HP claims Autonomy was "substantially overvalued" ahead of its takeover (Reuters)
Hewlett-Packard Co. has surprised analysts by alleging its British software unit, Autonomy, of a massive accounting scandal thereby charging them with $8.8 billion in write down. The HP accounting fraud is the latest in the chain of events that has once again raised concerns over the expertise of company's top executives and board members as well.
According to reports released on the 20th of November, HP accuses Autonomy of some "serious accounting improprieties" and deliberately misinforming its investors. The accounting scandal at HP is the latest embarrassment of the company which once was considered to be a paragon of the technology sector. There was also a major out rise in the month of May to remove the then chief executive of Autonomy Mike Lynch. According to reports, HP accuses Autonomy of deliberately misinforming both shareholders and potential buyers regarding the financial metrics of the company. This accounting scandal at HP has brutally put into question the aptitude of HP top executives to estimate the Autonomy deal justly. Therefore HP accuses Autonomy of unlawful activity and imposes a $8.8 billion non-cash impairment charge in the fourth quarter of the of the 2012 fiscal year.
The HP accounting fraud, which actually involves a company acquired by HP for approximately $11 billion, seems to be a source of HP's real embarrassment. If Autonomy had committed the offense, and not just followed unethical accounting procedures of accounting - HP should have had at least an idea about it - then this would be a major source of humiliation for company's employees who were responsible for reviewing the deal. The accounting scandal at HP, which is worth nearly $5 billion, is related not only to the serious improprieties in accounting but also to the disclosing and misinterpreting of the failures that was revealed by an interim investigation that was held by HP. The HP accounting fraud was also preceded by a forensic review of the accounting practices of Autonomy. HP accuses Autonomy of fraud only after conducting these investigations and reviews.
The market status of HP:
Everything indicates that the impairment charge is tied closely to the trading value of the stock of HP and its performance in the market as well. The accounting scandal at HP has really hurt the status of the company and its shares in the fourth quarter of this year. Shares plunged 12 percent with the news of the HP accounting fraud thereby reaching a record low for a period of 10 years to $11.71. HP that has for decades been a company of great technical innovation and excellence in the Silicon Valley has all of a sudden suffered a major setback. The market value of the company fell from as high as $155 billion during April 2000 to a mere $20 billion in the fourth quarter of this fiscal year. The company registered a loss of as much as $6.9 billion in the fourth quarter that ended on the 31st of October while it registered a profit of $0.2 billion same time the previous year.
Industry Leaders Magazine
The article was first published by Industry Leaders Magazine