation of AIG’s
prohibited. AIG is evaluating the effect FAS 141(R) will have on its
own credit risk and the inclusion of explicit risk margins, where
consolidated financial statements.
appropriate.
FAS 159 FAS 160
In February 2007, the FASB issued FAS 159, ‘‘The Fair Value In December 2007, the FASB issued FAS 160, ‘‘Noncontrolling
Option for Financial Assets and Financial Liabilities’’ (FAS 159). Interests in Consolidated Financial Statements, an amendment of
FAS 159 permits entities to choose to measure at fair value many ARB No. 51’’ (FAS 160). FAS 160 requires noncontrolling (i.e.,
financial instruments and certain other items that are not required minority) interests in partially owned consolidated subsidiaries to
to be measured at fair value. Subsequent changes in fair value for be classified in the consolidated balance sheet as a separate
designated items are required to be reported in income. FAS 159 component of consolidated shareholders’ equity. FAS 160 also
146 AIG 2007 Form 10-K