2007 Annual Report - AIG.com

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American International Group, Inc. and Subsidiaries Part II – Other Information Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure None. Item 9A. Controls and Procedures Evaluation of Disclosure Controls and Procedures In connection with the preparation of this Annual Report on Form 10-K, an evaluation was carried out by AIG’s management, with the participation of AIG’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of AIG’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (Exchange Act)) as of December 31, 2007. Disclosure controls and procedures are designed to ensure that information required to be disclosed in reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms and that such information is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosures. During the evaluation of disclosure controls and procedures as of December 31, 2007 conducted during the preparation of AIG’s financial statements to be included in this Annual Report on Form 10-K, a material weakness in internal control over financial reporting relating to the fair value valuation of the AIGFP super senior credit default swap portfolio was identified. As a result of this material weakness, described more fully below, AIG’s Chief Executive Officer and Chief Financial Officer concluded that, as of December 31, 2007, AIG’s disclosure controls and procedures were ineffective. As of December 31, 2007 and as described under Remedia- tion of Prior Material Weaknesses in Internal Control Over Financial Reporting below, the material weakness relating to the controls over income tax accounting no longer existed. Notwithstanding the existence of this material weakness in internal control over financial reporting relating to the fair value valuation of the AIGFP super senior credit default swap portfolio, AIG believes that the consolidated financial statements in this Annual Report on Form 10-K fairly present, in all material respects, AIG’s consolidated financial condition as of Decem- ber 31, 2007 and 2006, and consolidated results of its operations and cash flows for the years ended December 31, 2007, 2006 and 2005, in conformity with U.S. generally accepted accounting principles (GAAP). Management’s Report on Internal Control Over Financial Reporting Management of AIG is responsible for establishing and maintaining adequate internal control over financial reporting. AIG’s internal control over financial reporting is a process, under the supervision of AIG’s Chief Executive Officer and Chief Financial Officer, designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of AIG’s financial statements for external purposes in accordance with GAAP. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. AIG management conducted an assessment of the effectiveness of AIG’s internal control over financial reporting as of December 31, 2007 based on the criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of AIG’s annual or interim financial statements will not be prevented or detected on a timely basis. AIG management has concluded that, as of December 31, 2007, the following material weakness existed relating to the fair value valuation of the AIGFP super senior credit default swap portfolio. As of December 31, 2007, controls over the AIGFP super senior credit default swap portfolio valuation process and oversight thereof were not effective. AIG had insufficient resources to design and carry out effective controls to prevent or detect errors and to determine appropriate disclosures on a timely basis with respect to the processes and models introduced in the fourth quarter of 2007. As a result, AIG had not fully developed its controls to assess, on a timely basis, the relevance to its valuation of all third party information. Also, controls to permit the appropriate oversight and monitoring of the AIGFP super senior credit default swap portfolio valuation process, including timely sharing of information at the appropriate levels of the organization, did not operate effectively. As a result, controls over the AIGFP super senior credit default swap portfolio valuation process and oversight thereof were not adequate to prevent or detect misstatements in the accuracy of management’s fair value estimates and disclosures on a timely basis, resulting in adjust- ments for purposes of AIG’s December 31, 2007 consolidated financial statements. In addition, this deficiency could result in a misstatement in management’s fair value estimates or disclosures that could be material to AIG’s annual or interim consolidated financial statements that would not be prevented or detected on a timely basis. Solely as a result of the material weakness in internal control over the fair value valuation of the AIGFP super senior credit default swap portfolio described above, AIG management has concluded that, as of December 31, 2007, AIG’s internal control over financial reporting was not effective based on the criteria in Internal Control — Integrated Framework issued by the COSO. The effectiveness of AIG’s internal control over financial reporting as of December 31, 2007 has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report, which is included in this Annual Report on Form 10-K. 202 AIG 2007 Form 10-K
American International Group, Inc. and Subsidiaries AIG continues to develop further enhancements to its controls Remediation of Prior Material Weakness in Internal Control over income tax accounting at certain business units. Based upon Over Financial Reporting the significant actions taken and the testing and evaluation of the AIG has been actively engaged in the implementation of remedia- effectiveness of the controls, AIG management has concluded the tion efforts to address the material weakness in controls over material weakness in AIG’s controls over income tax accounting income tax accounting that was in existence at December 31, no longer existed as of December 31, 2007. 2006. These remediation efforts, outlined below, are specifically designed to address the material weakness identified by AIG Continuing Remediation management. As a result of its assessment of the effectiveness AIG is actively engaged in the development and implementation of of internal control over financial reporting, AIG management a remediation plan to address the material weakness in controls determined that as of December 31, 2007, the material weakover the fair value valuation of the AIGFP super senior credit ness relating to the controls over income tax accounting no longer default swap portfolio and oversight thereof as of December 31, existed. 2007. The components of this remediation plan, once imple- AIG’s remediation efforts were governed by a Steering Commitmented, are intended to ensure that the key controls over the tee, under the direction of AIG’s Chief Risk Officer and included valuation process are operating effectively and are sustainable. AIG’s Chief Executive Officer, Chief Financial Officer and Comptrol- These components include assigning dedicated and experienced ler. The status of remediation was reviewed with the Audit resources at AIGFP with the responsibility for valuation, enhancing Committee who was advised of issues encountered and key the technical resources at AIG over the valuation of the super decisions reached by AIG management. senior credit default swap portfolio and strengthening corporate As of December 31, 2006, AIG did not maintain effective oversight over the valuation methodologies and processes. AIG controls over the determination and reporting of certain compomanagement continues to assign the highest priority to AIG’s nents of the provision for income taxes and related income tax remediation efforts in this area, with the goal of remediating this balances. Specifically, AIG did not maintain effective controls to material weakness by year-end 2008. review and monitor the accuracy of the components of the income AIG’S remediation efforts will be governed by a Steering tax provision calculations and related income tax balances and to Committee under the direction of AIG’s Chief Risk Officer and also monitor the differences between the income tax basis and the including AIG’s Chief Executive Officer, Chief Financial Officer and financial reporting basis of assets and liabilities to effectively Comptroller. The status of remediation of the material weakness reconcile the differences to the deferred income tax balances. will be reviewed with the Audit Committee and this Committee will During 2007, AIG management took the following actions to be advised of issues encountered and key decisions reached by remediate this material weakness: AIG management relating to the remediation efforts. ( Implemented standard key controls to review and monitor the Notwithstanding the existence of this material weakness in income tax provision and related income tax balances at internal control over financial reporting relating to the fair value applicable AIG business units globally and parent company, and valuation of the AIGFP super senior credit default swap portfolio, conducted testing of these controls to verify their effectiveness, due to the substantive alternative procedures performed and ( Completed the evaluation and reconciliation of certain historical compensating controls introduced after December 31, 2007, AIG balance sheet income tax accounts at applicable AIG business believes that the consolidated financial statements fairly present, units globally and parent company, as well as a more detailed in all material respects, AIG’s consolidated financial condition as financial statement exposure analysis of income tax balances, of December 31, 2007 and 2006, and consolidated results of its ( Hired additional qualified staff, including Tax Directors and Tax operations and cash flows for the years ended December 31, Accountants, at designated business units globally and parent 2007, 2006 and 2005, in conformity with GAAP. company, and AIG recognizes that continued improvement in its internal ( Continued the development and dissemination of income tax controls over financial reporting and consolidation processes, accounting training and education programs at parent company investment accounting, reinsurance accounting and income tax and business unit levels through site visits and training conferences. AIG 2007 Form 10-K 203
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AMERICAN INTERNATIONAL GROUP, INC.
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FINANCIAL HIGHLIGHTS (in millions,
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overall financial condition, althou
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Group Executive Committee We are ad
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AIG’s life insurance network is t
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We have also begun to address the e
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WHAT WE SEE The ability to see and
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The Major Accounts Practice within
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Around the world, the middle class
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WE SEE GROWTH OPPORTUNITIES IN EMER
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To grow the strength of the AIG glo
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Since 2003, the AIG Disaster Relief
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RESPECT Respect encompasses how we
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Life Insurance & Retirement Service
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Domestic Brokerage Group— Gross P
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In the summer of 2007, widespread f
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in gross premiums written. It launc
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It grew new business premiums from
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emerging markets for its services,
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ILFC—Revenues by Region Total = $
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AIG Investments acquired a 94 perce
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and changing interest rates, as wel
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American International Group, Inc.
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UNITED STATES SECURITIES AND EXCHAN
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Index of Notes to Consolidated Fina
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Page 205 and 206: American International Group, Inc.
Page 255: American International Group, Inc.
Page 275 and 276: SHAREHOLDER INFORMATION Corporate H
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