Based on the case1. What accounting issue led to the problem?2. Recommendations & Reasoning3....

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Based on the case1. What accounting issue led to the problem?2. Recommendations & Reasoning3. Impact: US accounting/auditing standards, investors, auditors, management, and economy

Robert · Accepted Answer

1. What accounting issue led to the problem? 
AIG helped PNC Financial Services
1
 create 3 special- purpose, off-balance-sheet investment 
vehicles in 2001. SEC charged that AIG acted as a counterparty to move $762 million of 
underperforming loans or volatile assets to PNC’s balance sheet. PNC had removed $ 762 
million in loan and venture capital assets from its balance sheet. As an impact, the income 
statement did not show decline in values of such assets. This resulted in false disclosures about 
the financial performance as well as the financial condition of the company in its balance sheet. 
AIG kept emphasizing that there was no need to consolidate the special purpose entities as per 
US GAAP. In fact, it was ethically and morally wrong accounting to avoid that consolidation. 
The users of financial statements had every right to get knowledge of such reduction in values. 
By ignoring such reductions,

Based on the case1. What accounting issue led to the problem? 2. Recommendations & Reasoning3. Impact: US accounting/auditing standards, investors, auditors, management, and economy

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