HP’s fraud allegations still a bit vague

I still can’t quite figure out what is in Autonomy’s accounting that was a severe problem and why that led to an $8.8 billion write-off.  That seems to be a common thread in the discussion of HP and Autonomy that I’ve been reading lately.

I won’t go into much detail. Just want to give a few links to leave a trail of the direction things seem to be going.

From HP’s November 20 announcement:

HP today announced a non-cash impairment charge of $8.8 billion related to Autonomy in the fourth quarter of its 2012 fiscal year. The majority of this impairment charge, more than $5 billion, is linked to serious accounting improprieties, misrepresentation and disclosure failures discovered by an internal investigation by HP and forensic review into Autonomy’s accounting practices prior to its acquisition by HP.

The challenge from former Autonomy CEO:

• Going Concern – Mike Lynch Would Like HP to Show Their Work

HP’s reply, which is essentially “Don’t think so. You can see it in discovery”:

• Bloomberg – HP Says It Has Evidence of Accounting Improprieties

Some discussion of how much blame there is and how it might get allocated:

• Jim Peterson at Re:Balance – HP-Autonomy:  A Red-Ink Bath for Everyone.

His article starts with a quote, the likes of which you should never put into your work papers (check out the post).

The most likely outcome?  His guess:

What this latest dreary escapade does portend is several years of uncontrolled legal and litigation costs, and a flurry of inconclusive regulatory and oversight investigations –the end results of which will be inconsequential.

Mr. Peterson mentions some skeptics are thinking this could be a “big bath” writeoff to get rid of goodwill so future balance sheets look better.

Here’s a far more serious version of the “show your work” discussion:

• Dr. Tom Selling at The Accounting Onion – Autonomy: Investors are Entitled to Know what HP’s Management Knows – by New Year’s Eve

Prof. Selling outlines a range of possibilities for what the underlying accounting problems might be. Be forewarned, the four options go into cool/boring details (depending on your perspective and interest) of IFRS revenue recognition.

My previous posts here, here, and here.