US technology giant Hewlett-Packard (HP) has indicated it intends to sue Deloitte over the accounting firm’s role in auditing Autonomy, the UK company it acquired three years ago and which was then subject to a substantial write-down following allegations of accounting irregularities
HP acquired Autonomy for $11bn (£6.6bn) in 2011, but a year later had to write down $8.8bn (£5.3bn) on its acquisition, and has since been involved in a bitter battle with Autonomy’s former management over claims that the software company’s profits were overstated and it had incorrectly booked transactions to third parties which failed to complete.
The claims of proposed legal action against Deloitte’s UK arm were made by a lawyer for HP during a court case in San Francisco concerning HP's proposed $48m (£29m) settlement with investors who had launched a lawsuit against the company for destroying shareholder value through the acquisition. The shareholders had been seeking to sue HP and its top executives claiming the computer company had ignored warnings about Autonomy’s accounting and mismanaged the buyout.
Former Autonomy chief financial officer Sushovan Hussain, one of the executives HP has said it will sue, was among those seeking to challenge the settlement, saying HP executives should not be allowed to escape blame.
The judge said he could not agree the settlement, but in court Marc Wolinsky, a lawyer for HP, said the company will sue Deloitte’s UK business unit over its role in auditing financial results at Autonomy. Deloitte signed off Autonomy's accounts in 2009 and 2010, a period during which HP claims to have found a number of irregularities. HP claims that more than $200m (£120m) of Autonomy's $1bn (£60m) revenues in 2010 were questionable.
However Deloitte, which said no claim had yet been filed, indicated any allegations would be contested vigorously.
A Deloitte spokesperson said: ‘HP has apparently indicated that it intends to pursue a claim against Deloitte UK. Any possible claim would be utterly without merit and we will defend ourselves strongly against it. Deloitte was not engaged by HP, or by Autonomy, to provide any due diligence in relation to the acquisition of Autonomy. Deloitte UK was auditor to Autonomy at the time of its acquisition by HP. Deloitte UK conducted its audit work in full compliance with regulation and professional standards.’
In its statement on the issue, HP said: ‘We will continue to work to have the derivative actions settled or dismissed and to hold the former executives of Autonomy as well as Autonomy's auditor, Deloitte UK, responsible for the wrongdoing that occurred.’
Mike Lynch, Autonomy's founder and former CEO, has always denied any wrongdoing and argued that the difference between Autonomy's and HP's valuation of the company stem from different accounting policies applied under US GAAP and International Financial Reporting Standards (IFRS), a claim HP has described as ‘patently ridiculous'.