Inaccurate financial reporting could reduce the book value of American International Group (AIG) by up to $1.66 billion (€1.28 billion), the world's biggest insurer admitted yesterday.

The disclosure, which stems in part from acknowledged "improper" accounting of a transaction with General Re, a subsidiary of Berkshire Hathaway, adds to uncertainty about the company's financial condition.

AIG said it also faced after-tax charges of up to $670 million. The world's biggest insurer ousted Maurice "Hank" Greenberg as chief executive two weeks ago.

It said it could "not presently determine whether additional matters will be discovered or further adjustments will be required". Nor was it "yet able to determine whether the adjustments will require restatement of prior period results or an adjustment to fourth quarter 2004 published unaudited information".

William Wilt, an analyst with Morgan Stanley, said: "The depth of troubles and apparent lack of accounting controls is alarming.

"It provides an insight into a company that has apparently sought to inflate operating earnings, ranging from discounting loss reserves to overstating net investment income."

But another analyst said the impact on earnings would not be so "drastic". Disclosure of inaccurate financial reporting came as AIG delayed its annual filing to the Securities and Exchange Commission (SEC) by a month.

AIG said that, after an internal review, "the General Re transaction documentation was improper, and, in light of the lack of evidence of risk transfer, these transactions should not have been recorded as insurance".

The disclosures come amid investigations into possible accounting irregularities at AIG. The inquiries involve the SEC, Eliot Spitzer, New York state attorney general, and the US Department of Justice. - (Financial Times Service)