LONDON Nov 22 Shareholder group PIRC said on
Thursday it had warned that auditors Deloitte did too much
non-audit work for Autonomy to be sufficiently independent from
the software firm that Hewlett Packard bought last year
and now accuses of inflating its accounts.
HP bought the British company for $11.1 billion last year, a
price many analysts considered more than it was worth, and
announced on Tuesday that it was writing off about $5 billion
due to "serious accounting improprieties" that inflated the
unit's numbers before the deal.
Autonomy has denied any wrongdoing, but the software group's
accounts are now at the centre of a bitter dispute between the
firm's founder, Mike Lynch, and HP.
"Prior to its takeover, Autonomy raised a number of red
flags on the governance front," said PIRC, which advises funds
investing 1.5 trillion pounds ($2.4 trillion).
"In PIRC's view it lacked proper independent representation,
which led us to oppose the election of numerous directors over
years. Its auditor also raked in significant non-audit fees,
which we found problematic."
PIRC said the sums Autonomy paid the accountancy firm for
other services such as legislation, tax and corporate finance
advice made up more than 25 percent of the total the group paid
Deloitte, a level PIRC considers significant in its assessment
of whether an auditor is properly independent from its client.
Autonomy paid Deloitte $2.7 million in 2010, with $1.5
million described as total audit fees and the rest described as
PIRC's managing director Alan MacDougall told Reuters that
paying unrelated fees to auditors undermined their independence,
though it was fairly common practice, with about 40 companies in
the FTSE 350 crossing its threshold.
"We conducted our audit work in full compliance with
regulation and professional standards," Deloitte said in a
statement on Wednesday, having "categorically denied" it had any
knowledge of any improprieties or misrepresentations in
Autonomy's financial statements.
The Institute of Chartered Accountants in England and Wales,
of which Deloitte is a member, says on its website that ethical
guidance in the UK does not impose limits on the types of income
an auditor can generate from a client.
It says independence is ensured by stipulating "that income
from any one client, for whatever service, is kept to no more
than a certain proportion of that firm's overall practice
"We are unable to discuss our audit work further due to
client confidentiality. We will cooperate with the relevant
authorities with any investigations into these allegations,"
The firm also said it was not engaged by HP or Autonomy to
provide any due diligence in relation to the acquisition. HP has
said it relied on Deloitte for vetting Autonomy's financials.
A spokesman for Deloitte said the trend at Autonomy in terms
of audit fees relative to non-audit fees had been rising.
($1 = 0.6276 British pounds)
(Reporting by Paul Sandle; Editing by Will Waterman)