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 taxation commit 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 write up improprieties went undetected by outside sum upants before the deal. The damages of the accounting issues cost HP approximately $5 billion dollars. The so-called Fraud According to Hewlett-Packard, before the acquisition, Autonomy was change hardware at a loss. Selling rough hardware products had a very low margin to take a loss. then(prenominal) the software company went around and booked these sales as towering-margin software sales. Instead of booking them as a cost of goods sold, they were booked as a marketing spending . Also, Autonomy was selling software to value-added resellers where there were ultimately no end users. This increase revenue as well. Finally, Autonomy converted some ache term hosting deals to short term licensing deals. Future revenues were and then preserve all at once in the books kinda of macrocosm deferred into the future. Accounting Analysis of the Fraud 1.Booking sales as high margin sales Dr.

exchange/Account ReceivableDr. marketing write off ( 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 account and therefore higher(prenominal) profits on the books. At a risk of a hit to net income (because expense! s 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, pasture it on our website: OrderEssay.net

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