Qwest Come Under Scrutiny. With government hearings looming this week, Qwest Communications is restating nearly $1 billion in revenue from swaps of capacity on its network, a practice that has come under scrutiny by federal regulators.
The $950 million restatement is from so-called swaps, which the Securities and Exchange Commission is investigating to see if they allowed ‘Qwest’ to artificially boost revenues. ‘Qwest’ also is the subject of a Department of Justice investigation, and a House committee plans hearings this week.
Investigators say ‘Qwest’ bought capacity on another company’s system and booked it as a capital expense, which is only recorded slowly over several years, while selling the same amount of capacity to the other firm and booking that immediately as revenue.
In a written release Sunday, Qwest said the revenue from capacity swaps was based on accounting policies approved by its previous auditor, Arthur Andersen LLP.
Qwest switched from Andersen to KPMG in May after Andersen was indicted on charges of destroying records related to the former energy trader Enron Corp. ‘Qwest’ said after analyzing its previous practices and consulting with KPMG, it decided not to recognize the swaps as revenue. ‘Qwest’ said its analysis also was influenced by discussions in July with SEC officials.
The telecommunications company also said it may have to adjust another $531 million in revenue from cash sales of optical capacity assets to third parties.
‘Qwest’ said its accounting for cash sales of optical capacity assets to third parties was also based on policies approved by Andersen.
Two ‘Qwest’ executives are scheduled to testify about the capacity swaps Tuesday before the House Energy and Commerce Committee. Former chief executive officer Joe Nacchio is expected to testify in October.
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