There is this feeling that maybe you can't even believe the accounts of some of these companies

Benedict Evans, telecoms analyst

Cable & Wireless also said it had booked �369m in revenues from capacity leases as soon as they were agreed, even though contracts can last for 20 years.

But it stressed that its capacity sales accounting policy was included in its published accounts and represented only a fraction of turnover.

The admissions have raised fears of the reliability of published accounts. The collapse of Enron followed an admission of inflated earnings, and investigations have begun into the accounting practices of bankrupt telecoms firm Global Crossing.

US-based Qwest Communications was on Monday asked by US financial watchdogs to provide documents on its relationship with Global Crossing.

And analysts at Nomura said: "Whilst no firm evidence of revenue inflation amongst the newer long-haul carriers has been found yet, it is possible that the investigation could extend to other companies such as [Cable & Wireless]."

Stock plunge

The news will further focus investor attention on holdings in telecoms firms, which have seen shares plunge in recent weeks.

"There is this feeling that maybe you can't even believe the accounts of some of these companies, coming off the back of Enron and then the whispers of something odd happening at Global Crossing," said Benedict Evans, telecoms analyst at investment bank WestLB Panmure

Cable & Wireless stock fell on Tuesday to a 10-year low.

The shares have fallen by almost one-quarter this year, making them the worst performing among stocks in the FTSE 100 index of leading UK listed firms.

Other shares under pressure have included Vodafone, which fell 4.7% on Tuesday, taking its decline this year to 20%.