HP Autonomy scandal: Mike Lynch admits using irregular accounting practices

Written on:November 22, 2012
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HP accused Autonomy of manipulative accounting practices

Just a day after the massive HP Autonomy accounting scandal broke out, Hewlett-Packard CEO Meg Whitman has assured customers that the future of its Autonomy product line is safe, while Mike Lynch, the co-founder of HP Autonomy, has admitted to having applied some practices that led HP to level charges of accounting irregularities.

Mike Lynch, however, denied that HP Autonomy used illegal accounting methods or and said that the $8bn (£12.7bn) of write-downs taken by HP was unjustifiable, adding a new twist to what seems to be one of the biggest accounting scandals to have hit corporate America.

The HP Autonomy scandal broke out on Tuesday when HP said it had found extensive problems in the Autonomy accounts for the two years before its August 2011 acquisition of the UK software concern, pinning the blame squarely on the company’s former management.

In an interview yesterday, Mike Lynch disclosed that HP Autonomy had sold computer hardware at a loss to some of its customers and treated part of the cost of these sales as a marketing expense in its accounts.

HP has charged Autonomy with the accusation that it has used these sales to inflate its profits, while hiding the costs in order to boost its gross profit margin and making it appear as though it has made high-margin software sales.

In HP Autonomy’s defence, Mike Lynch said the hardware sales had been far smaller than claimed by HP and that only around 2% of Autonomy’s revenues were tied to the unprofitable sales that are at the centre of the most controversial part of the hardware business, rather than the alleged 10-15%.

Lynch also said that the accounting treatment of the costs had been approved by his Autonomy’s auditors.

However, one person close to the investigation downplayed the souring relations between HP and Autonomy by saying, “This is not simply a disagreement over accounting rules.”

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