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AIG Accounting scandal

Impact

Who's Involved

What's Happening Now

  • On March 14, Maurice Hank Greenburg resigned from his position as CEO because of fraud allegations
  • Another two top executives were fired on March 21 as well as the chief financial officer, Howard Smith
  • In 2005 when after AIG acknowledged that it had made mistakes in accounting its shares dropped 22% to $57 each
  • In 2008 AIG recorded reported the largest quarterly losses in U.S corporate history at the time, $61.7 billion. This made their shares drop to almost nothing.
  • AIG have began there own internal investigation which has shown several deals that were not properly accounted for
  • AIG has planned to change how it accounts for deferred compensation
  • In 2006 AIG payed 1.64 billion to resolve state and federal accusations that it misled investors and regulators
  • Now AIG has been able to increase their stock up to an average of $52 each

Violations/Errors

AIG?

  • AIG violated the 8th principle of accounting "Revenue Recognition Principle" which means that revenues are recognized as soon as a product has been sold or a service has been performed, regardless of when the money is actually received.
  • For example a company could earn and report $20,000 of revenue but receive $0 in actual cash amount
  • American International Group is an insurance company
  • Serves commercial, institutional, and individual customers in over 130 countries
  • Over 70 million commercial and consumer clients worldwide

What Happened

  • Over 5 years AIG made a total of $4.3 billion in accounting errors.
  • On March 30th AIG had acknowledged that it had improperly accounted for the reinsurance transaction to Bolster reserves

References

Brady, D. (April 10, 2005). AIG: What Went Wrong. In BloomBerg Businessweek. Retrieved May 15, 2014, from http://www.businessweek.com/stories/2005-04-10/aig-what-went-wrong.

Government Role

Tracer, Z. (December 12, 2102). AIG Bailout Ends Four Years After Two-Year Plan: Timeline. In BloomBerg . Retrieved May 15, 2014, from http://www.bloomberg.com/news/2012-12-11/aig-bailout-ends-four-years-after-two-year-plan-timeline.html.

Kay, J. (March 24, 2005). Top insurance company mired in allegations of accounting fraud. In World Socialist Web Site. Retrieved May 15, 2014, from http://www.wsws.org/en/articles/2005/03/aig-m24.html.

  • After AIG recorded such a big loss the federal reserve bailed them out with an $85 billion loan in exchange for a 79.9% equity stake.
  • Over time AIG kept receiving a bailout bill and by July 2009 they have received a total bailout package of 182 billion.
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