Peer-Reviewed Journal Details
Mandatory Fields
Derry Cotter
The Irish Journal of Management (incorporating IBAR)
The Case of AIB and ICI 1985 1993; The Measurement and Disclosure of a Liability
Optional Fields
No 2

In 1983, Allied Irish Banks plc (AIB) acquired the Insurance Corporation of Ireland (ICI). Shortly afterwards, ICI got into difficulty and sought a substantial injection of funds, which AIB was not in a position to provide. ICI was effectively bankrupt, and in March 1985 the Irish Government agreed to purchase the ailing subsidiary for a nominal sum. The Government’s intervention was perceived as preventing a financial crisis in the entire banking sector.


Analysis of AIB’s accounting treatment provides evidence of a classic case of earnings management. In both 1986 and 1992, AIB failed to provide for the full cost of support arrangements provided to the Government/Central Bank, after the State’s purchase of ICI. Following a change in accounting policy, these costs were recognised in full in AIB’s financial statements for the year ended 31st December 1993. This change of policy coincided with the settlement of a legal claim with the auditors of ICI.     


The Bank’s dividend policy is identified as a key driver of its earnings management strategy, as is the pressure that is likely to have been exerted by AIB’s large institutional shareholders.   


This paper contends that AIB’s accounting treatment of its losses, following the collapse of ICI, bears a parallel to the failure of the banks to reveal the true fall in the value of their loan assets at the time of the Irish Government’s bank guarantee in 2008. It seems that little has been learned from the lessons of the past, a fact that is likely to be reflected in the future regulation of the Irish banking sector. 

Dublin, Ireland
Special issue based on selected best papers from the 2011 Irish Academy of Management Conference
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