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ComputerWire: IT Industry Intelligence

Qwest Communications International Inc will delete $950m of revenue it recorded from optical-capacity swaps from its 2000 and 2001 accounts, after deciding they were incorrectly booked.

The Denver, Colorado-based carrier blamed the error on its former auditor Arthur Andersen LLP, and warned that its historical financial statements in 2000, 2001 and the first three months of 2002 "should not be relied on."

Qwest admitted in July that it had incorrectly recognized optical-capacity revenue amounting to $1.16bn in the years 1999, 2000 and 2001, and the new figures include some transactions involved in the earlier statement. At the heart of its problems is its relationship with bankrupt carrier Global Crossing Ltd, and suspicions that the companies had engaged in "hollow swaps" whereby each granted the other capacity of its networks to inflate revenue.

Qwest now says that historically it accounted for exchanges of optical capacity based on accounting policies approved by its previous auditor Arthur Andersen. But after analyzing this with new auditor KPMG, and discussing the issue with the SEC, it concluded that it could not support the recognition of revenue from these exchange transactions.

Also in question is $531m from the sale of optical capacity for cash, and each of these deals is being examined to decide whether they can stand.

The company has only been looking at optical-capacity deals since its merger with US West was completed in June 2000. While Qwest and KPMG are still examining the books and cannot give a date when the examination will be completed, it said that the adjustments it has announced represent a "significant development" in its assessment of its accounting policies and their application.

Even though Qwest has managed to renegotiate the terms of $3.39bn worth of loans, it still has debts of $26.5bn, and revenue is forecast to slide by 12% to between $17.1bn and $17.4bn in the current financial year.

© ComputerWire

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