Wednesday 6 January 2021 12:27 pm

FRC: Deloitte allowed Autonomy to 'present misleading financial position'

Deloitte’s audit of scandal-hit UK software firm Autonomy allowed the company to “present a misleading picture of its financial position”, the City watchdog said this morning. 

The Financial Reporting Council investigated the actions of Deloitte and former partners Richard Knights and Nigel Mercer in relation to their audits of the disgraced tech company’s accounts.

Read more: Deloitte hit with record £15m fine over Autonomy audit

Autonomy was bought for $11bn by Hewlett Packard (HP) in 2011 before the US tech giant wrote off three-quarters of its value, claiming it had been deceived by its finances.

HP is suing Autonomy chief executive Mike Lynch – who denies any wrongdoing – for $5bn, in the UK’s biggest civil fraud trial. It has claimed that Autonomy falsely inflated its revenue through hardware sales ahead of the acquisition. 

The judgement is expected to be delivered early this year.

In September, the FRC announced that it would hit Deloitte with a £15m fine and ordered it to pay more than £5m in costs in relation to the tribunal. 

Read more: HP accuses Autonomy boss Mike Lynch of lying in $5bn fraud trial

Today’s report

In a full report published this morning, the FRC concluded that Deloitte’s failures “enabled Autonomy to present a misleading picture of its financial position”.

The company’s “financial results were in fact propped up by undisclosed sales of hardware and sales to Value Added Resellers which were later reversed or replaced.”

The investigation also found that ex-Deloitte partner Richard Knights bowed to client pressure “at exactly the point in time when an audit partner should have resisted it”.

“These were critical moments in each audit. It is unknowable what would have happened if Mr Knights had stood firm and not yielded”. 

Read more: Autonomy finance chief ‘too scared’ to face analyst calls, fraud trial hears

Knights was excluded from the Institute of Chartered Accountants for England and Wales for five years and fined £500,000.

Meanwhile, Mercer was slammed with a £250,000 fine and received a severe reprimand.

A Deloitte spokesperson said: “We regret that the FRC tribunal has ruled that aspects of our audit work on Autonomy between 2009 and 2011 fell below professional standards required.

“Our audit practices and processes have evolved significantly since this work was performed over a decade ago and we continue to transform our audit by investing in firm-wide controls, technology and processes.

“We remain committed to playing our role in delivering change that embraces audit quality, improves choice and restores trust in the profession.”

Read more: Autonomy founder Mike Lynch kicks off testimony in UK’s biggest fraud trial