THE FINANCIAL REPORTING COUNCIL is undertaking an investigation into software firm Autonomy over its accounts for the period between January 2009 and June 2011.
Autonomy was acquired by Hewlett Packard (HP) in an $11bn (£6.87bn) deal in August 2011, but just 15 months later it was forced to write down £5.5bn in impairment costs, the majority of which it claimed was caused by "serious accounting improprieties, misrepresentation and disclosure failures" to misrepresent the business.
The alleged misrepresentations, discovered by PwC during a forensic review of Autonomy's accounting practices, were said to have been flagged up a by a "senior member of Autonomy's leadership team", who said there were "questionable accounting practices" at the UK business prior to its acquisition.
HP chief executive Meg Whitman told analysts on the day of the write-down announcement that HP had relied heavily on the financial data audited by Deloitte, and brought in KPMG to essentially audit Deloitte's work in a due diligence exercise.
Subsequently, lawsuits have been filed by investors, one alleging that Deloitte and KPMG missed numerous red flags - something both firms denied at the time - while the other suggested HP knew of misleading statements in the acquisition.
Following the acquisition, Citi analysts criticised the way financial reporting is policed by the FRC, branding it "toothless" and called for greater transparency.
This situation could be a good case for the IIRC to show how integrated reporting could possibly identify such 'red flags' well in advance of the sale being agreed.
Posted by: john mardle, 12 Feb 2013 | 15:16
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