HP audit leads to cut in 2010 revenue at Autonomy
04 Feb 2014
Hewlett-Packard (HP) yesterday said that audit revealed that the accounting irregularities at British software company Autonomy - the British software company it acquired in 2011, has led to cut reported 2010 revenue by 54 per cent and 81 per cent less profits than originally stated.
HP alleges that the top management of Autonomy inflated the company revenue and profit in 2010 before HP acquired the Cambridge-based company in 2011, according to UK regulatory filings by HP.
HP had acquired Autonomy for $11.4 billion after conducting due diligence, but a year later took an $8.8-billion writedown alleging that it had been deliberately misled and paid 64 per cent above Autonomy's market value (See:HP takes $8.8 bn charge on Autonomy acquisition).
The audit on Autonomy was carried out on HP's behalf by Ernst & Young.
Autonomy, which is currently being investigated by the UK Serious Fraud Office and the US Department of Justice, reported profit after tax of £105.7 million in 2010, but this figure was revised down to just £19.6 million in the recent accounts filed by HP with the British regulators.
Post acquisition, HP launched an internal investigation after a senior member of Autonomy's leadership team spilled the beans, following the departure of Autonomy founder Mike Lynch. The whistleblower provided details of a series of questionable accounting and business practices at Autonomy prior to the acquisition by HP.
HP has alleged that accounting improprieties and misrepresentations at Autonomy, including mischaracterisation of revenue from negative-margin, low-end hardware sales with little or no associated software content as ''IDOL product,'' and the improper inclusion of such revenue as ''license revenue'' for purposes of the organic and IDOL growth calculations have come to light.
The former Autonomy management team of Autonomy said in a statement, "We continue to reject these allegations by HP. Given the size of HP's write-down, we are very surprised by the small size of the adjustments in ASL that are attributed to the ongoing accounting dispute, which represent a few per cent of group revenue. We know even these include revenue that will be recognised at a later time, under HP's new approach."
Lunch had earlier said that Autonomy's accounts were fully audited by Deloitte throughout the period in question and Deloitte has confirmed that it conducted its audit work in full compliance with regulation and professional standards, hence, "We refuse to be a scapegoat for HP's own failings."
Just a few months before HP proposed to acquire Autonomy, HP's long-time tormentor Oracle had refused to buy the British software maker at a $6-billion valuation, but HP agreed to pay twice that amount.
When HP announced that it is proposing to acquire Autonomy, Oracle went on to mock HP by setting up a page on its site titled, ''Please Buy Autonomy.''
