HP Faced With Accounting Fraud Accusations

Last November, Hewlett-Packard was struggling with the accounting misrepresentation it had been accused of especially by its investors, who felt mislead. HP, on the other hand, held the British software company, Autonomy, responsible of the majority of the $8.8 billion write-down by inflating its gross profit margins. While HP highly regrets its decision to acquire Autonomy for $11.1 billion, Zintro experts discuss who they think should be held responsible for the fraud and suggest ways for HP to recover value for its shareholders.

According to independent equity analyst, Nitin A. Khandkar, HP shouldn’t be held accountable. “It is the board of directors and auditors of Autonomy who are responsible, for having carried out/failed to detect accounting irregularities. HP would rely on the authenticity of audited financial statements, unless it has evidence to prove otherwise,” Khandkar notes. “I believe investment bankers who advised HP may have played a more proactive role in the acquisition in terms of more thorough due diligence on Autonomy. HP can only recover these damages over a period of time, from its normal business operations.”

Capital markets professional, Timothy R. Smalls, doubts that there is actually any shareholder value in holding or, buying the stock as Hewlett-Packard is currently in a struggle for its survival. “As a trader, my first inclination is to scoop up some HPQ shares as they are trading at historic lows. HPQ’s core business has been declining for years. They have survived by acquisition. Much like CSCO, they have gobbled up companies as a method of growth,” he explains. “They clearly overpaid for EDS, PALM, and CPQ and according to Bloomberg, they had more goodwill on the books than shareholder value. We are not out of the woods yet and will likely need to endure more headlines and gyrations in the stock price.”

As financial strategist, Srinivasa Rao Bhupathi, points out, HP has acquired Autonomy as part of its business strategy depending on the due diligence given by external auditors. “Serious accounting improprieties happened in Autonomy, before its acquisition by HP. So, either Autonomy Company Officers or Statutory auditors who certified the accounts of Autonomy are responsible for this fraud depending on the facts.” Bhupathi believes that HP can take legal action for the serious accounting improprieties by approaching the UK court and recovering its loss based on the court’s judgement. “A fall in HP’s stock price happened due to market reaction for this news about the accounting misrepresentation in Autonomy, which was taken over by HP. It is considered as a market loss for investors. Any market loss can’t be compensated by the company to the investors directly,” he adds. “HP can only enable an increase in its stock price by showing financial performance in the company’s business activities. Once HP’s profitability increases, the stock price in the market gets impacted positively.”

By Idil Kan










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