1. Case Title:
AIG: The Accounting Scandal Unfurls
Publication Year : 2005
Authors: Shruti Khatri
Industry: Insurance and Financial services
Region:USA
Case Code: FAC0037P
Teaching Note: Not Available
Structured Assignment: Not Available
Abstract:
In February 2005, AIG, one of world’s leading insurance and financial services organization was
accused of improper accounting and manipulation of financial statements. The case discusses the
accounting frauds committed by AIG, and provides an insight into the ways by which AIG
manipulated its financial statements. The role of the company’s top management in the scandal
has also been discussed. Finally, the case explores the initiatives being taken by the company to
change its management structure, restate its financial statements and restore investor confidence.
Pedagogical Objectives:
To discuss the accounting scandal at AIG in 2005 and focus on issues of ‘transparency in
disclosure of accounts’, ‘ethical conduct’; ‘ethical audit’ and ‘ethics in corporate governance’
To discuss the 10/10 rule of risk transfer, side letters and their usage, the involvement of top
management in the scandal and the effects of the scandal on the company’s market
capitalisation and image.
Keywords : AIG, Finance Case Study, Accounting scandal, Financial services, Manipulation of
financial statements, Involvement of top management, Accounting fraud, Insurance sector, Finite
insurance, Reinsurance/reinsurers, Maurice Greenberg
One of the issues here with how the Sarbanes-Oxley Act applies to AIG &
Gen Re is that the Sarbanes-Oxley Act’s main purpose was to prevent
companies from using loopholes and hiding their activities. At AIG and Gen
Re, high-level executives conspired to miscategorize insurance as revenue.
AIG intended to commit fraud, planned how to cover the fraud, committed
the fraud, and then put into action their cover up plan. No act, no matter
how strict, can force someone to tell the truth and to play the game fairly.