Shares in Dutch software firm Baan Co NV bounced back Thursday after it announced a clarification of its previously ambiguous revenue recognition policies. Swimming against a falling tide on the Amsterdam exchange, Baan’s shares rose by 4.5 guilders to 87.90 guilders, eventually closing up 8.3% at $44.63 on the Nasdaq market. But the firm has also sacked its independent auditors, Moret, Ernst & Young, the timing of which shows exactly who Baan is blaming for the bungled financial releases of the last fortnight. The optimism stems from the news that Baan, after a week of soul searching, will be extricating itself from any financing transactions used by its customers to facilitate the purchase of Baan software. Baan’s previous involvement as a link in such financing arrangements had cast doubts over its ability to recognize software license revenues on these contracts. By removing itself as a party to the financing process, Baan believes this strengthens its compliance with all revenue recognition criteria outlined in the new SOP, the company said. The reference is to SOP 97-2, a detailed and far reaching accounting standard issued last year and applicable to all companies listed on a US exchange, and for all transactions made after December 15 1997. But despite this move, Baan is still unable to bring the $43m of revenues onto its books which it was forced to defer from its first quarter results. A factor which, at the time, caused its earnings to fall well short of expectations, and which consequently upset the share price. The $43m of deferred income will be gradually added back over the coming quarter, taking up to two years to recognize, according to comments made to Reuters by Klaas Wagenaar, Baan’s chief operating officer. In other words, these amounts are still not yet in compliance with the new SOP. And even with the strong showing on Thursday, Baan’s shares are still down 18% on their pre-first quarter level. This has turned out to be a stiff lesson in how to manage US investor relations for the Dutch company. SOP 97-2 has been available since October last year, and in draft format for several months before that. Other companies in this sector, such as PeopleSoft Inc, have been working well in advance of their first quarters to smooth out any transitional difficulties caused by the new standard. The American Institute of Certified Public Accountants is putting together a committee to clarify how the new SOP should be interpreted in detail, so there will still be some surprises to come as companies are forced to back track. And Baan’s expensive blunder demonstrates just how late some companies have left it to try and understand SOP 97-2. Klaas Wagenaar said We believe these clarifications address the uncertainties surrounding the implementation of the new SOP and reinforce our business practices. Its just a pity for Baan’s shareholders that the clarification came after and not before the first quarter.
á
