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Autonomy: HP allegations don’t add up

27 Nov 2012

Former Autonomy boss Mike Lynch has rejected claims of "cooking the books" from Hewlett-Packard, saying the allegations "don't add up."

Following accusations of an accounting scandal at the company, acquired by HP last year, Lynch does not understand why the company will write US$5 billion off its $11.1 billion purchase due to "serious accounting improprieties."

Accusing Autonomy of a "willful effort to mislead shareholders", Lynch denied the allegations as "utterly wrong."

The former boss says he has yet to hire a lawyer but has reviewed past accounts of the firm he founded to answer any accusations leveled at his former company.

In a statement released last week, HP said:

“HP is extremely disappointed to find that some former members of Autonomy’s management team used accounting improprieties, misrepresentations and disclosure failures to inflate the underlying financial metrics of the company, prior to Autonomy’s acquisition by HP.

"These efforts appear to have been a willful effort to mislead investors and potential buyers, and severely impacted HP management’s ability to fairly value Autonomy at the time of the deal.

"We remain 100 percent committed to Autonomy and its industry-leading technology.”

But Lynch continues to dispute the claims, suggesting three areas where accounting rules gave scope for differences of interpretation.

With rule setters continuing to work on establishing common global rules to enable regulators and investors to compare company accounts, Lynch believes this is were the confusion lies.

According to Reuters, the International Accounting Standards Board (IASB) has devised International Financial Reporting Standards (IFRS) as the basis for Autonomy's accounts prior to HP's acquisition.

But HP adhere to U.S. Generally Accepted Accounting Principles (GAAP) criteria, which can differ from IFRS, notably in respect of software revenue recognition.

After accusing Autonomy of booking licensing revenue upfront before deals closed, thereby inflating revenue, Lynch denied the claims.

"All of these deals went through (Autonomy's auditors) Deloitte themselves," Lynch said.

"Deloitte apply the test independently of us, and it is a standard test, and it is explicitly stated in the annual report and accounts."