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AOL Accounting Practices Questioned

Aug 14, 2002 | AP AOL Time Warner Inc. acknowledged late Wednesday that it may have "improperly recognized" revenues from three transactions at its America Online unit, whose accounting practices are being scrutinized by federal regulators.

AOL Time Warner said in a statement that the transactions in question totaled approximately $49 million over a period of a year and a half. The company said it was still examining those and other transactions at AOL and has not yet made a final determination on whether they were accounted for properly.

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.

The amounts involved would be an insignificant portion of the company's overall revenues. But AOL Time Warner, like other major companies, has been under heightened scrutiny due to the recent wave of accounting scandals that have taken down Enron, Adelphia Communications and WorldCom.

"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 said he expected the review to be complete by the end of the third quarter.

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.

Colburn had been in charge of America Online's business affairs unit and led negotiations for major deals. The Securities and Exchange Commission and the Justice Department are investigating several transactions at America Online.

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 shake-up.

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