Following on Friday’s negative report, American International Group Inc. announced late Sunday that it would restate more than four years of financial statements and reduce its net worth by $2.7 billion, which is about 3.3% of AIG’s net worth. Although the report does not name names, the report concedes that former AIG executives — including embattled former CEO Maurice “Hank” Greenberg — had been able to “circumvent internal controls over financial reporting” and that the company’s auditors, PricewaterhouseCoopers LLC, will issue an adverse opinion regarding AIG’s defective internal controls over financial reporting. Here are the posts over the past several months involving AIG and Berkshire Hathaway.
In addition to admitting certain reinsurance deals such as the one between AIG and General Re (Berkshire Hathway’s unit) involved insufficient risk transfer to qualify for favorable insurance accounting, AIG’s Sunday public statement conceded widespread use of trades in and out of hedge funds as one of several improper company strategies to convert capital gains into investment income toward the end of reporting periods to impress the market. With regard to the accounting for those and other transactions, the report concludes as follows:

The restatement will correct errors in prior accounting for improper or inappropriate transactions or entries that appear to have had the purpose of achieving an accounting result that would enhance measures important to the financial community. In certain instances, these transactions or entries may also have involved misrepresentations to members of management, regulators and AIG’s independent auditors.

The statement admitted that the company used accounting tactics to change the timing and characterization of gains and losses, but it does not address the alleged improper characterization of worker’s comp insurance premiums that surfaced last week. Here is the Wall Street Journal ($) copy of the company’s statement.
Meanwhile, the Oracle of Omaha — in addressing his Berkshire Hathaway subjects . . er, I mean, shareholders over the weekend — stated that he is confident that Berkshire’s General Re unit will survive the current regulatory scrutiny and continue to contribute to Berkshire’s earnings.