Report: AOL accounting issues include WorldCom deal

Inquiries into improper accounting methods at America Online Inc. (AOL) may include a deal with WorldCom Inc., another company suffering due to questionable accounting practices, according to a report in Thursday's Washington Post.

AOL last week said that it was investigating the accounting of transactions totalling US$49 million over six quarters. One of the deals under investigation involves so-called "round-tripping" with WorldCom, according to the Post's report.

Round-tripping describes deals in which companies sell services or assets to another company while simultaneously buying back similar services or assets from that company. A similar type of deal, called a back-to-back transaction, includes the same exchange of services or assets, but involves a delay between the transactions. Such deals can be used to make earnings reports look better than they might otherwise be and can be deceptive to investors.

According to the Post, AOL and WorldCom engaged in a round-trip deal wherein the Dulles, Virginia, AOL purchased network capacity from WorldCom's UUNet subsidiary, while the Clinton, Mississippi, WorldCom agreed to buy ads on AOL.

Neither company would confirm the report, however.

AOL declined comment pending the continuation of the company's investigation into the transactions in question, according to Andrew Weinstein, an AOL spokesman.

"WorldCom does not and has not engaged in swap transactions," said Julie Moore, spokeswoman for WorldCom.

Both companies are the subject of separate investigations by the U.S. Securities and Exchange Commission (SEC). WorldCom is being investigated after it disclosed that improper accounting would lead it to restate its earnings for 1999, 2000, 2001 and the first quarter of 2002 by more than $7 billion. AOL Time Warner Inc., the parent company of AOL, is also facing SEC and U.S. Department of Justice probes over its accounting.