HP knew about Autonomy's hardware and reseller sales long before a whistleblower pointed them out and the company wrote down its acquisition by $8.8bn, the Financial Times has claimed (paywall), citing emails and Deloitte audit reports.
HP has accused Autonomy of "accounting improprieties, misrepresentations and disclosure failures" to excuse the massive writedown it made after it bought the UK software firm for $11.1bn in 2011. A year later, it claimed that it was misled about the state of the company's business when it wrote off most of the cost of the purchase.
Two aspects of Autonomy's business have been particularly in the spotlight in the scandal, which is being investigated by the UK's Serious Fraud Office and Department of Justice and SEC in the US. Although ostensibly a software company, Autonomy had been selling hardware to clients at a loss, a practice HP claims the firm adopted to make up shortfalls in its software business.
The FT said that emails it has seen show that HP staff were aware of the hardware sales almost immediately after the acquisition, despite the fact that the whistleblower came forward in May 2012 and HP didn't go public until it reported the writedown in November that year. For example, an October 2011 email that was sent to HP chief Meg Whitman cited difficulties that Autonomy was having selling HP hardware and referring to when it used to sell Dell hardware.
The paper also said that hardware sales were mentioned in Autonomy's audit reports, prepared by Deloitte. Deloitte has said that it "categorically denies any knowledge of any accounting improprieties or misrepresentations in Autonomy's financial statements".
HP told The Reg in an emailed statement that although it found out about the hardware sales before the whistleblower came forward, it didn't know about the accounting fraud until after the senior Autonomy exec 'fessed up and it conducted an investigation.
The company said:
Our investigation has shown that Autonomy often resold generic hardware at a loss in the last few days of the quarter with the sole purpose of masking its real financial performance.
In addition, Autonomy engaged in improper transactions with certain value-added resellers to create the appearance of software licensing revenue at the end of each quarter. In some instances, these transactions were used to accelerate revenue, and on numerous occasions, these were fabricated transactions with no real end-user.
Autonomy's practice of putting sales to resellers on its books before the reseller had sold its gear onto an end customer has also been in dispute. International accounting rules allow for this so long as the sale to the reseller is final, but not if the sale is dependent on the reseller finding a home for the products.
According to the FT, emails show that HP executives were discussing how to change the way Autonomy accounted for these sales to suit US accounting practices in early 2012. However, the paper also said that the complexity of the transactions made it difficult to unravel whether the reseller deals were ultimately sewn up or not.
On the website former Autonomy head Mike Lynch set up to combat HP's claims, Lynch said that the FT article proved the firm had been "open and transparent" with auditors.
"Meg Whitman must answer to her shareholders with what she knew, when she knew it and how she and her senior colleagues made such factually incorrect and serious statements that were so easy to check from the audit packs," he said.
He also said that HP needed to stop "pursuing this matter through partial leaks, information out of context and spin", a rather bold statement given that the source of the documents leaked to the FT would appear to be sympathetic to the Autonomy side of the dispute. ®