AOL reviews accounting in transactions

By Seth Sutel
Associated Press

NEW YORK — After weeks of standing by its accounting, AOL Time Warner Inc. acknowledged that there may be problems with the way its America Online unit recognized revenues from at least three transactions.

The company has not yet determined whether the accounting was faulty, and it is reviewing those transactions well as others at its troubled AOL division. The Securities and Exchange Commission as well as the Justice Department are investigating the accounting practices at AOL.

Chief executive Richard Parsons said the company expected to complete its review by the end of the third quarter and would decide whether it needed to take any action to amend its previously reported financial results.

While the three transactions involved amount to only $49 million, an insignificant amount of money for AOL Time Warner, any mistreatment of accounting could have serious implications for the company given the deep malaise caused by the recent wave of accounting scandals.

Regulators have been eager to make an example of powerful companies as they seek to restore investors' faith in the way American companies report their financial statements. Several members of the Rigas family have been arrested and charged with looting the coffers of failed cable company Adelphia Communications, which they founded.

America Online's accounting practices have been called into question after a series of articles appeared in The Washington Post last month detailing unusual techniques that AOL used for booking revenues, including ads sold on behalf of eBay that were treated as revenue for AOL.

Yesterday's announcement marked a departure from AOL Time Warner's previous assertions that its accounting was sound.

The company did not identify which transactions were involved, but it said it had based its preliminary conclusion on information that came to light within the past 10 days. The transactions occurred from the last quarter of 2000 through the first quarter of this year.

"I am committed to completing our internal review and resolving those questions on a thorough and timely basis, and we are moving forward to implement additional internal controls at AOL," Richard Parsons, the chief executive of AOL Time Warner, said in a statement.

Parsons also said that he and chief financial officer Wayne Pace had certified the company's financial statements in accordance with a directive from the Securities and Exchange Commission.