back to article HPE urges judge to pick through Deloitte-bashing report it claims demolishes Autonomy founder's defence

Hewlett Packard Enterprise wants a High Court judge to formally consider a damning report which found that Deloitte auditors committed misconduct when they signed off British software firm Autonomy's annual accounts. If successful, HPE's move would allow Mr Justice Hildyard to take into account the Financial Reporting Council' …

  1. a pressbutton

    report demolishes Lynch's defence ... not sure.

    (I am not a lawyer)

    I get my car MOTd. Something bad happens and it also turns out that with the benefit of a lot of hindsight that the car should never have passed the MOT.

    I do not see that as my fault, it is the garage's and I have every right to depend on that statement.

    Unless HPE can prove that Autonomy actively told an untruth to Deloitte, and that untruth caused Deloitte to sign off the accts, dont see how this makes much difference.

    If they can prove that, they can show Autonomy have a case to answer without needing this report.

    Strikes me as the 'look at all these documents, something in there means he is the bad guy' approach to prosecution.

    Perhaps there is a commentard who actually has more than just an opinion out there who can correct me.

    1. Janne Smith

      Re: report demolishes Lynch's defence ... not sure.

      The annoying thing about an MOT inspection, is that passing it doesn't mean your car is considered legally safe to drive on the road. It's a requirement to have an MOT certificate to be able to drive it on public roads, but if you look at the small print it offers no guarantee that the car is road legal, no recourse for legal action against the inspector if subsequently found to be unsafe, and you are still solely liable for the car being legally "safe to drive".

      1. RegGuy1 Silver badge

        Re: report demolishes Lynch's defence ... not sure.

        ok, so what's the point of Deloitte then?

      2. a pressbutton

        Re: report demolishes Lynch's defence ... not sure.

        The analogy of MOT cert and Auditor sign - off is closer than I thought it was.

    2. Mike 137 Silver badge

      Re: report demolishes Lynch's defence ... not sure.

      "I get my car MOTd"

      I am not a lawyer either but ...

      A vehicle keeper is required by law to keep it in a roadworthy condition at all times when in use on public roads. The MOT is explicitly not an assurance of its condition at any time other than she specific time of the test, and is also explicitly not an absolute guarantee of its condition even then. An MOT certificate is ultimately based on the opinion of the tester. So while a vehicle keeper might well have a claim in law against an MOT tester that missed something rendering the vehicle unfit to drive, that would not nullify the keeper's legal obligation to maintain it in a roadworthy condition, or contribute to avoidance of any penalty for not so doing.

      Similarly and specifically to this case , if a business employs an auditor, the business is nevertheless responsible for any consequences of relying on the resulting audit. In more general terms, a principal is responsible for the actions and omissions of subcontractors and agents it appoints.

      1. Gordon 10 Silver badge

        Re: report demolishes Lynch's defence ... not sure.

        Im not convinced. Yes Autonomy are responsible for their financial practises but having passed multiple audits they have a strong argument to say they had no reason to suspect that their financial practises were dodgy or that the auditor was not doing his job properly.

        I haven't read the criticism of the Deloitte auditor - I would say the validity of it as evidence depends whether it addresses any key points around how Autonomy recognised revenue. If the auditor was just struck off for being a bit slapdash its a lot weaker than being struck off for fundamentally giving bad audit advice on Autonomy's revenue recognition.

        1. Falmari Bronze badge

          Re: report demolishes Lynch's defence ... not sure.

          @Gordon 10 “report demolishes Lynch's defence ... not sure” I agree even if Autonomy’s financial practises were wrong, would they not have to show that Autonomy knew they were wrong and were knowingly trying to deceive HP.

          Isn’t the point of Autonomy paying for auditors to make sure you are doing it right otherwise why employ them. What would have happened if the auditors had found Autonomy’s financial practises wrong? Would Autonomy have just had to go back and correct the accounts?

          1. Steve K Silver badge

            Re: report demolishes Lynch's defence ... not sure.

            Yes

            1. Anonymous Coward
              Anonymous Coward

              Re: report demolishes Lynch's defence ... not sure.

              No, but for a medium-sized fee, Deliotte (and every other auditor on the planet) would tell them what and where to move some numbers to make the documenation *look* good, but the company would have to have a large balance that Delloitte et al knew they'd be receiving part of.

          2. Anonymous Coward
            Anonymous Coward

            Re: report demolishes Lynch's defence ... not sure.

            "What would have happened if the auditors had found Autonomy’s financial practises wrong? Would Autonomy have just had to go back and correct the accounts?"

            If the auditors had found any significant issues, they can withhold signing off audits which means the company no longer complies with listing requirements which likely results in a rapidly breaching banking covenants, which results in an even faster downward spiral in the share price.

            i.e. the audits MUST be signed off unless there are significant mitigating factors.

            In reality, auditors will always find issues, suggest fixes and usually reach a compromise unless the cover up will take the auditors down with the company. The auditors findings are often trivial and it is much an attempt at winning additional consulting services business as genuine systemic failures - mainly because companies doing dodgy things with genuine systemic failures will try and hide said issues from the auditors.

            As IT is often audited these days (usually in parallel to the financial audit and focussing on business continuity and management of financial systems rather than the actual financial data), I trust most ElReg readers are familiar with answering IT questions about the state of the IT environment without mentioning the Windows 95 PC that finance seem to be completely dependent upon.

            1. Yougottalaugh

              Re: report demolishes Lynch's defence ... not sure.

              " The auditors findings are often trivial and it is much an attempt at winning additional consulting services business as genuine systemic failures - mainly because companies doing dodgy things with genuine systemic failures will try and hide said issues from the auditors."

              Yet in this case they were not trivial matters, they were both material and serious. The report of Tribunal concludes: " Misconduct through a failure to act in accordance with Fundamental Principle (c) “Professional Competence and Due Care” (against both Mr Knights and Mr Mercer), through a lack of integrity (against Mr Knights) and through a loss of objectivity (against Mr Knights)." and that the conduct "falls significantly short of the standards reasonably to be expected"

          3. John Brown (no body) Silver badge

            Re: report demolishes Lynch's defence ... not sure.

            Isn’t the point of Autonomy paying for auditors to make sure you are doing it right otherwise why employ them."

            I might be wrong, but isn't an annual audit of the books a legal requirement?

            1. Falmari Bronze badge

              Re: report demolishes Lynch's defence ... not sure.

              Yes I believe it is, but I thought the audit that Autonomy was not the annual one but one the commissioned due to the sale of the company.

              But I really don't know all this finance stuff is starting to go right over my head. :)

              I am trying to understand what is exactly going on, that's why my post was really a question.

              1. Yougottalaugh

                Re: report demolishes Lynch's defence ... not sure.

                Yes your right the Audit was the normal audit - which you get to see very year as the results are published annually - and for a listed company of this size it is continuous and involves the Auditors every quarter. For example the Audit Team listen to the earnings calls and - if the management are wise - have some discussions (even negotiations) before the earnings call. Well if I was the CFO I would.

                For the managers there are two continuing 'pinch points' when their finance story gets stress tested. The first is discussing the quarterly reading, pre earning calls (reviews with the Auditors). The second are the Q&A on those calls with the analysts. These are probably the two sets of meetings where every quarter, Management come under most scrutiny. If either one of these narratives becomes a fiction...well then trouble follows. Think of it as starting to accrue factual debt from that point - its going to be paid back at some point.

      2. Roland6 Silver badge

        Re: report demolishes Lynch's defence ... not sure.

        >Similarly and specifically to this case , if a business employs an auditor, the business is nevertheless responsible for any consequences of relying on the resulting audit.

        Well HPE only need to look to their own board room - they employed auditors and relied on the resulting audit by telling everyone they were conducting due diligence etc. and assuming it would find everything in order and so didn't bother actually reading the reports...

        1. Yougottalaugh

          Re: report demolishes Lynch's defence ... not sure.

          "they employed auditors and relied on the resulting audit by telling everyone they were conducting due diligence etc. and assuming it would find everything in order and so didn't bother actually reading the reports"

          Here is a quote - note the astonishment - from one of those due diligence auditors:

          “[W]hen Autonomy records provided to TP13 during its post-acquisition ‘closing balance sheet’ engagement reflected substantial hardware sales (upwards of approximately $40 million in the first six months of 2011), my team and I were astonished... my team and I had no knowledge before the acquisition that Autonomy was making substantial hardware sales: we understood that occasionally Autonomy made appliance sales (i.e. where Autonomy’s software was pre-loaded on hardware), but it had not crossed our minds that Autonomy resold third-party hardware on a standalone basis. [...]

          I recall noting that the 2010 Annual Report referred (at pages 13 and 16) to Autonomy’s ‘pure software’ model. ... I understood it to mean that the company’s revenues derived almost entirely from software sales. I did not understand any statements in the Annual Reports (or anywhere else, for that matter) to disclose that Autonomy’s reported revenues included revenue from the sale of third-party hardware that included no Autonomy software.”

          Now you can be deeply cynical and argue that all auditors should assume other auditors probably failed to follow professional standards and so one should not be astonished. But I don't think it is unreasonable for one audit firm to trust that another 'big four' audit firm was failing in this way. And if you read this internal email from a clearly very concerned Deloitte auditor to the senior Deloitte person (para 295) you can see how worried some Deloitte auditors were:

          "“My earlier comments re disclosure of hardware sales in Q3 to avoid potential embarrassment at the full year when the segmental disclosures pop out, I see as critical. This represents c20% of sales in the Q so I don’t see how they can give a balanced view if they don’t cover it in the narrative. If it is such a strategically important initiative, I assume they would want to talk about it. I look forward to seeing the words.”

          We dont know who that Deloitte person was - they are D7 in the cypher - but despite D7's email of 14 October 2009, saying in effect 'hey Mr Kights, these guys are adding 20% to their sales and it isn't software so we have got to get them to fess up now' Mr Knights failed to get Autonomy to change their narrative (tell the world a more truthful story).

          1. Roland6 Silver badge

            Re: report demolishes Lynch's defence ... not sure.

            >I recall noting that the 2010 Annual Report referred (at pages 13 and 16) to Autonomy’s ‘pure software’ model. ... I understood it to mean that the company’s revenues derived almost entirely from software sales.

            Well that was last year, this year...

            I can understand why those due diligence auditors would have been astonished, they (in their own eyes ) had missed something significant and so hadn't actually done a job (worthy of their reputation?).

            but as we know from other court cases key HPE directors didn't even bother to read the reports.

            1. Yougottalaugh

              Re: report demolishes Lynch's defence ... not sure.

              Buyer beware absolutely applies your so right. But the fact that key Directors didn't read reports while it may be bad practice, probably had no material impact. That may sound strange but the reality is that most acquisitions of this type are teams of professionals in a clean room (electronic nowadays) talking to other professionals trying to substantiate trading figures and projections and to ascertain the working capital needs of the business going forward. The also look at liabilities. In a share buyout its an 'all-in take it or leave it' deal as you are buying the whole business. So its bankers and lawyers and accountants talking to each other. And if the starting point is that the accounts are not real...well they are not going to catch it in most clean rooms, because, ask yourself, where is the data coming from? Imagine someone saying "here are our books behind the last four quarterly earnings, actually we keep two sets the real ones and the ones we falsely report to the market". NOT GOING TO HAPPEN.

              Occasionally, the buyer/seller puts in a senior manager or two and they may smell a rat. But there is a catch here because the parties have to sign an NDA and that can mean - if the deal falls through - that the Manager can't, well carry on managing. If you ever want an early retirement/change of career then (like some of my friends) you volunteer for this role and get paid off if the deal fails, because your conflicted with confidential information and are of no more use to your firm. I was once one of two such people and we both smelt a very smelly rat (strangely for totally different reasons) just before we would have started the next phase where we would have 'seen too much' and we convinced our CFO to cease and desist. So it can be done, but I am guessing its rare (don't know where we could find data on this).

              So back to your comment - "they didn't bother to read the due diligence reports" yes but thy would have told them nothing, because the reports were based on accounts that were not real. So then the question we can ask (we who are not lawyers) does' buyer beware' still cover the seller? Is that fair? Or another word beginning with f?

      3. Steve K Silver badge
        Thumb Up

        Re: report demolishes Lynch's defence ... not sure.

        Hit the nail on the head

    3. Yougottalaugh

      Re: report demolishes Lynch's defence ... not sure.

      I have read the report of the Disciplinary Tribunal. It took me several hours, but to be fair the oral evidence alone occupied approximately 20 days with oral opening and closing submissions from counsel over several days and voluminous written evidence.

      This report is a cracking read, especially if you sit on an Audit Committee (full disclosure I do) or if you have been involved in selling software (even fuller disclosure I have in the past). Or maybe you have heard rumours of just how many deals get stuck right at the end of financial quarters, as if those pesky customers know about the supplier financial reporting periods (wait a second I've just realised...)

      I think anyone who does read this report - and please do read it, even if only to admire the beautiful writing - will find it is both thorough, and somewhat sad, like watching a very slow car crash play out. The auditors were found to be culpable of misconduct in relation to (i) the allocation of hardware costs in Q3 09 and Q4 09/FY 09; (ii) the non-disclosure of the hardware sales in FY 09; (iii) the recognition of revenue from sales to VARs in Q4 09/FY 09, Q1 10 and Q2 10 and and Q3 10. They also failed to correct Autonomy’s letter dated 3 March 2011 to the FRRP. By the time you read these conclusions you will have long since realised where this was going to end.

      It is an educational report because it paints such a vivid picture of the market scrutiny and the constant background pressure on the Autonomy Managers, and subsequently the pressure on the auditors:

      "The pressure on Autonomy to meet market expectations gave rise to a risk of misstatement through manipulation of the financial results to achieve a desired position. Deloitte, Mr Knights and Mr Mercer were well aware of the pressure and the risk. They were under pressure from Autonomy to accept its treatment of the hardware costs and the revenue from VAR transactions, rather than upset their client by challenging it."

      The Tribunal considered why that mattered. Why the pressure from market scrutiny? Para 291 and 292 sets out the impact. Evidence from one analyst was:

      "if the market had known of the 2009 hardware sales, the impact on Autonomy’s stock in 2010 and early 2011 would have been “significantly negative”.

      A second thought that: "a negative reaction to the share price of at least 30%".

      And a third - a former Head of Investor Relations for Autonomy - said he:

      "...was unaware of the hardware sales in Q2, Q3 and Q4 10. If he had been aware of them, they would have indicated that Autonomy was:

      “a totally different type of business and a totally different business model, which would have had a very different valuation ... it would have indicated that this wasn’t a pure software business, and that there was much lower margin revenue stream included in its – in its P&L, and it would have had a correspondingly low evaluation [sic]”

      So really bad and really clear. But the remit of the Tribunal - as the report says - was only the Auditors. The introduction makes it very clear that:

      "No individual director, member of management or employee at Autonomy was a party to the Tribunal hearing. The Tribunal did not invite, receive or consider any witness evidence from any director, member of management at, or employee of Autonomy, and no such individual was represented at the Tribunal’s hearings. Further, the Tribunal did not invite or receive comments or representations on the terms of the Tribunal Report from any such individuals prior to the Tribunal Report being finalised."

      Just in case anyone missed the significance of that, the introduction then states:

      "The Tribunal has not made, and should not be taken to have made, any finding against any individual or entity other than Deloitte, Mr Knights and Mr Mercer (including Autonomy, or any individual who was a director, member of management or employee at Autonomy)." It even anonymises several third parties, who are instead identified by ciphers.

      I am not a lawyer and I don't understand the rules by which the judge in the commercial case may or may not admit this into evidence. But if it is admitted it wouldn't be so much a demolition, more like a total obliteration.

      1. tfewster
        Facepalm

        Re: report demolishes Lynch's defence ... not sure.

        I haven't read the report, but it seems curious that a few million in hardware sales could wipe billions off the value of the company.

        Were the Tribunal under pressure themselves? Maybe to absolve HP's board of any guilt?

        Mr Lynch may be guilty of being a sleazy salesman, but that's a long way from being a fraudster.

        1. Yougottalaugh

          Re: report demolishes Lynch's defence ... not sure.

          "curious that a few million in hardware sales could wipe billions off the value of the company"

          Excellent post - your curiosity gets nicely to the heart of what went wrong!

          So here is why it matters so much....what it was probably all about, the root cause. Let me show you how to avoid loosing a billion with a few $M of hardware and some dodgy accounting hiding our failure to make our sales growth plan.

          If you and I tell investors that we have just had a quarter with $100M of software sales then our little enterprise is worth a multiple of that number (lets use x4 as a rough rule of thumb multiplier). If we have four successive quarters where we are adding, say 10% more in sales each quarter then, you and I have a proven steadily growing software business. Nice multiple, nice steady growth. Lets say we get an offer of $1.85Bn and we say yes it is time to sell!

          But if in fact we only had $80M of software in that first quarter and we concealed $20M of hardware to boost our numbers, then we are worth a lot less. Our valuation isn't x4 it could be as low as x2 (different business models are worth different multiples). And what if we also didn't actually have steady growth, but instead had some ups and downs, because it was a rough year and we ended up flat making $400M in sales (including all the hardware). We get an offer to sell but its now only $800M. Its a fair price just less than we had dreamt about.

          Different investors have different appetites for their pay back periods, so a Private Equity firm buying a European software enterprise might be very happy with a 10 year pay back plan and very interested in that growth line because over ten years how you draw that line of growth makes an enormous difference to the value. Is if flat? Or is it sharply upwards? And they will focus like a laser on what is being sold (and since this case even more so!).

          The Tribunal found that Autonomy first added 20% of hardware sales to the quarter (booking hardware and making it look like software). At that point if disclosed the multiplier drops. That's worth billions. That's what the analysts were saying in their evidence.

          And by allowing fictional VAR deals to be booked - because Autonomy couldn't close deals with all the customers - the quarterly sales numbers were misleading. That's the growth line changing trajectory on the graph paper.

          Together these little things are worth billions.

          Make sense?

          1. tfewster
            Thumb Up

            Re: report demolishes Lynch's defence ... not sure.

            Thank you, I hadn't picked up that it was as high as 20% of revenue being from (low margin) hardware resales. That certainly changes the multiplier/model.

            However, if both sides (and their advisors and auditors) know the tricks it's still a fair game. It doesn't absolve the seller, but it makes it even more important that the buyer does their own research.

            1. Yougottalaugh

              Re: report demolishes Lynch's defence ... not sure.

              I just posted on this so wont repeat it all here, but the question is can the buyer do that research? I would argue no they can't. They can only examine in the clean room the evidence they get and what is publicly available. And we know the later was false so lets guess what the former was!

          2. NeilPost Silver badge

            Re: report demolishes Lynch's defence ... not sure.

            Makes you wonder how the bean counters and subsequent audit bean counters are reporting/accounting for SaaS and Cloud revenues today?!

            Even say ... HPE today with Greenlake Cloud

      2. Roland6 Silver badge

        Re: report demolishes Lynch's defence ... not sure.

        But if it is admitted it wouldn't be so much a demolition, more like a total obliteration.

        Of HPE's case!

        From your summary of the report, nowhere does it support HPE's contention that the intention was to specifically mislead HPE in bidding for Automony.

        Once again HPE are in the business of creating FUD to obfuscate their Board's failure to do due diligence.

        1. ToddRundgrensUtopia

          Re: report demolishes Lynch's defence ... not sure.

          Whilst being forced to listen to Kenny Rogers and understand the lyrical meanings

    4. Anonymous Coward
      Anonymous Coward

      Re: report demolishes Lynch's defence ... not sure.

      If we take the MOT analogy and compare it to Autonomy, the audit was supposed to show that the company was following IFRS accounting practices as required by a European listed company. While the tests my have shown some of the basics were OK, it only passed emissions standards because of remapped ECM that was disabled once the test was passed.

      We then have 3 key figures - the market value of Autonomy at the time of the initial offer ($6.5bn/£4bn), the price HP paid for Autonomy ($11.7bn/£7bn based on August 2011 exchange rates) and the price HP thinks Autonomy should be valued at ($2.9bn/£1.8bn). The market value is only indicative of what the general consensus of Autonomies price should be and it assumed that everything is in order financially BUT there are massive differences between that value and what HP paid and eventually what HP valued the company at.

      We know HP failed to carry out due diligence on Autonomy and the evidence provided by senior HP board members as to the reasons for this are shakey at best - normal practice for an acquisition appear to have been skipped at every stage to ensure the purchase was rushed through. If we look at the partial report provided by KPMG, we can see that HP would be inheriting significant tax liabilities from previous acquisitions IF it purchased Autonomy - when combined with the market price and the significant premium HP paid.

      If we look at Autonomies reported profit/earnings it was approaching $400m/$1bn in 2010 and HP restated this to around $200m/$500m - while I suspect the profit/earnings write-off is justified, it does appear to correspond to issues identified by KPMG (i.e tax write offs for US acquisitions that would crystallise immediately if HP purchased Autonomy as HP were a US company in the order of US$300m while there were also significant credit across multiple Autonomy entities totalling $1.3bn that would fall due upon acquisition) and HP's FD did not appear to back the acquisition based on the evidence provided. The restated value of Autonomy may be accurate but seems to be at least partially attributable to poor handling of the acquisition by HP.

      While Autonomy and Deloitte may have been selling a 10 year old Ford Mondeo in mint condition with up-to-date MOT, HP appear to be the ones that fell in love with it, paid much more than they should and then crashed it into a wall on the basis that they were mis-sold.

      I'm not sure arguing over the MOT is the real issue when the HP board should have been taken away for drug/alcohol tests closer to the time.

    5. John Brown (no body) Silver badge

      Re: report demolishes Lynch's defence ... not sure.

      "Perhaps there is a commentard who actually has more than just an opinion out there who can correct me."

      Even lawyers only have opinions, just like you and I. But theirs cost a bit more. :-)

      Evan a judges ruling is only an opinion until validated all the way up to the Supreme Court. And you bet that HP will be going all the way if things are not to thier satisfaction!

    6. eldakka Silver badge
      Facepalm

      Re: report demolishes Lynch's defence ... not sure.

      (I am not a lawyer)

      I get my car MOTd. Something bad happens and it also turns out that with the benefit of a lot of hindsight that the car should never have passed the MOT.

      I do not see that as my fault, it is the garage's and I have every right to depend on that statement.

      (also IANAL)

      Try that with the tax office next time you get an audit: "But my accountant said that deduction was OK, I relied on their expert tax advice, and they signed off on it" and see how far you get with them and, if it goes that far, a judge.

      1. Claptrap314 Silver badge

        Re: report demolishes Lynch's defence ... not sure.

        As to my tax liability--none. As to my criminal liability--it better be close to an iron shield.

  2. Anonymous Coward
    Anonymous Coward

    Expert evidence versus adjudicatory findings

    HPE hired their own accounting expert, whose evidence has been heard. Now, having apparently failed to establish using this expert testimony that the accounting practices were incorrect, they want to introduce into evidence a finding from the accounting regulatory body - an adjudicatory document - to get them over the line that the books were not a true and accurate statement of the health of the business. Which they also failed to notice during due diligence.

    We've recently heard from the relevant Minister (in the context of illegal building cladding) 'Caveat Emptor.'

    Seems to apply very well here.

    Perhaps HPE should sue the accountants - jointly and severally - for damages. Less likely to prove to be a man-of-straw, and there appears to be a prima facie case against them in tort. Or their own accountants who performed the due diligence - ditto.

    1. Yougottalaugh

      Re: Expert evidence versus adjudicatory findings

      Or you can argue, if Deloitte the Auditors were conspiring with their client Autonomy to mislead the market then they should both be punished. The Auditors have been punished with a record fine. So what do you think logically comes next?

  3. Janne Smith

    By coincidence, I came across Mike Lynch in a surprising context last week. I was looking for information on an unusual synthesiser I used to own, a machine called the Cheetah MS800. It was designed by none other than Mike Lynch, who shortly before starting Autonomy worked as a designer of audio equipment.

    1. Security nerd #21
      Coat

      See if HPE want to buy one at vast expense, and do a bit of eBay arbitrage

      1. Will Godfrey Silver badge
        Facepalm

        Oh course they'd buy it, but do you really want to spend the next 5 years fighting against extradition?

    2. Vulture@C64

      Very amusing review by vintagesynth.com in the contect of his current battle:

      This is definitely not a synth for beginners or those who are easily frustrated, but if you are patient, determined and love experimenting, then you might appreciate the Cheetah MS800. It has a certain grittiness to its sounds that sets it apart from other digital synths.

    3. this

      Cheetah? Is that the correct spelling?

  4. jantill

    Surely Deloitte as auditors owed a duty of care only to the Autonomy owners (e.g. shareholders) and possibly the Autonomy Board who paid them for the audit. There would seem to be no responsibility to any third party including any future buyer.

    1. sad_loser
      Thumb Up

      Correct

      Caveat Emptor.

      This is HP trying to divert attention from their own incompetence.

      The were sold magic beans that didn’t turn into a beanstalk.

      1. Michael Wojcik Silver badge

        Re: Correct

        Yes, but HP's culpability in their own damage does not absolve Autonomy. Both can be in the wrong.

  5. Franco Silver badge

    Classic HP. Their new defence (months after the court case actually ended) is that the report provided by their auditors (that they admitted to having read at best cursorily) invalidates the defence of the person they provided the auditor to when they tried to buy his company.

  6. Anonymous Coward
    Anonymous Coward

    APPEAL!

    APPEAL THE APPEAL!

    This case won't be decided until 2040.

  7. Kane Silver badge
    Joke

    Mr Justice Hildyard...

    "...who alternated between a suit jacket and a cosy green jumper at various points during the day's proceedings..."

    That's the quality reporting I came to The Register for!

  8. ExampleOne

    I am still failing o to see how Autonomy misled HPs auditors and as a result HP given it is on record that HP didn't read or even wait for their own auditors report, which it turns out was never finished and likely would have raised issues if they had waited.

    HPs case, as far as I can tell, is that Autonomy were committing fraud, so had to be guilty of lying and misleading HP. The defence, as far as I can tell, is that HP misled themselves, regardless of whatever Autonomy were doing.

    A pox on both their houses, as far as I can tell.

    1. Yougottalaugh

      "and likely would have raised issues if they had waited"

      how?

  9. macjules Silver badge

    FRC report was compiled by accounting experts

    The same experts as sit on boards of ..say .. Deloitte or KPMG?

  10. Claptrap314 Silver badge

    If an electrician comes to my house and does some work, I expect him to know the code & to comply with it. If I tell him, "do X", and "X" is against code, I expect him to refuse. If my house burns down, he better be on the phone to his insurance company, because my lawyer most certainly will be.

    I'm not an electrician. I'm not an accountant. I'm not a mechanic. Certainly, the law is going to hold me personally responsible for the condition of my property. But there is that whole "criminal mind" aspect of the criminal law--if it is my intent to follow the law, then I am not criminally liable. If the use of, and reliance on, experts does not demonstrate an innocent mind, what does?

    So, I'm a CEO of a company. My job is to keep the stock valuation headed the correct direction. To that end, there are three things I do. First, I "sell" the company to the public. The quarterly analysts' call MUST be handled smoothly. Also, those press releases we have so much fun with here. Second, I hire the rest of the C-suite. That is, I bring in the experts to do the work of the company. Third, I set strategic direction/manage disputes between the rest of the Cs.

    In pursuit of goal #1, I'm going to be talking to my CFO a LOT about the filings that he is going to generate, and that we will both sign. I'm constantly going to come up with ideas to make things look better. But--and this is a big deal--it's not my job to know every nuance of the law. I've got a CFO & lawyers to tell me that.

    One of the things that they tell me is that we need to use external auditors. Okay, let's do that.

    If I'm told, "that violates the law", and I say, "do it"--that's criminal. If I'm told, "that violated the law", and I say, "let's hide it", that's cover up. Otherwise--no criminality.

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