Ostensible Accounting Improprieties from International Mergers and Acquisitions \u2014 A Case on HP Autonomy
Revenue recognition and disclosure in the U.S. has a stark contrast to the reporting standards used by the UK. The U.S. Generally Accepted Accounting Principles (GAAP) follows a more prescriptive approach to determine when revenue should be booked, and how it should be disclosed to investors. Conversely, the International Financial Reporting Standards (IFRS), issued by the International Accounting Standards Board (IASB), is more principle based and open to interpretation. This disparity has created valuation discrepancies for local corporations and individuals seeking to invest abroad, and vice versa. Following the events of Hewlett-Packard Company's (HP) acquisition of Autonomy PLC (Autonomy), the issues that stem from the differences between U.S. GAAP and IFRS reporting standards were magnified. In 2011, HP acquired Autonomy for $11.1 billion. Subsequently, HP declared an $8.8 billion dollar impairment in the following year due to the alleged fraudulent accounting practices of Autonomy's former executives. After 2 years, the investigation on Autonomy's purported accounting improprieties led by the UK's Serious Fraud Office (SFO) was inconclusive. All Big Four CPA firms involved in the acquisition found both HP and Autonomy to be compliant with GAAP and IFRS, respectively. This led to the conclusion that the ostensible fraudulent accounting policies that Autonomy's former executives deployed were in fact legal practices within the confinements of IFRS. The case also unravels greater issues that originate from the disparate accounting standards, as I probe into the reasons behind HP's colossal write-down of their acquired reporting unit, HP Autonomy.