PwC and AIG – Beyond LudicrousBy Francine • May 9th, 2008 • Category: Pure Content
Why was PwC given the job again when they’ve clearly not been doing their job?
Why does the SEC and PCAOB allow the comedy of errors and contradictions that is an adverse opinion on internal controls and a clean opinion on the financial statements? Especially now that the audit and opinion are supposed to be integrated?
I asked Christopher Cox and he gave a non-answer.
Why is PwC still the auditor of this mess of a client? What’s in it for them?
Oh, I forgot. $45 million in fees. Sure must be giving some partner over there a headache. I hope his wife has adequate life insurance because he’s headed for a heart attack or worse…
Why is everyone allowing AIG to help PwC by saying they were duped? When does this become a non-excuse? If there’s lack of proper tone at the top, isn’t this the reason an audit firm does everything in its power to protect itself, including resigning?
American International Group Inc.’s lengthened laundry list of accounting woes shines the spotlight more brightly on the role played by its outside auditor, PricewaterhouseCoopers LLP.
In an unusual admission of accounting impropriety, AIG disclosed late Sunday that accounting problems are likely to cut its net worth 3.3%, or by $2.7 billion, considerably more than the $1.77 billion estimate of a month ago. The new figure came as AIG said it would postpone filing its annual financial statement with the Securities and Exchange Commission, already delayed twice, until as late as the end of this month. The increase stems largely from a slew of improper accounting practices identified during the past month as its internal probe continued. The company also faces investigations into its accounting by state and federal authorities.
The insurer’s latest release offered some relief for the accounting firm: It noted that “in certain instances,” improperly booked transactions “may also have involved misrepresentations to management, regulators and AIG’s independent auditors.”
Specifically, the company said Pricewaterhouse wasn’t told in full about AIG’s ties to or dealings with two offshore reinsurance companies that AIG, because of the internal reviews, now plans to consolidate into its financial statements. That change alone could account for most of the $1.2 billion hit to AIG’s book value from “risk-transfer matters.”
Still, “at a certain point, if auditors can only find out about [improper accounting] if management tells them about it, then what do we have auditors for?” said Lynn E. Turner, a former SEC chief accountant and managing director of research for proxy-advisory concern Glass Lewis & Co. “The reason we have auditors is to give investors confidence that an outside third party has looked at them and found things that might turn out to be big errors.”
…AIG also acknowledged that former executives at times had been able to “circumvent internal controls over financial reporting.” As a result, AIG said Pricewaterhouse likely will fault the insurer’s internal financial controls in the annual report to come even as it is likely to give the insurer “unqualified” opinions on its financial statements as well as its assessment of its internal controls. AIG said its shortcomings constitute “material weaknesses” under regulatory guidelines. Internal controls are processes to ensure accurate financial reporting.
AIG said one reason its internal controls didn’t pass muster was the ability of “senior management” to get around the safeguards. AIG said it is has begun strengthening the controls.
In a statement, David Boies, an attorney for former AIG Chairman and Chief Executive Maurice R. “Hank” Greenberg, said a finding of weak internal controls would be “inconsistent with the conclusions” of Pricewaterhouse and AIG’s audit committee “after extensive review.” A spokesman for Mr. Greenberg’s lawyers said that, in a report to AIG’s audit committee on March 7, after 50,000 hours of work auditing AIG’s internal controls, Pricewaterhouse at that point “was unambiguous as to its finding that there were no material control deficiencies.” Mr. Greenberg was pushed out in March amid the mounting scrutiny.