AIG Accounting Fraud One of Term Paper

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Of course, the idea of what constitutes risk is somewhat problematic, as it could be argued that the definition of risk varies from investor to investor and company to company. Strictly speaking, the accounting regulations of the Federal Accounting Standards Board call any action without a significant amount of risk a loan, without any clear definition of what significant means. In this case, however, the risk does seem to be fairly negligible, and part of a consistent pattern of fraud on the part of AIG in terms of its income. It consistently manipulated its revenue to present a more pleasing financial picture to current and potential investors.

The collusion between insurance companies and large corporations through fictive investments that are really secure loans is common. Take the case of another AIG scam, selling insurance to the Brightpoint Inc. cellular phone company, after the cell phone company had already incurred losses.

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The company paid premiums to AIG, and AIG took over the payments so the cell company could record these as receivables and improve its own projected state of financial health on its balance sheet.

If greater vigilance is not exercised of the accounting policy in the insurance industry, the threat of fraud will only grow worse. Given the softening economy, many insurance companies are faced with great financial devastation at the prospect of paying out more premiums. The FASB must set clearer standards as to what constitutes a significant risk, even if particular dollar figures cannot be stipulated within its code. A significant risk should be taken to mean that a reasonable person or investor, when viewing the transaction, could be expected to assume that the balance of the payment might not be returned in contrast to the situations delineated above.

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