A lot of questions on why Hewlett-Packard Company (NYSE: HPQ) wrote off $8.8billion

Hewlett-Packard Company (NYSE: HPQ) accounting scandal is set to rising flames as Mike Lynch founder of London-Cambridge based Autonomy strikes back A week after being “ambushed” by surprise allegations of wilful improprieties in accounts saying “HP is looking for scapegoats, and I’m afraid I’m not going to be one of those.” Mikes response is in addition to the official statement that a spokeswoman for Autonomy’s former management released on Reuters the same day HPQ made their press release.

The management of Autonomy was accused of inflating software revenues to dupe HP into acquiring it for $11 billion which was not worth that amount of money. The total amount of inflated revenues was about $200 million in the two years immediately preceding the take over transaction according to Hewlett-Packard Company (NYSE: HPQ)’s general counsel. The US based Hewlett-Packard Company (NYSE: HPQ) had gone public with their allegation through a press release on November 15th last week.

They claimed that Autonomy booked earnings from hardware sales as software licensing revenues and were also involved in booking bogus sales. Mathematics whizz Mike Lynch, who founded Autonomy run the FTSE 100 technology company through thick and thin before HP took over strongly refuted the allegations of window dressing on his brainchild.

Lynch 47 who had left the merged company in May this year currently serves as non executive director of the BBC. He also said that he is not seeking a legal counsel to represent him because he termed HPQ claims to be bogus. He also said that  Hewlett-Packard Company (NYSE: HPQ) is trying to cover up the mistakes which it has committed time and again by writing off.

Adding to his initial statement Mike claims to have used the alleged accounting treatments but asserts that his policies were completely legitimate. In an interview with Bloomberg Mike Lynch explained his company;’s accounting policies, saying those were legal. About the allegations of miss classifying hardware sales as software sales he said ” sometimes we did sell to the people who were buying software, hardware as well but we were not going down any questionable roads”.

While Mike’s statement explains how hardware sales could have ended up being recorded as a part of a more significant software deal but many questions remain unanswered even still. Many Financial reporting experts including U.S. Securities and Exchange Commission director Lynn E turner, supported his contention that in no way does a $200 million of inflated revenue add up to an impairment charge of $8.8 billion. Deloitte the audit firm which reviewed quarterly and annual figures of the software company also gave it a clean report to Autonomy.

It could be that the Hewlett-Packard Company (NYSE: HPQ) claims originated out of revenue recognition policy conflict between UK and US financial reporting conventions. According to former FASB advisor Jack Ciesielski, accounting for revenues from intangibles like softwares is complicated due to the nature of the underlying deliverable. It’s not like somebody just shipped a bunch of cans of lima beans to a store and they are ready to go”.

The stocks of Hewlett-Packard Company (NYSE: HPQ) were marginally by 0.50% to close at $12.44 each.

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Published by Viraj Shah

Viraj Shah has done M.Com (Finance) and currently pursuing CFP. He is a technical analyst who tracks US markets along with other global markets like India very closely. He is very passionate about stocks and believes that money can always be made in market.

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