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Restatement costs eat into Diligent

Software firm Diligent Board Member Services has announced a preliminary operating profit of $US6.4 million for the year to December 31, down 40% on the previous year as costs of restating its accounts and governance review mount.

The company, which provides governance software applications, says it has so far spent $US7.8 million on accounting adjustments and a review of its internal governance.

It also shaved about $US4.5 million off its operating revenue for the 2012 financial after a restatement due to the way it recognised revenue.

Overall revenue still climbed 66% to $US64.8 million in 2013 from the restated $US39.12 million (adjusted from $43.73 million) in 2012.

General and administration expenses surged 92% to $US18.4 million in the 12 months to December 31.

Operating income climbed to $US10.3 million from $US7.6 million.

Diligent says it expects additional costs related to the re-audit and restatement of accounts in the first quarter of 2014.

The company’s cash position at balance date was $US56 million. The accounts are unaudited.

The shares gained on the NZX after company said it would meet today's deadline, and last traded up 6.6% at $5.01.

The company had to file restated accounts after recognising revenue too early under US GAAP accounting rules.

"We lacked a sufficient compliment of trained finance and accounting personnel and did not establish adequate accounting and financial reporting policies and procedures as a general matter," the company said in an explanatory note.

"In particular, there were material weaknesses in our control environment and the design, establishment, maintenance and communication of effective controls relating to revenue recognition."

More by Duncan Bridgeman

Comments and questions

Not sure if Diligent spelt out all their one-off costs properly. Looks like their office shifting costs were not put into one-offs (Probably $2m+ USD), and they were paying extra sales tax for 2012 of around $0.5m USD (because the klutzes missed sales tax in some states for 2012 and 2013).

So it would seem their likely NPAT is actually a bit better if you take into account those extra one-offs of tax and office shifting.

Cash doesn't lie and they have a cool $56 million of the stuff. Even if the rest of the accounts havent followed the protocols that the accounting community impose (and the point should be made that the previous auditors should have picked up on this), the cash generated from this business is huge.

However like many others I have lost all confidence in the board for taking this long to sort out the accounts and spending so much to do so. Frankly it is unbelivable that over USD$100 has been spent looking at each of the 20,000 transactions - money it appears has been spent on Deloittes as the new auditor. I suggest that Buddle Findlay Partner Mark Russell, the divisive Mark Weldon, Chairman David Liptak and Alex Sodi all fall on their swords and resign over this whole process.

A new board, with a great product and the share price would start to perform again.