Accounting changes hit NHS supplier’s shares

Health software supplier iSoft’s share price dropped by almost half last week following the announcement that it is to change its accounting practices.

The company is a key supplier to the £6bn NHS IT programme and has already reduced its predicted profits twice this year. But analysts say delays to the project are not a cause of the accounting changes.

By altering its policy for recognising revenue, profits for this financial year are likely to be between £3 and £7m, compared with the £17-22m that was expected under the old rules.

iSoft says the changes reflect the evolution of its business by valuing product licences over the course of implementation, rather than at the time of delivery.

‘iSoft is now engaged with large, more complex and long-term product supply projects, in which it is increasingly difficult to distinguish between the supply of the product licence and its implementation,’ says the firm.

The supplier has not lost money, but the changes will alter perceptions of its worth, says Ovum analyst Tola Sargeant.

‘For 2006 pre-tax profits are now expected to be 1.5-3.5 per cent, whereas before they were 8-10 per cent, so the business is not quite what people thought it was,’ she said.

But the decision to change the rules was not caused by the NHS delays, says Sargeant.

‘This is to do with the way iSoft recognises revenues, particularly on contracts such as the NHS where software is implemented over a longer period.

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