AOL accounts under new investigation

The world's largest media firm is already under investigation by the Securities and Exchange Commission (SEC).

"In the current environment, when anyone raises a question about accounting, it's not surprising that the relevant government agencies will want to look into the facts," AOL Time Warner said.

"As we said last week, we are cooperating 100% with the SEC, and we will cooperate with the Department of Justice as well."

Share price suffers

The company did not specify what practices were under investigation.

AOL's announcement hit its share price, which eventually closed 90 cents lower at $11.50.

The news comes a day after President George W Bush signed new legislation designed to stamp down on accounting abuses in the wake of the recent corporate scandals, such as WorldCom and Enron.

"What we are likely to see fairly early is a decision from the DOJ on whether or not this (inquiry) will turn criminal in nature," said Bob Mintz of the law firm McCarter & English.

"If so, we will likely see a barrage of grand jury subpoenas for records and may even see subpoenas for testimony at some point in the near future, but this is the very preliminary stages of an investigation."

Inflated revenue?

The company has stressed that its accounting is in accordance with generally accepted accounting practices, and that its outside auditors have repeatedly confirmed that.

Last week, AOL Time Warner's share price plunged after the SEC launched a fact-finding mission.

This was in response to press reports that the company had inflated online advertisement revenue through a series of "unconventional" deals between 2000 and 2002.

The stock fell even though the company reported profits of $394m, compared with a net loss of $734m the previous year.

Despite the improvements, sales growth at the AOL internet unit had been much slower than expected, the company said at the time.

During the first three months of the year, the firm was forced to make a record write-down of $54bn, effectively admitting that it had over-valued the assets it had bought.

Earlier this month, the company's chief operating officer Robert Pittman resigned, amid increased scrutiny of the company's profits.