Governance software company forced to restate six years of financial statements

Diligent Board Member Services, maker of Boardbooks governance software, notifies market its filings are unreliable.

Diligent Board Member Services, a provider of board and governance software, has notified shareholders its financial filings from 2007 through to 2012 need to be restated due to accounting errors.

The company has filed a statement saying its financial statements and any previously issued press release or statement containing financial information for the fiscal years and interim periods "should not be relied upon".

The Boardbooks website says the product helps improve governance by "facilitating communications and enabling a timely view of current and historic company information".

New York-based Diligent's stock trades on the New Zealand Stock Exchange (NZX) and the company is subject to NZX rules. However, because it is a US company incorporated in Delaware and has over 500 shareholders, it is also subject to the regulatory requirements of the US Securities and Exchange Commission (SEC).

Diligent was already trying to correct its 2010 to 2012 accounts and the first quarter of 2013 due to revenue recognition errors when it discovered a further problem.

In reuditing those years, Deloitte & Touche LLP determined that the company misclassified a receivable promissory note of US$ 6.8 million.

The receivable, which was paid in full with cash and shares and retired in 2012, was recorded as an asset instead of a deduction from stockholders’ equity from Diligent's formation in 2007 through to the final repayment.

The company expects to correct this error by reducing the assets reflected on its balance sheet, and stockholders equity, by the amount of the note receivable outstanding at the end of each fiscal period and eliminating impairment charges and recoveries of impairment charges related to the note from its income statements.

"The corrections to the balance sheet and income statement are non-cash adjustments and do not affect the company’s cash flow or revenue," it told investors today.

It added the new issues are not expected to delay filing of its previously announced restatements.

Dligent shares were trading at NZ$4.39 today, down only slightly since yesterday but off a high of NZ$7.69 last May.