Abd al-Warith (may Allah have mercy on him) also narrated it, from a man, from Sayyiduna Mu'adh (may Allah be pleased with him), likewise as the Prophet's words. What was meant, and Allah knows best, is that the ruling of Islam prevails, and part of its prevailing is that the child is judged to be Muslim when either one of his parents becomes Muslim.
Hadith Referenceالسنن الكبرى للبيهقي / كتاب اللقطة / 12154