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SEC inquiring into Amazon's accounting practices

The Securities and Exchange Commission launches an informal inquiry into the e-tailer's accounting practices related to its commerce network.

The Securities and Exchange Commission has launched an informal inquiry into Amazon's accounting practices related to the e-tailer's commerce network, the company said in an earnings report Tuesday.

Saying that it had responded to the inquiries, Amazon added in a statement that it has "reviewed the accounting for the transactions with its auditors and the SEC staff, and the company believes that the accounting treatment and disclosures were appropriate."

"Amazon.com will continue to cooperate with the SEC staff if they have further questions," the company said.

Amazon's commerce network is a series of promotional partnerships with other online and offline retailers. Over the past year, Amazon has signed a flurry of deals with companies such as Toys "R" Us, Drugstore.com and Living.com, which closed and filed for bankruptcy protection earlier this year.

Although Amazon reported big numbers for those deals--Living.com agreed to pay Amazon $145 million over five years--much of the revenue Amazon was to earn from the deals was not in cash, but in equities in its partners. As the market for technology stocks declined, Amazon was forced to renegotiate some of those deals.

In a conference call with investors after the second quarter, Amazon chief financial officer Warren Jenson warned investors that the income from those deals would be lower than expected in upcoming quarters.

In a conference call to discuss quarterly results with investors Tuesday, Jenson noted that Amazon had signed a number of new commerce network deals with companies such as Microsoft, Ofoto and Sotheby's. Some 70 percent of the revenue for those deals will be in cash, Jenson said.

Meanwhile, Jenson played down the SEC inquiry. "We're confident that our accounting has been conservative," he said.

Amazon has been in discussions with the SEC for the past month, Jenson said in an interview with CNET News.com. He declined to say whether the inquiry focused on one particular partnership or on Amazon's method of accounting for the partnerships in general.

Accounting experts are still trying to decide on an appropriate method to account for transactions that involve trading services for equity in a company, Jenson said. Nevertheless, he said Amazon felt confident in both how it had accounted for its commerce network transactions and how it reported them to the public.

"We felt it was appropriate to disclose (the inquiry), and we feel confident about our approach," he said.