16 May 2000

The world's largest internet company America Online agreed yesterday to pay the Securities and Exchange Commission $3.5m to settle civil charges that it improperly accounted for its advertising costs between 1995 and 1996.

The SEC charges that AOL wrongfully capitalised the costs of acquiring new customers, including the distribution of thousands of free computer discs, reporting these as an asset rather than an expense. The outcome, says the SEC, was that AOL reported profits for six of eight quarters during the 1995 and 1996 fiscals, instead of the losses it would have posted had the costs been correctly attributed.

AOL did not admit wrongdoing and stressed that the settlement agreement will have no impact on its results since 1997. It discontinued its controversial accounting practices in October 1996, taking a $385m charge at that time. AOL also accepted an order preventing further violations of securities law, and will restate its 1995-1997 accounts to reflect the agreed changes..

News source: Financial Times