For years, PricewaterhouseCoopers LLP gave a clean bill of financial health to American International Group Inc., only to watch the insurance giant disclose a long list of accounting problems this spring.This, after AIG’s audit committee has said for two years that it couldn’t vouch for AIG’s accounting. In 2001 and 2002, the directors committee reported that it couldn’t assure that the audit was according to normal standards or that PWC was in fact ‘‘independent.’’The AIG committee’s statement is one of the strongest he has seen, said Itzhak Sharav, accounting professor at Columbia University. ‘‘Their statement, the phrasing, all of it seems. that they’re going out of their way to emphasise the possibility of problems that are undisclosed and undiscovered, and they want no part of it.’’Language in audit committee reports ran the gamut prior to the economic downturn and many committees added disclaimers. Some included the full disclaimer found in AIG’s proxy; including Goldman Sachs Group and Wachovia Corp—but also WorldCom Inc. and others that later encountered big problems.Patrick S. McGurn, a senior vice president at Institutional Shareholder Services said, ‘‘I think that it (the strong language) probably should set off more red flags as the language got stronger.’’ AIG’s audit committee’s disclaimer has found its way into a 224-page lawsuit filed by Ohio’s attorney general accusing AIG of securities fraud and alleging it repeatedly issued ‘‘false and misleading’’ audit reports of the insurer’s books.The complaint says PWC ‘‘recklessly disregarded’’ myriad ‘‘illegal’’ and ‘‘improper’’ accounting maneuvers, including the $500 reinsurance transactions with General Re in 2000 and 2001 that have drawn regulator scrutiny.‘‘That sort of proxy language was not uncommon pre-Sarbanes-Oxley and in fact was then used by many other large companies,’’ said David Nestor, a spokesman for PWC.‘‘Auditors would not have seen this as a ’red flag’ or a scope limitation, as the board’s proxy language simply described what was and what was not the responsibility of its audit committee at that time. Auditors also would not have been surprised to see that descriptive language change after the passage of the Sarbanes-Oxley Act in 2002.’’ — LAT-WP
