Caveat emptor

The accusations of suspect accounting at the British technology firm Autonomy before its 2011 acquisition by Hewlett-Packard have taken a fresh turn.

Meg Whitman, the chief executive who took over as the acquisition was being completed, blamed a "wilful effort" to inflate the company's figures, and that they "severely impacted HP management's ability to fairly value Autonomy at the time of the deal".

A fresh cache of emails and other documents have emerged some of which point to the need for “radical action” to stop falling sales a year before the takeover.

Deloitte who audited Autonomy’s accounts said “it accepted decisions of management” to recognise hardware sales in its accounts as “sales and marketing”.

Hewlett-Packard says that this was a mechanism of covering up hardware sales and that Autonomy booked revenues before they were received and used a number of acquisitions to inflate the company’s value before the turnover.

Currently the FBI and the Serious Fraud Office continue to trawl through some 75,000 emails. Meanwhile the US$ 5 billion battle continues. begging the question that during the due diligence process how many Auditors examined the validity of the reported accounts?

This is not an isolated event, think of the Japanese camera giant Olympus, the company admitted to hiding losses on securities investments for decades.

To conduct this $1.7 billion fraud Olympus executives secretly liquidated hundreds of millions of dollars of Olympus investments, then lied to auditors by certifying that the investments still existed.

Ultimately the validity of a company’s accounts reflects the integrity of the company which is being audited.

 

If the company’s results are misrepresented through fraud, deviousness or sheer incompetence then the fall-out will be disastrous.