Hewlett-Packard Company (NYSE:HPQ) has disclosed in its filing with UK’s Companies House that an audit of the 2010 financial results of Autonomy’s eight divisions revealed revenues were actually just 54% of its initially stated figure.
However, former senior management of Autonomy denied Hewlett-Packard Company (NYSE:HPQ)’s charges.
In a rare interview with Harvard Business School that was published online earlier this month, (it has since been taken down) value investor Seth Klarman spoke at length about his investment process, philosophy and the changes value investors have had to overcome during the past decade. Klarman’s hedge fund, the Boston-based Baupost has one of Read More
HP’s $8.8 billion write down on Autonomy
Hewlett-Packard Company (NYSE:HPQ) purchased Autonomy, the British firm, in 2011 to boost its presence in the enterprise software market. In 2012, Hewlett-Packard Company (NYSE:HPQ) announced that it had to take an $8.8 billion accounting charge related to Autonomy. HP said that it discovered ‘serious accounting improprieties’ and ‘outright misrepresentations’ at Autonomy. It started looking into these issues after a senior Autonomy executive came forward. HP then launched an investigation into Autonomy by hiring a third party firm.
However, Autonomy founder and former chief Mike Lynch asked Hewlett-Packard Company (NYSE:HPQ)’s board to make their allegations public so that everybody can understand the nature of allegations and how it relates to the other decisions of HP.
Differences in accounting standards
In its recent filing last Friday, HP revealed serious accounting errors at Autonomy led to a number of major revisions in Autonomy’s financial report for 2010. Among the changes in the restatements were an 81% cut in the operating profit of a major Autonomy subsidiary, to 19.6 million pounds, and a 54% drop in revenue. The audit was conducted on HP’s behalf by Ernst & Young.
In its filing, HP also warned that other accounting errors may yet emerge.
However, Mike Lynch denied HP’s charges, arguing that much of the dispute centers on differences in accounting standards between the U.S. and Britain. He has demanded that HP provide evidence to back up its claims.
According to the filing, Hewlett-Packard Company (NYSE:HPQ) claimed that Autonomy reported sales where ‘collectability issues existed’ (i.e. from firms that couldn’t pay) and from ‘barter-type transactions’. HP also revealed that Autonomy didn’t take into account the costs of customizing software for specific deals, and overvalued service contracts.
Denying Hewlett-Packard Company (NYSE:HPQ)’s allegations, Autonomy’s former management team hit back strongly saying: “We note that a majority of the change in numbers is due to transfer pricing between jurisdictions, a mechanism which often reduces a company’s tax bill in the UK. We hope the UK government will take a robust position in rebuffing HP’s attempts to deprive it of over £38m in tax revenue.”