AIG 2008 Annual Report Download - page 223

funded status of plans as of the date of its year-end balance sheet, with limited exceptions. AIG adopted FAS 158 for
the year ended December 31, 2006. The cumulative effect, net of deferred income taxes, on AIG’s consolidated
balance sheet at December 31, 2006 was a net reduction in shareholders’ equity through a charge to Accumulated
other comprehensive income (loss) of $532 million, with a corresponding net decrease of $538 million in total
assets, and a net decrease of $6 million in total liabilities. See Note 18 herein for additional information on the
adoption of FAS 158.
AIG adopted the following accounting standards during 2007:
SOP 05-1
In September 2005, the AICPA issued SOP 05-1, “Accounting by Insurance Enterprises for Deferred
Acquisition Costs in Connection with Modifications or Exchanges of Insurance Contracts” (SOP 05-1). SOP 05-1
provides guidance on accounting for internal replacements of insurance and investment contracts other than those
specifically described in FAS 97. SOP 05-1 defines an internal replacement as a modification in product benefits,
features, rights, or coverage that occurs by the exchange of a contract for a new contract, or by amendment,
endorsement, or rider to a contract, or by the election of a feature or coverage within a contract. Internal
replacements that result in a substantially changed contract are accounted for as a termination and a replacement
contract.
SOP 05-1 became effective on January 1, 2007 and generally affects the accounting for internal replacements
occurring after that date. In the first quarter of 2007, AIG recorded a cumulative effect reduction of $82 million, net
of tax, to the opening balance of retained earnings on the date of adoption. This adoption reflected changes in
unamortized DAC, VOBA, deferred sales inducement assets, unearned revenue liabilities and future policy benefits
for life and accident and health insurance contracts resulting from a shorter expected life related to certain group life
and health insurance contracts and the effect on the gross profits of investment-oriented products related to
previously anticipated future internal replacements. This cumulative effect adjustment affected only the Life
Insurance & Retirement Services segment.
FIN 48
In July 2006, the FASB issued FASB Interpretation No. (FIN) 48, “Accounting for Uncertainty in Income
Taxes — an interpretation of FASB Statement No. 109” (FIN 48), which clarifies the accounting for uncertainty in
income tax positions. FIN 48 prescribes a recognition threshold and measurement attribute for the financial
statement recognition and measurement of an income tax position taken or expected to be taken in a tax return.
FIN 48 also provides guidance on derecognition, classification, interest and penalties, accounting in interim
periods, and additional disclosures. AIG adopted FIN 48 on January 1, 2007. Upon adoption, AIG recognized a
$71 million increase in the liability for unrecognized tax benefits, which was accounted for as a decrease to opening
retained earnings as of January 1, 2007. See Note 21 for additional FIN 48 disclosures.
FSP 13-2
In July 2006, the FASB issued FASB Staff Position No. (FSP) FAS 13-2, “Accounting for a Change or
Projected Change in the Timing of Cash Flows Relating to Income Taxes Generated by a Leveraged Lease
Transaction” (FSP 13-2). FSP 13-2 addresses how a change or projected change in the timing of cash flows relating
to income taxes generated by a leveraged lease transaction affects the accounting for the lease by the lessor, and
directs that the tax assumptions be consistent with any FIN 48 uncertain tax position related to the lease. AIG
adopted FSP 13-2 on January 1, 2007. Upon adoption, AIG recorded a $50 million decrease in the opening balance
of retained earnings, net of tax, to reflect the cumulative effect of this change in accounting.
AIG 2008 Form 10-K 217
American International Group, Inc., and Subsidiaries
Notes to Consolidated Financial Statements — (Continued)