Accounting irregularities at Autonomy, the software company acquired by HP for £7.1bn in 2011, bumped up profitability and revenues by so much that Hewlett-Packard is now claiming that it made 80 per cent lower profits and 54 per cent lower revenues than originally stated in its accounts.
The accounts relate to Autonomy Systems Ltd, and its holding company, Autonomy Corporation. The write-down follows an investigation instigated in May 2012 after a whistleblower claimed that the company had engaged in dubious accounting practices in order to bump up its apparent revenues and profitability ahead of a sale.
HP's management, meanwhile, accused Autonomy and its founder, Mike Lynch, of engaging in false accounting. In November 2012, it wrote down the value of its UK acquisition by £5.5bn, pushing HP into a $6.9bn quarterly loss.
"These restatements, and the reasons for them, are consistent with HP's previous disclosures regarding accounting improprieties in Autonomy's pre-acquisition financials," claimed HP in a statement. "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 exact problems previously identified by HP."
It went on to blame, specifically, overstatement of revenues in Autonomy's US operations for much of the accounting issues. In particular, HP said revenue had been recognised on the supposed sale of products where payments were unlikely to be made by the buyers, as well as transactions made on a barter-style arrangement where a value could not be fairly pinned on a sale. Finally, it claimed that Autonomy had booked sales of hardware incorrectly as software sales.
The new accounts will be published this week at Companies House and will demonstrate a drastic downward revision of the company's 2010 financial performance.
While HP has accused Lynch of false accounting, Lynch has accused HP's management of making him and Autonomy scapegoats for HP's own failings. HP itself has made a series of disastrous acquisitions over the past ten or so years, arguably over-paying for a string of companies.