AOL Changes Tune On Accounting

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, is already 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 only amount to $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.

Wednesday'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 last 10 days. The transactions occurred from the last quarter of 2000 thru 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.

Earlier Wednesday, the company said David Colburn, an executive who had negotiated many key advertising deals for America Online, had left the company late last week.

Company spokesman Jim Whitney declined to discuss the circumstances of Colburn's departure, but a source familiar with the matter said Colburn had been forced out and that the company had locked him out of his office. Colburn has an unlisted phone number and couldn't be reached for comment.

AOL Time Warner has been cleaning house at America Online, where accounting questions and a sharp decline in advertising revenues have been weighing heavily on the company's shares. AOL Time Warner is the world's largest media conglomerate with holdings spanning Time magazine, CNN, Warner Bros. and HBO.

Last week the company named former USA Interactive executive Jonathan Miller to head up America Online, replacing Robert Pittman, who was replaced as chief operating officer of AOL Time Warner last month as part of a management shakeup.

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