More Problems In AOL's Accounting

8/18/2002 8:00 PM Eastern

AOL Time Warner Inc. submitted certification of its financial statements to the Securities and Exchange Commission by the Aug. 14 deadline, but admitted that about $49 million in revenue had been improperly accounted for.

That $49 million sum represents less than one half of 1 percent of AOL Time Warner's total revenue, and involves three separate transactions in the America Online Internet-service provider unit over a period of about six quarters.

According to its second quarter 10-Q filing with the SEC, AOL identified three transactions by the ISP that may have been inappropriately recognized as advertising and commerce revenue. The transactions are separate from other unconventional deals made by AOL — totaling about $270 million — that were revealed in a series of articles in the Washington Post
last month.

In the filing, AOL said that it continues to investigate these transactions, and that it may uncover other instances of potentially inappropriate revenue recognition. That investigation is expected to be completed by Sept. 30.

"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," AOL Time Warner CEO Richard Parsons said in a statement. "I am also committed to conducting the operations of all of our AOL Time Warner businesses with the utmost integrity and responsibility."

Later in the week, it was revealed that David Colburn — who until earlier this month was executive vice president of AOL Time Warner and president of business development for AOL's subscription services, advertising and commerce businesses — was the focus of an SEC investigation into the accounting questions.

Salomon Smith Barney Inc. analyst Jill Krutick, who downgraded her rating on AOL Time Warner to "neutral" on July 25, said in a report that although the amount is small, she recommended that investors "stay on the sidelines" until the issues are resolved.

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