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Autonomy Finances Before HP Deal Probed by U.K. Regulator

Autonomy Finance Reports Before HP Deal Probed by U.K. Regulator
The Financial Reporting Council is probing the published accounts of Autonomy for the period between January 2009 and June 2011, the agency said in a statement today. Photographer: David Paul Morris/Bloomberg

Feb. 11 (Bloomberg) -- Autonomy Corp.’s financial reporting in the years leading up to Hewlett-Packard Co.’s acquisition is being investigated by the U.K. accounting regulator.

The Financial Reporting Council is probing the published accounts of Autonomy for the period between January 2009 and June 2011, the London-based agency said in a statement today. Hewlett-Packard, which took an $8.8 billion writedown a year after acquiring Autonomy, on Nov. 20 accused the company of miscategorizing sales and financial misreporting.

Hewlett-Packard said Autonomy booked hardware sales to appear as more profitable software, and used transactions with resellers of its software to accelerate revenue recognition or fabricate sales.

Former Autonomy executives, including ex-Chief Executive Officer Mike Lynch, have denied improper accounting and said today that they “look forward” to the FRC investigation. Deloitte LLC said in November that it didn’t find evidence of misrepresentations or improper accounting when it last audited Autonomy’s finances for the year ended Dec. 31, 2010.

“Autonomy received unqualified audit reports throughout its life as a public company,” a spokeswoman for Autonomy’s former management said in a statement. “This includes the period in question during which Autonomy was audited by Deloitte.”

Fully Cooperate

Deloitte said it wasn’t hired to carry out due diligence on the Hewlett-Packard acquisition.

“We intend to cooperate fully with the FRC’s investigation into these matters,” Deloitte said in a statement today. “We conducted our audit work in full compliance with regulation and professional standards.”

The FRC will next decide whether to bring disciplinary proceedings against anyone responsible for accounting errors and the matter may ultimately be referred to a tribunal. Sanctions from the regulator can include reprimands, fines and orders to withdraw accounting firms’ licenses, according to its website.

Hewlett-Packard has also given its evidence to the U.S. Securities and Exchange Commission and the U.K. Serious Fraud Office.

A spokeswoman for the company and SFO spokesman David Jones declined to immediately comment on the FRC probe.

Former Hewlett-Packard Chief Executive Officer Leo Apotheker, who bought Autonomy to diversify away from hardware and expand in software for businesses, left in 2011 after less than a year on the job following repeated strategy shifts and forecast cuts. Meg Whitman, who took over from him, said the misrepresentations caused Hewlett-Packard to value Autonomy incorrectly before the deal, which ultimately cost the Palo Alto, California-based company $11.1 billion.

To contact the reporter on this story: Lindsay Fortado in London at lfortado@bloomberg.net

To contact the editor responsible for this story: Anthony Aarons at aaarons@bloomberg.net

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