AOL faces further restatements

Federal investigators looking into America Online's (AOL) accounting practices have now focused on two advertising deals the...

Investigators looking into America Online's accounting practices have now focused on two advertising deals the company forged with German media giant Bertelsmann, which could result in AOL having to issue further restatements to its financial results.

AOL parent company AOL Time Warner revealed regulators' concern over the Bertelsmann deals in a quarterly filing submitted with the US Securities and Exchange Commission.

Both the SEC and the US Department of Justice have initiated probes into AOL's accounting practices, which has led the company to launch its own internal investigation and restate nearly two years worth of financial results, totalling $190m (£121m).

Now the SEC is taking the "preliminary view" that two transactions AOL made with Bertelsmann "should be adjusted", AOLTW said. The deals total $125m  (£94m) and $275m (£174m), and represent the largest multitransaction deals AOL entered into during the period under review, AOLTW said.

The SEC is looking into Bertelsmann's purchase of $400m (£254m) worth of advertising on the Internet service in relation to AOL's payment to Bertelsmann for its stake in AOL Europe.

The SEC has told AOL that it believed at least some portion of the revenue gained from the ad deals should have been booked as a reduction in the AOL Europe purchase price. The Bertelsmann probe reflects earlier concerns made by investigators that AOL double-booked revenue in an effort to prop up its share price ahead of the 2001 AOL-Time Warner merger.

AOLTW said in the filing that "it is not yet possible to predict the outcome of these investigations, but it is possible that further restatement of the company's financial statements may be necessary".

Additionally, the company said that the SEC is continuing to investigate "a range of other transactions principally involving the America Online unit".

News of another possible financial restatement comes as AOLTW is desperately trying to reassure investors that it is putting its derailed internet unit back on track. 

AOL has experienced a loss in both its advertising revenue and subscriber growth, causing AOLTW's stock price to tumble since the January 2001 merger. The company has announced that its founder, Steve Case, was stepping down as chairman in January, and AOLTW vice-chairman Ted Turner was also stepping down.

AOLTW reported a $99bn (£63bn) loss for 2002, which included a $44.5bn non-cash charge.

AOL has been struggling to regain its footing, recruiting fresh blood and rolling out a series of new products and services aimed at recapturing market share.

The company has rolled out its AOL for Broadband service, hoping to gain ground in the high-speed market.

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