HP: Autonomy Revenue Actually 54 Percent Lower Than Reported

Hewlett-Packard (HPQ) said an internal investigation into Autonomy’s accounting practices has uncovered a substantial overreporting of 2010 income and operating profit for the software company’s largest business unit.

As reported in a number of outlets, HP said it found the erroneous accounting in an audit of Autonomy’s financial statements for 2010 and 2011 for its Autonomy Systems Ltd group. In a Jan. 31 filing with the U.K.’s Companies House registry, HP restated Autonomy’s 2010 financial performance, reducing the unit’s income by 54 percent and its operating profit by 81 percent.

HP immediately claimed the development provided clear evidence that Autonomy artificially inflated its value prior to its ill-fated acquisition by HP in 2011 for $11.1 billion.

“These restatements, and the reasons for them, are consistent with HP’s previous disclosures regarding accounting improprieties in Autonomy’s pre-acquisition financials,” said an HP spokesperson, as quoted in a report in The Wall Street Journal. “The substantial work necessary to prepare these accounts has revealed extensive accounting errors and misrepresentations in the previously issued 2010 audited financial statements, including the problems previously identified by HP.”

Bloomberg reported that former Autonomy officials scoffed at HP’s conflating of the income and operating profit discrepancies and its allegations of fraud. In an emailed statement, ex-Autonomy bosses claim the disconnect stems from changes in HP’s accounting procedures after the acquisition and moves the software vendor made to shuttle revenue between divisions to lower its taxes.

“We continue to reject these allegations by HP,” Autonomy said. “Given the size of HP’s writedown, we are very surprised by the small size of these adjustments in Autonomy Systems Ltd. attributed to the accounting dispute, which represent a few percent of group revenue.”

In what many viewed as the most bungled, high-profile acquisition in years, HP’s purchase of Autonomy was doomed from the start, with the vendor eventually taking a massive $8.8 billion writedown on the deal while blaming the software company’s fraudulent accounting for at least $5 billion of it.

There has been no limit to the finger-pointing ever since. At the executive level, HP chief Meg Whitman, who rubber-stamped the deal at the time, claims HP was the victim of a swindle and Mike Lynch, Autonomy’s former chief, has vigorously denied the charges. Others involved, including former HP chief Leo Apotheker and some board members, have run for the hills.

In the transaction’s wake, shareholders have sued HP, contending the vendor knew, or should have known, about Autonomy’s shady accounting before going through with the deal. In late November, HP and Whitman were ordered by a California judge to defend a $1 billion class action lawsuit filed last May in a San Francisco district court by a group of investors over the bungled Autonomy acquisition. Dutch pension fund PGGM Vermogensbeheer is a lead claimant in the case, contending it lost $35 million on its HP investments.