Advisory group says raised Autonomy auditor concerns

Thu Nov 22, 2012 11:04am EST
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By Paul Sandle

LONDON (Reuters) - 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 (HPQ.N: Quote) 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 center 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 non-audit fees.

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.   Continued...