American International Group Inc.’s new chief executive Martin J. Sullivan, the group’s third-ever leader, has a formidable task ahead.

The company’s internal accounting review has discovered that some figures need to be adjusted, according to a person familiar with the matter. The probe was undertaken since AIG was worried that it might get a negative judgement on its internal controls from its external auditor, PricewaterhouseCoopers LLP. The investigation has already caused AIG to delay its 10-K filings that were due this week.

The accounting probe launched by New York Attorney Eliot Spitzer led to the ouster of the legendary CEO of the company, Maurice "Hank" Greenberg, who left the organization he had been steering for over 40 years. In addition, AIG’s chief financial officer since 1996, Howard I. Smith, "took leave" without explanations.

Greenberg’s era was marked with great achievements for AIG that continuously outperformed its rivals and was able to please investors with $3billion after-tax quarterly profits in a bumpy world of insurance. Now, however, the question arises on whether these achievements are real or illusory, boosted by AIG’s accounting creativity. Greenberg is remembered as strong but also authoritarian leader who made his reign at the company close to a tyranny. His intention to stay in the company as a nonexecutive chairman is interperted by many as a negative signal, meaning that transition to a new corporate culture will be more diffiult.

The focus of the probe is the deal with General Re, a reinsurance unit of Warren Buffett’s Berkshire Hathaway, that helped boost AIG’s reserves by about $500,000. Reinsurance deals have incurred the scrutiny of the regulators who suspect they do not transfer enough risk to reinsurers. The transaction was believed to have been sought by Greenberg to appease the investors who were raising questions about the company’s scarce reserves."He personally asked for this," said a person familiar with the investigation. "He was doing something to defraud investors by cooking the books and changing the outcome."

Buffett himself, is however, beyond suspicion. A person familiar with the matter said Spitzer is not going to probe into Buffett’s role in the scandal as the billionaire is fully cooperating wit the regulators.

``Buffett wouldn’t sell his reputation for any amount of money,’’ said Henry Asher, president of New York-based Northstar Group Inc. ``When Wall Street was lauding companies with smooth earnings like WorldCom, Berkshire took pride in its lumpy earnings.’’

The review of AIG’s acounting has other things to concentrate on. Internal auditors are taking interest in transactions that inluded judgment calls, such as financial-derivatives operations where a significant amount of judgement calls could have improperly boosted AIG’s income. "Legacy" policies covering existing, in contrast to future, liabilities, could have been misstated by at least $100 million. The true value of AIG’s long-term aircraft leases also appears dubious.

Wall Street so far has taken a benign view of AIG’s misfortunes, perhaps trusting the insurer saying that none of the matters under review "are likely to result in significant changes to the Company’s financial position," reiterated by AIG’s recently appointed chief financial officer, Steven Bensinger.

Credit agencies responded to the recent news by downgrading AIG’s stock. Thus, Standard & Poor’s put AIG on negative watch, and Fitch Ratings no longer thinks AIG a AAA company lowering its rating to AA+.

"Are all these events and issues consistent with a AAA-rated company? Our conclusion was no," says Julie Burke, a Fitch managing director. "Things that were acceptable a few years ago are not acceptable now."