An SEC spokeswoman said the commission is not commenting on the report except to confirm that information contained in the memo is correct. The memo, which outlines the SEC policy, was written and circulated by the American Institute of Certified Public Accountants (AICPA), a trade group. Companies that used the accounting rationale, which allowed them to report increased revenue, will have to restate financial results, the memo says, according to the Post.
The rationale, under investigation by Congress and federal regulators, led some telecommunications companies to count network swaps as two separate deals in their books. Companies using the rationale would book revenue from selling access right of way and then also spread the cost of buying access on another vendor's network over the course of the deal, which at times meant a quarter of a century or more.
Swaps that were accounted for as one transaction aren't at issue, and the AICPA memo says that not all of the deals that were booked as two transactions were handled improperly, the Post reported. The memo, dated Aug. 6, goes on to say that CEOs and chief financial officers should be aware of the situation before certifying financial statements. Most such swapping transactions took place in 2000 and 2001, when prices dropped because there was more than enough fiber-optic capacity to go around and that glut led companies to find new revenue streams.
In light of recent corporate accounting scandals, the CEOs and CFOs of nearly 1,000 of the largest companies in the U.S. must now certify to the SEC that to the best of their knowledge their company's financial results are accurate. The first deadline for such certifications was last Thursday, and was missed by Global Crossing and Qwest Communications International, both of which have swapped network capacity with other vendors, and with each other.
The two also are under SEC investigation, and their business practices are being scrutinized by federal lawmakers as well.
The IDG News Service is a Network World affiliate.
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