AIG 2007 Annual Report Download - page 256

American International Group, Inc. and Subsidiaries
Part II – Other Information
reliability of financial reporting and the preparation of AIG’s
Item 9.
financial statements for external purposes in accordance with
Changes in and Disagreements With Account-
GAAP.
ants on Accounting and Financial Disclosure
Because of its inherent limitations, internal control over
None. financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are
Item 9A. subject to the risk that controls may become inadequate because
Controls and Procedures of changes in conditions, or that the degree of compliance with
Evaluation of Disclosure Controls and Procedures the policies or procedures may deteriorate.
AIG management conducted an assessment of the effective-
In connection with the preparation of this Annual Report on ness of AIG’s internal control over financial reporting as of
Form 10-K, an evaluation was carried out by AIG’s management, December 31, 2007 based on the criteria established in Internal
with the participation of AIG’s Chief Executive Officer and Chief Control — Integrated Framework issued by the Committee of
Financial Officer, of the effectiveness of AIG’s disclosure controls Sponsoring Organizations of the Treadway Commission (COSO).
and procedures (as defined in Rules 13a-15(e) and 15d-15(e) A material weakness is a deficiency, or a combination of
under the Securities Exchange Act of 1934 (Exchange Act)) as of deficiencies, in internal control over financial reporting, such that
December 31, 2007. Disclosure controls and procedures are there is a reasonable possibility that a material misstatement of
designed to ensure that information required to be disclosed in AIG’s annual or interim financial statements will not be prevented
reports filed or submitted under the Exchange Act is recorded, or detected on a timely basis. AIG management has concluded
processed, summarized and reported within the time periods that, as of December 31, 2007, the following material weakness
specified in SEC rules and forms and that such information is existed relating to the fair value valuation of the AIGFP super
accumulated and communicated to management, including the senior credit default swap portfolio.
Chief Executive Officer and Chief Financial Officer, to allow timely As of December 31, 2007, controls over the AIGFP super
decisions regarding required disclosures. senior credit default swap portfolio valuation process and over-
During the evaluation of disclosure controls and procedures as sight thereof were not effective. AIG had insufficient resources to
of December 31, 2007 conducted during the preparation of AIG’s design and carry out effective controls to prevent or detect errors
financial statements to be included in this Annual Report on and to determine appropriate disclosures on a timely basis with
Form 10-K, a material weakness in internal control over financial respect to the processes and models introduced in the fourth
reporting relating to the fair value valuation of the AIGFP super quarter of 2007. As a result, AIG had not fully developed its
senior credit default swap portfolio was identified. As a result of controls to assess, on a timely basis, the relevance to its
this material weakness, described more fully below, AIG’s Chief valuation of all third party information. Also, controls to permit the
Executive Officer and Chief Financial Officer concluded that, as of appropriate oversight and monitoring of the AIGFP super senior
December 31, 2007, AIG’s disclosure controls and procedures credit default swap portfolio valuation process, including timely
were ineffective. sharing of information at the appropriate levels of the organiza-
As of December 31, 2007 and as described under Remedia- tion, did not operate effectively. As a result, controls over the
tion of Prior Material Weaknesses in Internal Control Over AIGFP super senior credit default swap portfolio valuation process
Financial Reporting below, the material weakness relating to the and oversight thereof were not adequate to prevent or detect
controls over income tax accounting no longer existed. misstatements in the accuracy of management’s fair value
Notwithstanding the existence of this material weakness in estimates and disclosures on a timely basis, resulting in adjust-
internal control over financial reporting relating to the fair value ments for purposes of AIG’s December 31, 2007 consolidated
valuation of the AIGFP super senior credit default swap portfolio, financial statements. In addition, this deficiency could result in a
AIG believes that the consolidated financial statements in this misstatement in management’s fair value estimates or disclo-
Annual Report on Form 10-K fairly present, in all material sures that could be material to AIG’s annual or interim consoli-
respects, AIG’s consolidated financial condition as of Decem- dated financial statements that would not be prevented or
ber 31, 2007 and 2006, and consolidated results of its detected on a timely basis.
operations and cash flows for the years ended December 31, Solely as a result of the material weakness in internal control
2007, 2006 and 2005, in conformity with U.S. generally accepted over the fair value valuation of the AIGFP super senior credit
accounting principles (GAAP). default swap portfolio described above, AIG management has
concluded that, as of December 31, 2007, AIG’s internal control
Management’s Report on Internal Control Over Financial over financial reporting was not effective based on the criteria in
Reporting Internal Control — Integrated Framework issued by the COSO.
Management of AIG is responsible for establishing and maintain- The effectiveness of AIG’s internal control over financial
ing adequate internal control over financial reporting. AIG’s reporting as of December 31, 2007 has been audited by
internal control over financial reporting is a process, under the PricewaterhouseCoopers LLP, an independent registered public
supervision of AIG’s Chief Executive Officer and Chief Financial accounting firm, as stated in their report, which is included in this
Officer, designed to provide reasonable assurance regarding the Annual Report on Form 10-K.
202 AIG 2007 Form 10-K