Case Study: Accounting Improprieties in Hp’s Purchase of Autonomy

Introduction familiarity, a British software maker was acquired by Hewlett-Packard in 2011 for $11.1 billion. Following the purchase, gross gross revenue ingest dropped significantly, prompting HP to rout Mike Lynch, founder of familiarity, and s dying their own auditing team to recap its books. From the following months of investigation, HP has accused Autonomy of tampering with its books, inflating its sales before the deal. The news report improprieties went undetected by outside sum upants before the deal. The embodys of the chronicle issues cost HP approximately $5 billion dollars. The maintain Fraud According to Hewlett-Packard, before the acquisition, Autonomy was interchange hardware at a loss. Selling rough hardware products had a very low margin to take a loss. therefore the software company went around and booked these sales as steep-margin software sales. Instead of booking them as a cost of goods sold, they were booked as a marketing spending. Als o, Autonomy was selling software to value-added resellers where there were ultimately no end users. This lofty revenue as well. Finally, Autonomy converted some prospicient term hosting deals to short term licensing deals. Future revenues were and then put down all at once in the books kinda of creation deferred into the future. Accounting Analysis of the Fraud 1.Booking sales as high margin sales Dr.

cash/Account ReceivableDr. marketing put down ( quite of COGS) Cr. RevenueCr. Inventory Effect: The result of debiting marketing expense instead of cost of goods sold account is a pocket-size COGS ac count and therefore higher(prenominal) profi! ts on the books. At a risk of a hit to net income (because expenses went up), Autonomy presented higher profit margins from its software sales than actually indicated. 2. rising prices of revenues Dr. Cash/Account Receivable Cr. Revenues(inflated value) Upon sale from value-added reseller: Dr. Unearned revenues Cr. realize revenue (from books of value-added retailer) Effect: The added value...If you want to get a climb essay, target it on our website: OrderCustomPaper.com

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