Home' A Plus Magazine : Dec 2012 Contents 8 December 2012
Hewlett-Packard has accused Autonomy, the British software company it
acquired last year for US$11.1 billion, of using misleading accounting practices
to make it appear more profitable than it actually was.
HP, based in the United States, claims that Autonomy had “inflated” its value
prior to the takeover as part of a wilful effort to mislead HP and shareholders.
Meg Whitman, HP ’s chief executive, said a senior Autonomy executive came
for ward to reveal worrying practices.
“ We launched... a forensic examination led by PricewaterhouseCoopers
and uncovered a whole host of very concerning accounting improprieties and
misrepresentations,” she told media.
KPMG was brought in by HP to conduct due diligence work prior to the
acquisition. Whitman said that HP had also relied on Deloitte, the British com-
pany ’s long-term auditor.
As a result of the PwC investigation, HP now believes Autonomy was
substantially over valued due to the misstatement of its financial performance
including revenue, core growth rate and gross margins, Accountancy Age
The alleged accounting scandal has already cost HP more than US$8.8 bil-
lion in charges. As a result of this, and a fall in the company’s share value and
low returns from the merger, HP recorded a net loss of US$6.85 billion for the
quarter ending 31 October.
Mike Lynch, Autonomy ’s former chief executive, denied HP’s allegations.
“ They [the allegations] are completely and utterly w rong and we reject them
completely,” The Daily Telegraph quoted him as saying.
HP has referred the case to the U.S. Securities and Exchange Commission
and the United Kingdom’s Serious Fraud Office.
FTSE 100 choose only
Big Four audit firms
A British Competition Commission inquiry into
the audit market of the United Kingdom and Eu-
rope has found that between 2001 and 2011, 100
percent of FTSE 100 companies used one of the
Big Four and only switched within the Big Four
instead of choosing mid-tier firms such as BDO
or Grant Thornton. Of the FTSE 250, 80 percent
switched within the Big Four when changing
firms and only 3 percent tried other firms.
FSA selects Grant Thornton
to report on HBOS failure
The Financial Services Authority of the United
Kingdom has appointed Grant Thornton to re-
port on the failure of HBOS after the Big Four
ruled themselves out due to conflicts of interest.
The report will look into the management and
culture of HBOS for a treasury select commit-
tee. The minutes from the FSA board state that
Grant Thornton was chosen for “the seniority of
the team [and] the mix of forensic and regula-
Former SEC official named
to replace Pacter at IASB
Mary Tokar, a former official with the Securi-
ties and Exchange Commission in the United
States, has been appointed to the International
Accounting Standards Board from January 2013.
Tokar will replace former Deloitte Hong Kong
director Paul Pacter, whose term expires at the
end of this year. Tokar was most recently global
leader for KPMG’s IFRS group, leading the Big
Four firm’s dialogue with the global accounting
regulatory and standard-setting communities.
Rice giant files suit after
Muddy Waters criticism
The world’s second-largest rice trader, Singa-
pore-based Olam International, has filed a le-
gal suit against investment firm Muddy Waters
after its founder, Carson Block questioned the
commodity trader’s accounting methods. The
legal action was initiated in the High Court of
Singapore following Block’s statements against
the company at a conference in London on 19
November. Olam said Block’s comments were
Former Stanford executives found
guilty in US$7 billion Ponzi scheme
Two former accounting executives, Gilbert Lopez and Mark Kuhrt, have been
convicted of helping fraudster Allen Stanford cover up a Ponzi scheme that cost
investors US$7 billion.
Both Lopez, Stanford International Bank’s former chief accounting officer,
and Kuhrt, Stanford’s global controller, were found guilty by a Texas jury of nine
out of 10 wire fraud counts and one count of conspiracy to commit wire fraud
after 16 hours of deliberation.
United States federal prosecutor Jason Varnado said during the closing
arguments that Lopez and Kuhrt “knew the bank was doing one thing and
promising investors another, and they helped hide it. The only explanation for
that is a criminal explanation.”
The two face sentences of more than 20 years. Lopez and Kuhrt were the last
former executives at the bank to face criminal trials for the fraud.
HP accuses British acquisition
of deception over profitability
Computer giant takes US$8.8 billion charge
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