Week 4 Assignment 1
Audit Planning and Activities – HP Autonomy Allegations: Material Write Down
Alice F. Eddington
Professor Bunny Schmidt
ACC 576 Auditing and Business Concepts
July 28, 2013
Strayer University - Online
Evaluate the extent of the fraud in question and suggest three to five (3to 5) reasons why the independent auditors failed to detect the fraudulent activity.
HP relied on the audited financial statements and the representations of Autonomy's management and its auditors regarding Autonomy's business and revenue," HP said in a statement.
"Those facts and figures appear to have been willfully manipulated by certain Autonomy employees prior to the company's acquisition, to mislead investors and potential buyers.
HP had relied on those audited financial statements, along with due diligence performed during the acquisition process. On November 20, 2012, HP announced an $8.8 billion write-off of the goodwill that had been recorded on HP’s financial statements at the acquisition. It is alleged that about $5 billion of the write-off relates to the accounting improprieties. Following the write-off announcement, shareholders filed a class-action lawsuit, naming top management at HP, its auditors, and the accounting firm that performed the due diligence relating to the acquisition. According to the class-action lawsuit, HP’s top management and board members violated their fiduciary duties by grossly overpaying for Autonomy. The information those individuals would have relied upon in making the decision to acquire Autonomy, top management and the board members would have relied on their knowledge of the industry, competitive trends, and strategic goals. They would have also been heavily influenced by the reported financial performance of Autonomy, and that financial information was audited by one of the Big 4 accounting firms in the United Kingdom....