AIG is one of the best insurance companies in the world. In addition to this, AIG Inc is one of the companies with so many customers from different parts of the world. Generally, AIG serves people in over 100 countries and jurisdictions globally. AIG is among the best global insurance companies. One of the most extensive worldwide networks of any insurer is property-casualty, which the AIG companies use to serve the individual, institutional and commercial customers in the society. Also, the American General Life Insurance firm came into existence in 1960. Lateral, in 2001, AIG acquired the American General Life Insurance Company due to the significant expansion of the American General in its new services and products in addition to the company’s growth in its national presence. Providing an analysis of the case study involving AIG Inc in the year 2005 is the primary concern of this discussion.
American International Company is a company that is found in America. This is a company with three core businesses in which it operates (Mboga, 2017). A standalone technology-enabled subsidiary, general insurance, life, and retirement are some of the core businesses of the AIG. U.S. and International field operations, personal insurance, and commercial are some of the examples of general insurance at AIG. Again, Health insurance and General insurances are some of the top products of AIG. Also, AIG specializes in financial services as its industry sector. As of 2021, AIG had a net income of US$9.359. The company has a considerable number of employees and approximately 1800 insurance professionals (Mboga, 2017). These insurance professionals work together with distributions and accounts partners. AIG had a learning Director for sales who had the duty of improving the sales training initiatives for the company. Understanding, identifying, and addressing the specific needs of the customers and the partners is one of the goals of providing the insurance professionals with this initiative. AIG developed an in-house strategy that majored in improving the company’s culture, corporate values, and even the company’s business needs (Perera et al., 2021). The high level of skills and the comprehensive nature of the curriculum associated with the SRG materials are key reasons that led the AIG’s Board of directors to choose SRG selling skills. The gains from some of the AIG’s significant investments led to an increase in the shares of a company up to 20% due to improvement in financial markets. The increase in sales was also significantly contributed by the government’s support of the United States of America (Saman, 2020). The high level of customer satisfaction, client retention, high-profit margins, and increased revenue growth are key performance indicators at AIG.
There are various ways in which the AIG’s practices or techniques in preparing its financial documents violated the United State’s laws. The AIG accounting Scandal of 2005 is one of the most recent scandals in the history of the American economy (Saman, 2020). Also, the 2005 AIG accounting scandal is one of the most prominent scams in the history of America. AIG Inc was involved in various unlawful activities of manipulating the company’s funds. Most of the senior employees at the company we’re working for their benefit but not for the company’s benefit. The employees violated one of the basic accounting principles that say that organizational interests always prevail when an employee has a conflict of interest in the organization. But this was not the case, as most of the employees at AIG Inc were not interested in fulfilling the company’s needs; instead, they embraced fulfilling their own needs at the company’s expense. As a result, the company was greatly indebted, and some of the people raised a case in court concerning the company’s poor management. The court gathered the evidence from various sources (Baskran, 2019). Employees, customers, suppliers, and multiple stakeholders such as the shareholders are the primary sources used by the court to gather evidence concerning the AIG’s sham transactions. After investigating the natural causes of unlawful transactions at AIG, the court found the company guilty of the offenses.
AIG Inc had various reasons for entering into such unlawful transactions. For instance, concealing the company losses was one of why AIG Inc was much involved in such an illegal transaction. Also, inflating the company’s reserves was another reason why the company manipulated the funds of a company. Regarding insurance activities, AIG was also found guilty by the court about the offshore affiliates of AIG misleading the insurance department (Oliver, 2017). The AIG Scandal of 2005 was a great scam in America and the whole world. The 2005 Accounting scandal shook not only the American economy but also the world’s economy as a whole. During the 2005 scandal of AIG, the court also found that AIG Inc had also violated American laws of paying taxes by evading the tax payment unlawfully. There are several ways in which AIG could have lowered the tax rates of its operation using lawful means. For instance, if AIG Inc was situated in a country that is a tax haven, then it means the company’s tax rate would have been relatively lower than the rate of paying tax in countries that do not tax shelter. A tax haven helps by ensuring that the investments will increase in the country (Dan, 2017). For instance, a tax haven country offers its investors and foreign investors minimal tax liability for their bank’s deposits, encouraging considerable investments in such a country.
AIG Inc played a very significant role in the collapse of the company. Manipulation of large amounts of money by the senior employees in the company is one of how the company violated the GAAP and the GAAS of America (Dan, 2017). Also, AIG contributed a lot to its accounting scandal of 2005 by implementing a policy of using the credit default swaps, which was one of the worst strategies of violating the GAAP in America. The company’s credit default swaps led to the collapse of the company. The stockholders got wind of the AIG’s accounting scandal and sold out their shares, making it more difficult for the company to cover the swaps effectively and promptly. Around $30 billion were lost by AIG due to the adoption of the credit default swaps in the company by the senior management. However, research shows that the credit default swaps are the culprit, and many other factors led to the AIG’s accounting scandal. A lost AIG $21, a less-discussed facet of the business, and securities lending are some of the other factors contributing to the AIG’s accounting scandal of 2005 (Wiggins et al., 2021). Some of the legal and financial consequences to the firm are as follows: poor reputation, poor corporate image of the company, and poor goodwill are some of the primary outcomes of the AIG’s accounting scandal.
Most of the customers lost their trustworthy in the products and services of AIG due to such accounting scandals. Also, the loss of trust by the customers, suppliers, and lenders implied that the company’s goodwill was in question (Wiggins et al., 2021). Similarly, due to a lack of trust by the customers and other stakeholders of the company the AIG’s products implied that the company was growing into a poor reputation and that most of the lenders may not trust the company by lending money to or giving mortgages for any expansion purpose of the AIG Inc. As a result, AIG had to be revitalized by the senior management as it was heading to the liquidation point. The administration had to employ the turnaround strategies that needed to be implemented quickly to avoid the company’s winding up. Several individuals stood with AIG in its difficult times of financial crisis. For instance, Smith and the Greenberg are the key people who contributed a lot to repaying the AIG’s debts. Smith paid a cumulative amount worth $ 1.5, while Greenberg paid $ 15 million. To settle the state’s probes and the federal into its standard business practices, AIG agreed to pay $ 1.64 billion. At this point, the company was at least in an excellent position to revitalize (Lynch, & Hawkins, n.d.). Also, the company had to train new employees and use new strategies that strictly adhere to all the GAAP and the GAAS to ensure that the company’s financial documents are in agreement with all the accepted accounting and auditing principles.
There are various ways in which the practices that led to the accounting scandals at AIG could have been prevented. For instance, one of the main ways of preventing unlawful accounting practices is by ensuring that the employees are appropriately recruited and continuously trained for any new emerging issues in society. All the employees at the AIG Inc should have competed enough to avoid minor errors that may lead to enormous debts in the company if not controlled by the management at an early stage. Senior management should implement a solid internal control system for AIG to deter the accounting scandals at AIG. The senior management should also implement a culture of independency at AIG whereby the auditor’s work should not interfere with any person. Also, an auditor should not be involved in preparing the financial statements that the same auditor will audit. The court should also take strict measures against any person caught manipulating the company’s funds.
In conclusion, AIG is a leading global insurance company. It has most of the successful strategies that help ensure that the company remains competitive in society. In addition to this, AIG has attracted very many customers globally. Generally, there are customers from over 100 countries and jurisdictions that are primarily interested in the AIG Inc Company’s products and services. The 2005 accounting scandal of AIG was facilitated by the AIG’s sham transactions that intended to conceal the company’s losses and inflate most of the company’s reserves. The default of the credit swaps by the AIG Inc company is one of the leading causes of the AIG accounting scandal in 2005. Implementing a solid internal control system is one of the strategies that the management of AIG Inc company can use to prevent the accounting scandals from happening again in the future. Senior management can also try to ensure that the auditors are independent in their work to ensure that the report to be given by the auditor is free from influence by the management of the company.
Baskran, S. (2019). The Effects of Internal and External Factors on Corporate Governance and the Performance of American International Group (AIG). https://mpra.ub.uni-muenchen.de/97263/
Dan, A. K. (2017). Creative accounting—A creation for destruction: Regarding some global instances. BESC J. Com. Manag, 3, 1-14. http://bjcm.bescollege.net/v3/n1/v3n101.pdf
Lynch, L. J., & Hawkins, J. American International Group, Inc.—The Financial Crisis. https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2974031
Mboga, J. (2017). Explorative case analysis of ethical financiers and eliciting millennials’ perspectives of financial market scandals. European Journal of Economic and Financial Research. https://oapub.org/soc/index.php/EJEFR/article/view/164
Oliver, J. (2017). Is “transgenerational response” a hidden cause of failed corporate turnarounds and chronic underperformance? Strategy & Leadership. https://www.emerald.com/insight/content/doi/10.1108/SL-01-2017-0006/full/html?casa_token=Pbx11oXUVKgAAAAA:0GhHvxNZ-3G-vx__1Pew16Dje6jwYH__01laeYMyCRS0ysEw5wmhrTuVnk8_An2ZR1dEgk4Yklu3Q1rccPx4onOOTMuHoPiVWqZK7Lx-mvIqxFBOzmvd
Perera, K. W., Ajward, R., & Jayasekara, S. D. (2021). Fair value accounting practices in the banking industry: a possible opportunity to launder money through manipulated performance. Journal of Money Laundering Control. https://www.emerald.com/insight/content/doi/10.1108/JMLC-06-2021-0064/full/html?utm_source=rss&utm_medium=feed&utm_campaign=rss_journalLatest
Saman, F. B. M. (2020). Assignment Cover Page. https://d1wqtxts1xzle7.cloudfront.net/64372811/REPORT%20OF%20AIG’S%20CASE%20STUDY-with-cover-page-v2.pdf?Expires=1650848768&Signature=BWVCJ0PI-prt8e~0uhP6bp31ZuiFGxKtmvrhD4-dIyNTRGwucxzuB8uww8aylqMDKhmoHL7je-dv2HQj~Rhyle2~LFbKg9m9RJfqYftQ-ho-38vc6nk9OrCMgzafgp-I9t~zrscW6Dcdty4W54Zv2AJE-HukEUVfcc~kEOkTZN4z8xXEd2kNf7iD9a9HcU7eLTmRkpBgxUflwAinMrhkVk04VWp7wxBWo12vWQjyU~l-rthePCACn7wXg6nZPmL1sQxGFlQK0luK9Zu6NoVdjmtvRt0BvvgfRKUkIR-~pOMaPWuAdhbPAqsSBgStrN4OT6fui0TeRgTciBvFO00dcA__&Key-Pair-Id=APKAJLOHF5GGSLRBV4ZA
Wiggins, R., Lawson, A., Kelly, S., Engbith, L., & Metrick, A. (2021). The Rescue of American International Group Module Z: Overview. Yale Program on Financial Stability Working Paper Forthcoming. https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3902819