Aig Case Study - Accounting Scandal

AIG Accounting Scandal

Case Study 2

Toni-Saverna Lynch

AC574 : Forensic Accounting: Ethics and the Legal Environment

Professor Hussain Kabani

aPRIL 2012

ABSTRACT

After the notorious accounting scandal of Enron, many other organizations experienced accounting scandals and financial challenges. The American International Group(AIG) scandal stands out in this case, as this organization was considered a the global giant in the insurance industry. AIG scandalous indulgence compromised its reputation, as its executive’s integrity is publicly and internationally questioned.

Prior to dealing with the specific factors of the case, it would be imperative to understand the nature of the industry of AIG, its operations and the different matters affecting the operations of the company. AIG commenced its operation in 1919 in Shanghai, China with the establishment of an insurance company by Cornelius Vander Starr. The company expanded to different continents and all over the world. AIG is considered as one the largest financial and insurance companies all over the world, operating in 130 countries, providing financial services to institutions, individuals and commercial establishments. AIG diversified services extends to leasing aircrafts trading, market making, and offering financial products. AIG was ranked by Forbes, as the third leading company in the Forbes 2000 list. Its international prestige and enormous acclaim was eventually tainted after reports of its accounting fraudulent engagements.

One would question, what would be the impetus for AIG to resort to accounting fraud? This organization obviously was facing some level of financial challenge, which would be investigated further.

AIG neglected the rules of their core operation-Insurance. Operating an insurance company comes with following three simple rules:

1. Price your risk correctly

2. Invest conservatively, to enable claims payments when they become due

3. Don’t do anything else....