Financial Accounting Blog

Monday, October 13, 2003

Revenue Recognition at Qwest. A former sales manager with Qwest Communications International has agreed to pay a $25,000 fine to settle an SEC case of "swapping" communications lines to create higher revenues.
The SEC said Monday that it found that in the final days of each quarter from December 2000 through June 2001, Qwest used fiber-optic cable sales to meet its aggressive revenue targets.
'Qwest employees and management commonly referred to (the sales) as 'gap fillers,' in other words, a means to make up the shortfall between the aggressive revenue projections announced by Qwest and the actual revenue earned,' according to a SEC statement.

According to the SEC, Pfau 'along with Qwest senior management,' made or assisted in providing verbal or e-mail secret side agreements that allowed buyers to exchange their fiber for different capacity at a later date. 'The explicit purpose of making the side agreements was to conceal (them) from Qwest's accountants and outside auditors,' the SEC charged in its complaint.

Such an exchange provision, under generally accepted accounting principles, would have invalidated Qwest's accounting of the deals.