The New York Times reported that telecommunications company Qwest Communications is part of a Securities and Exchange Commission investigation into how AOL Time Warner
booked revenue, specifically $49 million it may have overstated.
Last week, AOL Time Warner revealed to securities regulators that it may have improperly booked about $49 million in advertising and commerce revenue over a period of six quarters starting in 2000. The company said the sales, which represent one half of one percent of its total annual revenues, involved three separate deals but did not identify the other companies involved.
However, The Washington Post reported Thursday that WorldCom was one of the companies involved in the accounting scrutiny. Now, today’s New York Times is reporting that another of the deals being investigated was with Qwest.
AOL Time Warner executives, who spoke to the Times on condition of anonymity, said that S.E.C. investigators are looking into many if not all of AOL’s major transactions during the last few years. In addition, the report said the deals with WorldCom and Qwest are already drawing special scrutiny within the company, since both telecommunications companies are already facing accounting questions of their own.
WorldCom’s July 22nd bankruptcy now ranks as the largest corporate bankruptcy filing in history, and many of its revenue-booking practices are under federal review.
The Times report is also an example of how accounting questions at one company are rippling out into other companies regarding the practice known as “round-tripping.” The term is used to describe a way two companies would make trades, or sell goods and services, then account for them on their books at inflated values. The barter practice can involve fair market values but in these cases, regulators are looking at whether the goods and services were booked at inflated values in order to artificially boost revenues.
In its own regulatory filing regarding the matter, AOL said it was “continuing its review of these and other advertising transactions at the AOL division,” and would “determine whether its accounting for these transactions was inappropriate and, if so, what action, if any, is appropriate with respect to its reported financial results.”
Barter has been a common practice among dot-com and Internet-related companies throughout the 1990s, which the SEC addressed in a rule two years ago requiring companies to make sure the goods and services they were trading were being booked at fair market value.
The report stressed that there was no clear evidence that AOL violated accounting rules. AOL Time Warner is already conducting an internal investigation of its accounting procedures and expects to conclude the probe this year. Spokesmen for all three companies were not available to comment on the report.
Corrects incorrect references to Qwest in first and third graph and headline
