Accounting & Tax

SEC Review Delays Cognos Filing

The Division of Corporate Finance is examining how the software developer allocates revenue in contracts that contain multiple elements, such as bo...
Stephen TaubMay 16, 2006

Ottawa-based software developer Cognos disclosed that it would delay the filing of its annual report for the fiscal year ended February 28 because of “an ongoing review” by the Securities and Exchange Commission of the company’s revenue recognition practices.

According to the company, the SEC’s Division of Corporate Finance is examining how Cognos allocates revenue in contracts that contain multiple elements, such as both customer-support and licensing fees.

The company stressed that it is working with the SEC but cannot provide any assurances as to the outcome of the review.

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Piper Jaffray downgraded its rating on Cognos to “market perform” from “outperform,” reported The Wall Street Journal. “We have no idea if there is a restatement coming, but given that most accounting reviews result in some type of accounting adjustment, we think it is prudent to lower our rating and wait until we get better visibility on the potential magnitude of the review and timeframe for completion,” said analyst David Rudow in a research note, according to the Journal.

On the other hand, BMO Nesbitt Burns Research analyst David Wright said he has not changed his target for the stock, reported Reuters Canada. Wright reportedly maintained that although the SEC review might result in changes to “the amount of revenue allocated to support versus license and the timing of the revenue and the costs for support and license,” Cognos’s cash situation would be unlikely to change.

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