Accounting practices used by Autonomy may raise a few eyebrows, but a new investigation by the Financial Times has suggested its biggest critic, HP, knew all about the moves months before it publicly condemned the firm.
The UK software company was acquired by HP in 2011 for $11.7bn. Six months later it sacked Autonomy’s founder and CEO, Mike Lynch, and just over a year later it wrote off $8.8bn of the firm’s value, claiming it had been wilfully misled with “a series of questionable accounting and business practices” inflating its worth.
It has been revealed that Autonomy had regularly sold off hardware at a loss and, following its acquisition, told HP it was having trouble selling its hardware, having previously sold Dell equipment to its customers.
HP only criticised the firm for this practice in November 2012 after a former Autonomy employee whistle-blower came forward, saying it had used the sales to cover up shortfalls in its other revenues.
However, the FT today claimed to have seen a number of emails and documents showing HP executives were in the know about the practice soon after the deal closed in October 2011. The newspaper even saw an email that went as far up the hierarchy as HP CEO Meg Whitman.
The practice was also included in audit reports undertaken by Deloitte in December 2010, which one source claimed were available to HP following the acquisition.
In these documents, Deloitte said it “accepted decision of management to allocate [hardware costs] to sales and marketing”, but also highlighted the practice of selling hardware to support sales and marketing as a “key risk”.
HP did not deny knowing about the hardware sales, but claimed it was this purpose – which it saw as a cover-up for revenue losses elsewhere for the software firm – it still held issue with.
An HP spokesman told the FT: “While HP eventually learned that a portion of Autonomy’s revenues were related to hardware sales, we knew nothing of the accounting improprieties, misrepresentations and disclosure failures related to such sales until after a senior Autonomy executive came forward and HP conducted an extensive investigation.”
The case continues, with both the UK’s Serious Fraud Office and the US Department of Justice and Securities and Exchange Commission looking into the matter.