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AIA

Autonomy legal battle takes fresh twist

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19th Feb 2014
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Senior executives at Hewlett Packard and auditors at Deloitte knew about some of the controversial sales practices used by Autonomy months before a whistleblower revealed them, forcing HP to write down the value of the acquired software company by US$8.8bn a year later.

A report by the Financial Times, citing accounting documents and internal emails, said some of the deals at the centre of the allegations were signed off by Autonomy’s auditors.

Other parts of audit packs acknowledged the extensive sale of hardware by the British software company at below-cost prices, the FT also reported.

HP has said that it was not aware of the alleged accounting misrepresentations until a whistleblower came forward in May 2012.

HP is being sued for US$1bn by some of its shareholders over the “vastly overvalued” acquisition of Autonomy.

Deloitte, Autonomy’s auditor, told AccountingWEB that it “categorically denies" any knowledge of any accounting improprieties or misrepresentations in Autonomy’s financial statements. "Deloitte conducted its audit work in full compliance with regulation and professional standards,” the firm said.

An HP statement to AccountingWEB added that although it eventually learned that a portion of Autonomy's revenues were related to hardware sales, it knew nothing of the "accounting improprieties, misrepresentations and disclosure failures" related to such sales until after a senior Autonomy executive came forward and HP conducted an extensive investigation. 

"Our investigation has shown that Autonomy often resold generic hardware at a loss in the last few days of the quarter with the sole purpose of masking its real financial performance. In addition, Autonomy engaged in improper transactions with certain value-added resellers to create the appearance of software licensing revenue at the end of each quarter. In some instances, these transactions were used to accelerate revenue, and on numerous occasions, these were fabricated transactions with no real end-user." 

But according to documents seen by the FT, HP was told about the existence of hardware sales at Autonomy in the seven months between when it closed the deal and May 2012, when it says its attention was first drawn to the transactions by a whistleblower.

HP first announced the allegations in November 2012. 

Autonomy was founded and led by British entrepreneur Mike Lynch, who has denied HP's allegations.

Large sales of hardware were routinely acknowledged in Autonomy audit reports seen by the FT. These were received by the audit committee, chaired by former Prudential boss Jonathan Bloomer, and signed off by auditors Deloitte, the FT reported.

The audit reports were available to HP management after the acquisition, according to one person familiar with the company’s finances.

Deloitte wrote in an audit report that it “accepted decision of management to allocate [hardware costs] to sales and marketing”. HP later complained that this method was a deliberate attempt to bury costs.

Deloitte also flagged Autonomy’s practice of selling hardware at a loss to support its sales and marketing efforts as one of the “key risks” in its report.

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By Jeremy.t
26th Feb 2014 09:42

Oh Dear HP

How come they didn't get access to auditor reports until after completion?  Where was the due diligence HP?

 

I assume the point of HP shareholders suing HP is to get an insurance payout, as opposed to HP actually paying the shareholders their own money?

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