Learning lessons from HP and Autonomy

6th February 2014

MGI World Learning lessons from HP and Autonomy

New revelations in the ongoing dispute between HP and Autonomy highlight a number of important accounting issues affecting businesses engaged in mergers and acquisitions.

HP bought British firm Autonomy for £6.7 billion in 2011, but only a year later it was embroiled in an international accounting scandal when the US tech giant claimed it had been misled about the deal. In particular HP accused Autonomy’s former management of accounting irregularities.

The case took on a new dimension this week as HP, in filing revised accounts at Companies House in the UK, said Autonomy inflated profits by as much as 80 per cent prior to its acquisition and revenues by over 50 per cent. Specifically, the accounts represent Autonomy Systems (ASL), which constituted the bulk of Autonomy’s UK business

"These restatements, and the reasons for them, are consistent with HP's previous disclosures regarding accounting improprieties in Autonomy's pre-acquisition financials," HP said in a statement released earlier this week. "The substantial work necessary to prepare these accounts has revealed extensive accounting errors and misrepresentations in the previously issued 2010 audited financial statements, including the exact problems previously identified by HP."

HP has also filed for a £38 million tax refund with HM Revenue and Customs, the UK tax authority. The former Autonomy management deny the allegations.

As ICAEW’s Economia notes, the HP/Autonomy deal involved all of the Big Four accounting firms at one point or another.  After Deloitte had signed off its audit of Autonomy in 2010, KPMG conducted diligence on the UK company. Following this PwC carried out the report into the takeover. E&Y are the auditors of HP, and signed off the restated turnover.

The deal is being investigated on both sides of the Atlantic, with the UK Serious Fraud Office and the US Securities and Exchange Commission involved. The US Department of Justice and the UK's Financial Reporting Council are also looking at the takeover. Meanwhile, HP is being sued by shareholders who say the US firm made misleading statements over the deal.

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