Deloitte's Autonomy auditor 'lost objectivity' when looking at Brit software firm's disputed books, says regulator The Financial Reporting Review Panel has said the senior Deloitte auditor who signed off Autonomy's accounts engaged in "word smithing" to help the British software firm hide its hardware sales from the market. Former Deloitte accountants Richard Knights and Nigel Mercer were both found to have committed professional …
You don't see it?
What if I say I build houses for $100 000 and and sell them for $1 million each?
And then it comes out that my costs are actually $800 000 each? That's only lying about a few tens of millions of $$$ across a few dozen houses that were built. The difference in profit potential of my company, however, is dramatic.
Not that I want to defend HP, here... it was up to them to investigate before being parted from their money.
"...
You don't see it?
What if I say I build houses for $100 000 and and sell them for $1 million each?
And then it comes out that my costs are actually $800 000 each? That's only lying about a few tens of millions of $$$ across a few dozen houses that were built. The difference in profit potential of my company, however, is dramatic.
Not that I want to defend HP, here... it was up to them to investigate before being parted from their money..."
That's the thing though.
Firstly you would be questioning that figure - such an order of magnitude of profit, whilst I wouldn't argue is impossible, is, however, very unlikely.
Hence you do due diligence. Proper due diligence. That you don't rush through because you want to give the investors a big showy acquisition and all the bells and whistles and "ooh aren't I smart?" accolades?
It may also be that you're not an expert in that field but others around you - let's suggest a financial director/CFO here, is an expert. And let's postulate that said director is stating that this isn't / can't be right and that the purchase of this company doesn't fit with yours anyway - you'd be daft not to listen, right? You may decide to still go ahead with the purchase, but you would surely have to give that person air time and seriously consider what is being said, no? Or would you threaten to fire them?
And finally - a few million/tens of million in your scenario is a huge percentage of the overall valuation. In the case of what HP paid for Autonomy, it's a rounding error and they've probably shelled out more a month on redundancy payments.
such an order of magnitude of profit, whilst I wouldn't argue is impossible, is, however, very unlikely.
Such profits are very unlikely in the hardware world. They are easy in the software world. Autonomy claimed to be selling only software, when they were not.
they've probably shelled out more a month on redundancy payments.
See my example again for how a small amount of money can completely change the profit picture.
You can argue to your hearts content but it still doesn't change the fact that even a cursory look at the books should have brought to light that there was hardware in the mix. Regardless of what you claim, you're trying to defend HP for not doing the job properly.
Your logic is flawed and you know it. In your example you were inflating profit by 7x and again, a quick look at the books would bring to light that that simply isn't true. In the case of BILLIONS then a few million really is negligible to the overall valuation of the company. In your made up example it's a huge factor in the valuation of the company.
And finally by your own argument the profits from hardware would make no major impact either way as the margins are so utterly thin - though bear in mind again that at that time Apothekar wanted to sell the x86 line because of that very reason - thin margins - whilst completely ignoring that at the time it generated HP billions in profit.
Sorry but you're flogging a dead horse and trying to compare apples to oranges.
Oh and of course the real detail is that to date no one has been charged with any fraud in the UK. If it was fraud to the level you seem to be claiming then why hasn't the SFO been arresting people?
I was thinking about this. I have no knowledge of any of these aspects so tried to understand how HP could have been defrauded, from the facts given. I can see that the books were cooked and HP given false values. I can't see how anyone would fail to be aware that a company was making and selling lots of stuff. And come to that- wouldn't there be a stock list, production locations and stuff like that
It's as if bean counter spake unto bean counter and no one actually looked at the company itself.
Approaching half a century ago before I switched to IT, I worked as an auditor for Peat Marwick (now KPMG). There has always been a push for auditors to work with the client so that they can issue a "clean opinion" which is why audit reports are often more of a "nothing to see here, move along" rather than an analysis of the company's books. But the level of misconduct here goes beyond the pale.
Wholeheartedly agree.
Just look at the mess created by subprime mortgages in America, where the organisations tasked with rating those investments, cared more for smoothing relations with their paying customers, than with collapsing the economies of every nation on the planet, through falsely stating they were sound.
Companies should not be audited by a single firm. Better that they get audited by the firm they choose, and a second one appointed by the market overseer. That way, the cosy relationship of the former, can be exposed by the latter.
It wouldn't be amiss if one of the auditing teams appeared open to bribery, with the intention of exposing the other team and having them thrown in jail for a long time, not fined, as £250,000 is hardly recompense for the billions that were stolen.
Thing is, just like with the medical profession, it's very hard to find a consultant who is willing to expose one of their peers.
Surely everyone expects auditors reports to brush as much under the carpet as they possibly can get away with, and so their conclusions should be taken with a massive dose of salt.
Takeover contract due diligence should have included looking at the actual accounts (standard procedure in most takeovers, typically peppered with various NDAs (and often penalty clauses to claw back a few costs if wrongdoing is found) so if party A does find something well dodgy ion accounts of party B, that the deal falls through but dubious accounts are not given as the reason, just some not found teh expected synergies platitudes).
Still maybe HPE want to buy a bridge....
The question to this non-auditor is just how reliable are audit reports once you get beyond 10 km overview, if that is even reliable. There seems to be any business expenses in particular that are hard to classify and more importantly any large business is rarely a pure play such as a pure software or hardware house. The description of Autonomy as a software house in a hyper technical sense may be inaccurate but in real world sense is probably very accurate. I have been of the opinion Leo the Galactic Idiot failed to do real due diligence and was trying emulate Jack(ass) Welch by trying to be the biggest (presumably baddest) on the block. Mergers and acquisitions often fail because for many reasons but one of the more mundane is by pursuing getting larger at all costs.
How come HP did not go with a fine comb over the Autonomy books
HP CFO Tried To Stop $11.7 Billion Acquisition, But Lost
HP CFO, Cathie Lesjak, did an audit & Léo Apotheker fired her before buying Autonomy.
NOTE: No idea (offense) why my last comment got "Rejected".
IIRC, Leo Apotheker was hell bent on pivoting HP from a low margin hardware only company into a highly profitable software only company. He'd found an acquisition and was looking for everyone else to rubber stamp his choice. Cathie Lesjak was the only one who wasn't wearing the same rose tinted glasses, raised her concerns and got fired for doing the right thing.
As the previous posters have stated, Leo was intent on buying Autonomy whatever the weather. Let's not forget also that this trial is not about HP's due diligence, It's about Autonomys false accounting that drove HPs attraction to them in the first place.
That said, I've followed all of the reporting on this but I'm still not sure I've seen explained where the billions of dollars worth of fraud occurred though.
That said, I've followed all of the reporting on this but I'm still not sure I've seen explained where the billions of dollars worth of fraud occurred though.
I am asking because I do not know the answer: Can anyone explain why Léo Apotheker has not yet been called to testify?
Thanks for the link. Obviously the CEO lied to the court when he said that "his HP people" assured him that all was fine.
He had fired his own CFO, because she thought Autonomy was only worth 3bn.
Apother should be fined for lying in front of a court of law.
If accountants were personally liable for signing off accounts then issues like this would go away
HP should be chasing Delloite for the monies as THEY signed them off
One prosecution like that and the whole issue will disappear
It appears that the big 4 seem to have a real reputation issue to the public but NOT to business
Poor Deloitte, having to deal with rogue consultants... by luck, Deloitte does whatever possible to "restores trust in the profession". Because it isn't the trust in Deloitte that is at stake, of course... they are victims in that story.
Am I weaseling enough to consider to apply for a position in a PR BS team?
I had a quick google in the responsibilities of Auditors
Liability of auditors
The class of people to whom auditors can be liable for negligence is fairly restricted. In the Caparo case (PLC, 1990, I(1), 61) the House of Lords decided that auditors of a public company owe no general duty of care to shareholders or members of the public who rely on the accounts when dealing in the company's shares. The House of Lords also confirmed that auditors owe no duty of care to lending banks even when they are already creditors of the company at the date of the auditor's report.
The accountancy profession has given Caparo a mixed reception. On the one hand they welcome the restriction of their potential liability - and have since settled most claims out of court rather than testing the decision - but on the other hand they acknowledge that the audit is of little practical importance if so few people can rely upon it.
... and it seems you need to go beyond simple negligence to get an auditor on the hook.
The bean counters have lost their way. Audits are all tied up by a big few and they are shielded from major penalty.
Audits should be representing honesty for the shareholders to get know what is going on.
Most of them sell more consultancy than audits and dare not bite the hands that feeds them
Deloitte's escapades in South Africa are well documented, having been implicated in such recent financial scandals surrounding companies Steinhoff and Tongaat Hullett as well as the state power company ESKOM. Amazing how these turds are allowed to continue operating despite their flirtations, and sometimes outright love affairs, with graft and corruption.
Unfortunately it's endemic and supports the problem that the closed circle of pureplay Finance wants to add no value to anything other than itself, and wants no intervention to stop it from fucking everyone and everything else it can make a fast buck from. Just look at the "independent" but totally complicit role of Moodys and S&P in 2008 crash as a prime example.
Still, I get the feeling that we're only a few years away from the whole industry eating itself which will be a total hoot to watch from my boat in the Mediterranean.
A purchase of that size would surely have merited an independent audit of the company paid for by the buyer, in the same way the buyer pays for a structural survey of a house they intend to buy. HPs own CFO stated that she thought that the offer was far too high and not in the best interests of the company. HP even based their bid on 11X annual earnings rather than the industry norm of 3X. The alarm bells should have been ringing load and clear. Not only should the buyer beware, but a fool and their money are soon parted!
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