Lernout & Hauspie (L&H), Europe's largest maker of speech recognition software, said it will conduct a special audit after its shares tumbled last week on rumours of inconsistencies in its Korean business.

L&H said that KPMG, an independent auditor, will conduct the mid-year interim audit to allay "concerns about the division's financial results".

Gaston Bastiaens, president and chief executive at L&H, said the company had no doubt "that the auditors will confirm that during the first two quarters of 2000, L&H Korea had strong revenues and a very solid business base, as already publicly reported".

But he also said that a drop in Singaporean sales was the result of an 18-month product development cycle in which L&H is working with third parties to create different language models and applications.

L&H said it believes that statements attributed to Korean customers are misquoted or factually incorrect, and that other information reported earlier in the Wall Street Journal, including details of its customer roster, is distorted.

The newspaper article, headed 'Tech firm's Korean growth raises eyebrows', claimed that some companies which L&H identified as Korean customers denied doing any business with the firm. An employee of LG Electronics, one of 18 alleged customers the newspaper contacted, said LG had never bought products or licences from L&H.

L&H said last week that it and LG entered into a licensing agreement at the end of 1999 which called for the integration of L&H's TTS 2500 text-to-speech technology into LG televisions to be used for language learning.

Rob Stone, an analyst with SG Cowan Securities, said: "There's been some confusion caused by the geographic segment reporting, but for people who take the time to read the details, the shift from technology licensing towards building more complete applications was expected to cause a revenue pause in the US. But we're already seeing the benefits of that strategy in [L&H's] Korean operation."

On 8 August, L&H said its second quarter operating profit fell 58 per cent. Bastiaens said analysts had forecast revenues of more than $700m for 2000 and $1.2bn for 2001.