By Spencer E. Ante
Hewlett-Packard Co. said it found major accounting errors in an
audit of Autonomy's 2010 financial statements, the first
significant evidence backing up H-P's claim that the British
software company had inflated its revenue and profit before its $11
billion acquisition.
The alleged improprieties were discovered during an H-P audit of
Autonomy's financials for 2010 and 2011. The 2011 filings were
required by a U.K. regulator.
As part of filing the 2011 Autonomy statements, H-P said it had
to refile the statements for 2010 with significant reductions in
revenue and profit for one large Autonomy entity.
Revenue in 2010 for Autonomy Systems Ltd. was lowered by 54%, or
around $80 million British pounds, according to a statement H-P
filed with U.K. Companies House on Friday. The restatement also
showed a decrease in operating profit by about 81%, H-P said.
H-P said it found similar accounting improprieties in 2011 as it
did in 2010. But the company didn't detail those discrepancies
since Autonomy hadn't filed its financials for 2011 as the deal was
closing. Autonomy had previously filed financial statements for
2010, which required the restatement.
Former Autonomy officials weren't immediately available for
comment.
The U.K.'s Financial Reporting Council, which is probing
Autonomy's accounting in Britain, said "its investigation into the
financial reporting of Autonomy is ongoing. We announced our
investigation in February 2013," according to a spokesman. It
declined to comment further on the case.
The H-P audit of the two entities, conducted by Ernst &
Young LLP, found that Autonomy had significantly inflated revenue
for Autonomy Systems in 2010 by booking deals that were unlikely to
be paid for, booking deals prematurely before they were closed, and
even claiming transactions were there were no end customers, an H-P
spokesman said.
H-P also found errors in the accounting of certain expenses such
as employee commissions and bonuses, according to the filings.
Another part of the restatement involved a change in the way H-P
accounted for certain research and development expenses, in a way
that was different than Autonomy.
"These restatements, and the reasons for them, are consistent
with H-P's previous disclosures regarding accounting improprieties
in Autonomy's pre-acquisition financials," the H-P spokesman said.
"The substantial work necessary to prepare these accounts has
revealed extensive accounting errors and misrepresentations in the
previously issued 2010 audited financial statements, including the
problems previously identified by H-P."
H-P wouldn't say if the company had submitted the documents with
officials in the U.S. and U.K. who are investigating the Autonomy
deal. But it did say the company continues to cooperate with
authorities. H-P said the company isn't required to file the
statements with U.S. regulators.
The Financial Reporting Council, the regulator tasked with
promoting good corporate governance and financial reporting in the
U.K., is probing the past financial reports of Autonomy.
Autonomy developed software that allows businesses to search
through documents, presentations, videos, emails and other data
housed on their corporate intranets.
The FRC's investigation of Autonomy's accounts comes as the U.S.
Justice Department investigates the alleged improprieties,
according to H-P. The U.S. computer company also said it has
provided information to the U.S. Securities and Exchange Commission
and the U.K. Serious Fraud Office.
H-P purchased Autonomy in October 2011. About a year later, the
U.S. computer company said it would write down the value of the
U.K. enterprise-software company by $8.8 billion. H-P blamed more
than $5 billion of the write-down on accounting irregularities that
it said Autonomy had carried out to inflate revenue and profit
ahead of the deal.
Autonomy founder Mike Lynch denied H-P's claims, calling them
"completely and utterly wrong."
--Simon Zekaria contributed to this article.
Write to Spencer Ante at spencer.ante@wsj.com
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