Big Four firm Deloitte have been fined £15m for audit failures involving software company Autonomy. The audits took place between January 2009 and June 2011. Two partners involved in the audit were also fined and sanctioned by the FRC.
Who are Autonomy?
Founded by Mike Lynch, Autonomy were a software company specialising in analysis of “big data”. By 2010 they were the UK’s largest and most successful software business.
Autonomy were acquired by HP in October 2011, a deal that Autonomy valued at £7.4 billion. However, within a year HP had written off £6.7 billion in relation to the purchase, alleging accounting irregularities. HP brought a civil suit against Lynch, claiming he fraudulently inflated the value of Autonomy prior to its acquisition.
How are Deloitte involved?
The FRC brought the case against Deloitte, arguing that the firm’s audits in 2009 and 2010 fell “significantly” short of expected standards.
They allege that Deloitte allowed Autonomy to hide £118 million of loss-making hardware sales before the company was sold to HP.
The tribunal found that the partners involved in the audit failed to exercise adequate professional scepticism or obtain sufficient audit evidence.
The former partners, Richard Knights and Nigel Mercer, were found culpable of misconduct relating to the sale of hardware and software licences by Autonomy.
What was the result of the tribunal?
As well as a £15m fine, Deloitte have been ordered to pay all costs claimed by the FRC for its investigation. This amounts to £5.6m as well as the costs of the independent tribunal.
The former partners, Knights and Mercer, have also been sanctioned. Knights was excluded from the Institute of Chartered Accountants for England and Wales for five years and was fined £500,000. Mercer was fined £250,000 and received a severe reprimand.
The £15m fine is higher than the fine given to PwC recently for their work on BHS ahead of their collapse.
Unfortunately for Deloitte, this is not the only court case they are having to deal with. Two other Deloitte partners are facing a £19m lawsuit in the High Court over their administration of Rhino Enterprises, a storage business.
This is the latest of a string of fines for ‘Big Four’ accountancy firms. New government regulations have been brought in to ensure that auditing arms of these firms are completely independent from the rest of the firm. Deloitte are the first of the ‘Big Four’ firms to do this.