KPMG HAS BEEN named as the advisor brought in by HP to check the work of Autonomy's auditor Deloitte.
Earlier today HP announced it planned to write off more than $5bn (£3.1bn) from its acquisition of UK technology company Autonomy, due to accounting misrepresentations and improprieties it alleges were committed by senior Autonomy management.
Prior to the acquisitions, Big Four firm KPMG was brought in by HP to conduct due diligence work, which was essentially to check Deloitte's audit work of Autonomy.
In a call to analysts earlier today, HP CEO Meg Whitman (pictured) said that the HP board relied heavily on the financial data audited by Deloitte, and in a due diligence exercise brought in KPMG to audit Deloitte's work.
Neil MacDonald, an analyst at technology analysts Gartner, told Accountancy Age following the call: "How could multiple auditing firms miss this?"
PwC was called in to undertake a forensic review of Autonomy's financial data following a whistleblower's claims of accounting practices designed to inflate the company's financial position.
The accusations were made by a "senior member of Autonomy's team" who claimed there were "questionable accounting practices" at the UK technology business prior to its acquisition.
As a result of the PwC investigation, HP now believes Autonomy was substantially overvalued due to the misstatement of its financial performance, including revenue, core growth rate and gross margins. It was sold to HP for about $11bn last year.
HP, which is audited by Ernst & Young, has now announced a non-cash impairment charge of $8.8bn following the deal, with $5bn related to the Autonomy misrepresentation.
A statement from HP said: "HP is extremely disappointed to find that some former members of Autonomy's management team used accounting improprieties, misrepresentations and disclosure failures to inflate the underlying financial metrics of the company, prior to Autonomy's acquisition by HP."
Hewlett Packard has referred the matter to the US Securities and Exchange Commission's enforcement division and the UK's Serious Fraud Office.
A spokesman for Deloitte said: "Deloitte UK notes the allegations made by Hewlett Packard that ‘some former members of Autonomy's management team used serious accounting improprieties, disclosure failures and outright misrepresentations to inflate the financial metrics of the company, prior to Autonomy's acquisition by HP', and that these allegations have been referred to the SEC and SFO. We cannot comment further on this matter due to client confidentiality.
"We will cooperate with the relevant authorities with any investigations into these allegations."
It is unclear if either KPMG's US or UK arm were involved in the due diligence work. Spokespeople for the US and UK arms declined to comment on the issue due to client confidentiality.
Gartner analyst MacDonald said it was important not to lose sight of the fact that the Autonomy technology is "actually great and is a solid piece of software".
Having practised the art of walking away Scot free (E&Y?) from the UK banking disaster, this one should be easy for certain members of the Big 4.
Posted by: Graham Hirst, 21 Nov 2012 | 09:21
Young lad incharge of the audit must have made a small error on his calculation of materiality levels.
I totally agree with Graham Hirst's comments
Posted by: Raju M, 22 Nov 2012 | 13:30
The big 4 are not fully competent nor professionally committed to render best professional services.Neither all expanding business can seek and depend upon their so called cartel.Better golabilazation in audit be extended to BIG 100.We can review the big 4 performance.Let them bear the pain of marketing and competency.
Posted by: Masih Malik Chowdhury, 11 Jan 2013 | 04:25
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