The altercation between Autonomy and Hewlett-Packard was an intense battle regarding two very different positions. Hewlett-Packard, the company that purchased Autonomy for $11.1 billion in 2011, found about a year later that Autonomy finances had a meticulous accounting fraud worked in. Due to this, HP fired former Autonomy CEO, Dr. Michael Lynch, citing poor performance by his unit. Dr. Michael Lynch retaliated back after HP released an official statement concerning this matter and brought up numerous points to defend his work at the company. The dilemma reveals the various stakeholders in this case, one of whom is Hewlett-Packard whose interest revolved around obtaining an extremely successful British software company and to potentially use …show more content…
One of the primary methods that Autonomy used to falsify their revenue was selling low margin hardware and cooking those hardware sales as high-margin software sales and labeled some of the cost as marketing expense. This reflects a massively intentional and meticulous method to increase the bottom line of the company and potentially a lack of internal controls and compromised internal auditors. Another method that Autonomy utilized is selling software to value-added resellers, typically known as the middlemen in transactions, and did round-trip transactions that effectively inflated revenue. Lastly, Autonomy hosted application for its customers on a subscription basis, and labeled that into short-term licensing deals. The revenue that would come from the subscription was booked all at once, rather than being deferred or recorded as coming as a receivable in the future. A main defense that Dr. Lynch prompted was that Autonomy was following IFRS, the standards that British companies use. As such, there are different means to recognize revenue in certain transactions. Furthermore, Lynch said that Deloitte, their auditor, was aware of the transactions that occurred and approved of the accounting methods that were …show more content…
Deloitte was the auditor of Autonomy prior to the acquisition, and KPMG was the auditor for the acquisition. Lynch used Deloitte’s audit as a defense that the financial statements of the company are free of material misstatements. He also stated that Paul Curtis, HP’s Worldwide Director of Software Revenue Recognition, KPMG, and EY undertook a detailed study of Autonomy’s software revenue recognition with a specified for US GAAP. The difficulty is that where there is a will, there is a way. Perhaps Lynch was under pressure to meet revenue targets, or simply wanted to aggressively increase their revenue, but the evidence against Lynch reflect a fitting view of a CEO that could be inducing a fraudulent scheme. There were multiple interviews conducted with former employees and business partners who worked with Lynch and said that he berated employees that did not measure up. The audited transactions by Deloitte with invoices over $129,000 could have been hidden due to the use of round-trip transactions, or there could have been hundreds of invoices less than that amount. The berating of employees also indicates a negative tone at the top that drizzled down to other employees that were forced to assist in the
In the beginning of March the newly joint corporation, McKesson HBOC started a negotiating process with Oracle Corporation. Unfortunately for McKesson, the negotiations ended without a contract. On April 1 Bergonzi let Hawkins know that he found an offer that could be a good deal. The agreement would require McKessonHBOC to sell $20 million worth of software to Data General, along with a license and a right to return any inventory that was not sold during the period of 6 months. The corporation would also have to help Data General find customers for the product. In return, they could buy $25 millions worth of computer hardware. The contract was signed on April 5 the same year. The senior management thought that backdating the sales and purchases would raise the company's revenues up to the desired levels. In order to cover their actions, the company created a false delivery receipt that showed the date of the delivery as March 31, 1999, while in reality the product was delivered in April. Both, the information about the $25 Million purchase of hardware from Data General as well as the return agreement concealed from the public.
As a partner in the public accounting firm of Deloitte & Touche. LLP. James, in this case, was responsible for this violation. First, James was no on the basis of full inspection of the subsequent discovery existing at the date of the auditor 's report. Second, he did not detect and address problems regarding Ligand Pharmaceuticals ' exclusion of certain types of returns from the evaluation of future returns. Last but not least, he did not adequately perceive the reasonableness of Ligand’s estimates of future product
Individual Article Review Lily Cobian LAW/421 March 31, 2014 Ramon E. Ortiz-Velez Individual Article Review Introduction My article review is based on Sarbanes-Oxley and audit failure, a critical examination why the Sarbanes-Oxley Act of 2002 was established and why it is not a guarantee to prevent failure of audits. Sarbanes-Oxley Act talks about scandals of Enron which occurred in 2001 and even more appalling the company’s auditor, Arthur Anderson, found guilty of shredding company documents after finding out Enron Company was going to be audited. The exorbitant amounts of money auditors get paid to hide audit discrepancies was also beyond belief. The article went on to explain many companies hire relatives or friends to do their audits, resulting in fraud, money embezzlement, corruption and even the demise of companies. Resulting in the public losing faith in the accounting profession, the Sarbanes-Oxley Act passed in 2002 by congress was designed to restrict what company owners and auditors can and cannot do. From what I gathered in the article, ever since the implementation of the Sarbanes- Oxley Act there has been somewhat of an improvement but questions are still being asked as to why there are still issues that are not being targeted in hopes of preventing more audit failures. The article also talked about four common causes of audit failure: unintentional auditor mistakes, fraud, fatigue and auditor client relationships. The American Institute of Certified Public Accountants (AICPA) Code of Professional Conduct clearly states an independent auditor because it produces a credible audit, however, when there is conflict of interest, the relation of a former employer, or a relative or even the fear of getting fire...
Dennis Kozlowski was an accounting major from modest beginnings who worked his way to the top of Tyco, but along the way he made an important career stop at Nashua Corporation, as the Director of Audit and Analysis. In keeping with his tactic to handpick his management team, along came his new CFO Mark Swartz. He was an impeccable choice for Kozlowski, fitting the requirements of being “smart, poor, and wants-to-be-rich” (Symonds) and since he began his career as a CPA auditor for Deloitte & Touche he had the perfect skill set to assist in Kozlowski’s corruption (Hamilton and Micklethwait 82). Before they could begin to pillage the company they needed to establish a way to avoid detection by the SEC, the board of directors and the auditors. In much the same way a bank robber would disable security cameras, they made their thieveries invisible or paid off those that would help them. First, Kozlowski organized the company so that the internal audit team reported directly to him ins...
... and settled the charges by paying $50 million. Although charges and wrongdoings of Deloitte auditors were never proven in court, it is quite apparent that Deloitte indeed had its share of guilt in Adelphia’s fraud. In particular, Deloitte failed to properly investigate the relationship between Rigas family and Adelphia Communications Corporation, thus providing way for fraud to take place. Moreover, Deloitte’s independence in this engagement is questionable, considering Deloitte has been the external auditor of Adelphia for over 15 years. Therefore, auditors, as crucial players and gatekeepers of any company’s financial reporting, should maintain unsurpassed independence, in fact and in appearance, as much as possible. Moreover, as effective and responsible professionals, auditors should always maintain their integrity despite any management or executive pressure.
The company’s value and reputation have been damaged by Jayson Blair more than any other event over the last century and a half, according to Michael Wolff’s NY Mag article. Blair caused employees to revolt, media to go crazy and Feds to
In modern day business, there can be so many pressures that can cause managers to commit fraud, even though it often starts as just a little bit at first, but will spiral out of control with time. In the case of WorldCom, there were several pressures that led executives and managers to “cook the books.” Much of WorldCom’s initial growth and success was due to acquisitions. Over time, WorldCom discovered that there were no more opportunities for growth through acquisitions when the U.S. Department of Justice disallowed the acquisition of Sprint.
Rather than being sticklers for following GAAP accounting principles and internal controls, this company took unethical behavior to a whole new level. They lied when the truth would have been easier to tell. It is almost as if they had no comprehension that the meaning of the word ethics is “the principles of conduct governing an individual or a group (professional ethics); the discipline dealing with what is good and bad and with moral duty and obligation”, (Mirriam-Webster, 2011). To be ethical all one has to do is follow laws, rules, regulations and your own internal moral compass, all things this company seemed to know nothing about.
Andersen was the auditing firm responsible for overseeing the legitimacy of Enron’s accounting and business practices (Oppel & Eichenwald, 2002). This means that as Enron entered into riskier and riskier investments and made profitable deals with fake shell companies, Arthur Andersen continued to sign off and approve these actions as financially sound (Oppel & Eichenwald, 2002). Only once significant wrongdoing and criminal acts had already occurred did the government—in the form of the SEC—step in to conduct an investigation into the white collar crime that had been perpetrated (Oppel & Eichenwald,
Unethical accounting practices involving Enron date back to 1987. Enron’s use of creative accounting involved moving profits from one period to another to manipulate earnings. Anderson, Enron’s auditor, investigated and reported these unusual transactions to Enron’s audit committee, but failed to discuss the illegality of the acts (Girioux, 2008). Enron decided the act was immaterial and Anderson went along with their decision. At this point, the auditor’s should have reevaluated their risk assessment of Enron’s internal controls in light of how this matter was handled and the risks Enron was willing to take The history of unethical accounting practic...
The term “ethics” refers to an external set of rules that have been established by an institution or organization, for example, a university, and the members are expected to follow them. On the other hand, integrity refers to an individuals’ internal set of principles that guides their actions and behavior (Czimbal and Brooks n.p.). As a rule, people are usually rewarded when they follow ethical codes of conduct by an external committee or board that monitors their behavior. For a person of high integrity, the benefits are usually intrinsic. Moreover, such individuals always make the right decisions even when they are not being watched. Therefore, this feature of character is often influenced by a person’s upbringing. In
Dowd (2016) runs above and beyond with the clarification to state accounting fraud incorporates the change of accounting records in regards to sales, incomes, costs and different components for a profit motive, for example, boosting organization stock prices, getting ideal financing or maintaining a strategic distance from obligation commitments. Dowd is of the feeling that covetousness, absence of straightforwardness, poor administration data and poor accounting interior controls are a couple of explanations behind accounting fraud. (Dowd,
Accounting dates back as far as first centuries, is the language of business. As everything has gone through many changes, accounting has also changed many times through out the centuries. It went from the use of abacus to the most advanced softwares, and computers. With these drastic improvements nowadays accounting, financial accounting and management are facing big challenges. From the presentation of the reports to communication to the users, investors, and owners, the accounting field has gained totally a new shape from two decades ago. Today with the dynamic change in every aspect of life, the accounting field has to act fast and be able to adapt these new changes and challenges in order to survive.
The Tyco accounting scandal is an ideal illustration of how individuals who hold key positions in an organization are able to manipulate accounting practices and financial reports for personal gain. The few key individuals involved in the Tyco Scandal (CEO Kozlowski and CFO Swartz), used a number of clever and unique tactics in order to accomplish what they did; including spring loading, manipulating their ‘key-employee loan’ program, and multiple ‘hush money’ payouts.
The Auditor-Firm Conflict of Interests: Its Implications for Independence: A Reply. By: Goldman, Arieh; Barlev, Benzion. Accounting Review, Oct75, Vol. 50 Issue 4, p857-859, 3p