Records show Qwest was warned accounting methods could raise questions with regulators

Thursday, October 3rd 2002, 12:00 am

By: News On 6

DENVER (AP) _ Records kept by Qwest International Communications Inc.'s former auditor show the company was warned its accounting methods could raise questions with the Securities and Exchange Commission.

Arthur Andersen LLP warned Qwest that booking 20 years of network-capacity revenue at once was risky, said Lynn Turner, a former SEC chief accountant.

``They were plainly aware that they were playing with dynamite,'' said Turner, now a Colorado State University professor.

The accounting firm warned Qwest's board in October 2000 that the SEC was ``vigorously challenging'' the booking of future swaps of network capacity, according to records obtained by The Denver Post and Rocky Mountain News.

On Tuesday, former Qwest CEO Joe Nacchio told a subcommittee of the House Energy and Commerce Committee investigating Qwest and other telecommunication companies that the company acted on the advice of Andersen. In October 2001, Anderson told Qwest its accounting methods were in compliance with general standards.

But a year earlier, Andersen audit partner Mark Iwan had told Qwest that accounting for network capacity sales was one of the company's ``key financial reporting risks.''

``The board and management of Qwest were making business decisions, including setting accounting policies,'' said Andersen spokesman Patrick Dorton. ``The auditor did his job in making sure the board and management knew the full impact of their decision making.''

Analysts from Morgan Stanley warned investors to be cautious of Qwest in June 2001 because of its aggressive accounting practices.

Last month Qwest decided to reverse $950 million in revenue booked from swaps and probably will revise its revenues even more, said Qwest chief financial officer Oren Shaffer.