Excite@Home Replaces Auditor With Rival Firm

Internet service provider Excite@Home said Wednesday that it fired the independent auditor that raised questions about its prospects for staying in business. The company, however, said the move was planned months ago.

Auditors from Ernst & Young said in a report filed Monday with the Securities and Exchange Commission that money-losing Excite@Home, formally called At Home Corp., faces a risk of collapse unless it obtains a substantial cash infusion. The opinion sent Excite@Home’s struggling stock down 46%.

Excite@Home spokeswoman Alison Bowman said the report had no impact on her company’s decision to drop Ernst & Young in favor of rival accounting firm PricewaterhouseCoopers, the auditor for AT&T; Corp. The telecommunications giant has majority voting control of Excite@Home.

“AT&T; uses PricewaterhouseCoopers, and our results are consolidated into theirs,” Bowman said. “There are no skeletons in the closet. This is just a case of funky timing.”

The switch to PricewaterhouseCoopers was approved by Excite@Home’s board of directors in May and disclosed in an SEC filing in June. It became effective on Aug. 15, one day after Ernst & Young completed its dire review.

Excite@Home, whose owners include cable titans Comcast Corp. and Cox Communications Inc., has “no opinion” on Ernst & Young’s report, Bowman said. She added that she doesn’t know whether the new auditors will be asked to reexamine the Redwood City, Calif.-based company’s books.

Analysts said the problems at the company are so well-known that a more favorable opinion from a second auditor wouldn’t have any impact on Wall Street.

“It’s apparent to everyone that they need to raise at least $100 million, and possibly as much as $200 million,” said Matthew Harrigan, a senior analyst with Janco Partners in Denver. “It’s not like someone else will come in and say, ‘Oh, everything’s cool.’ ”

A spokesman for Ernst & Young declined to comment on Excite@Home’s decision, citing “professional guidelines.”

Academic research shows that companies rarely benefit by firing auditors who issue a negative report, said Andrew Bailey, a professor of accounting at the University of Illinois at Urbana-Champaign.

“It isn’t the case that you automatically get a better result from management’s point of view by changing auditors,” he said.

Auditors tend to be more conservative in their judgments when the economy is weak and companies are more vulnerable, he said.

“Whenever companies fail, there’s a tendency for investors to want to recoup their losses from those they perceive to be responsible, and auditors . . . are very often roped into a lawsuit,” Bailey said.

Excite@Home’s core business of providing high-speed Internet access over cable television lines is doing fine. But the content side of its operations--including the Excite Web portal--is suffering along with legions of dot-coms, Harrigan said.

With the public capital markets in no mood to support Internet firms, Excite@Home’s parents almost certainly will end up supplying enough cash to keep it out of bankruptcy.

Excite@Home shares rose 16 cents Wednesday to close at 56 cents in Nasdaq trading, a 40% gain.