HP, Olam and accounting scandals

Cesar Bacani
04 Dec 2012

They are distinctly two different companies, although both are leaders in their field. Singapore’s Olam International Limited deals in agricultural products and food ingredients. US-based HP is immersed in the digital world of bits and bytes, including personal computers, printers and enterprise software.

But last week both Olam and HP were united in facing a firestorm related to alleged accounting irregularities. As their stock price plunged, top executives, including the CFO, sought to explain, clarify and assign blame. “The board relied on audited financials, audited by Deloitte, not a Brand X accounting firm, but Deloitte,” said HP CEO Meg Whitman.

For its part, Olam has sued short-seller Carson Block, founder of self-styled research firm Muddy Waters, for libel, slander and malicious falsehood. “If you look at [Olam’s] historical financial statements,” Block told an investment conference in London, “literally two-thirds of the accounts in the cash-flow statements were reclassified by the time you got the audited numbers.” He predicted that the company will collapse under the weight of its debts.

HP’s accounting controversy relates to its subsidiary Autonomy, which it acquired for $11 billion in October last year. It has accused “some former members of Autonomy’s management team” of orchestrating “accounting improprieties, misrepresentations and disclosure failures to inflate the underlying financial metrics of the company.” HP has written off $8.8 billion on its books in relation to the acquisition and said it may sue “various parties . . . to recoup what it can for its shareholders.”

It’s unclear whether those parties will include external auditor Deloitte or KPMG, which was engaged by HP to conduct due diligence on Autonomy prior to the takeover. Understandably, the quality of the audit and due diligence work has come under question – Ernst & Young is Olam’s auditor. Both Deloitte and KPMG have denied knowing about the alleged accounting shenanigans at Autonomy, while Ernst & Young says it stands by its audit of Olam.

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