HP and the Big Four

http://www.nytimes.com/2012/11/30/business/auditors-clash-in-hp-deal-for-autonomy.html?ref=business

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"Learn, earn, return -- these are the three phases of life." (Jack Belousek)
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So HP is crying "foul" because they spent big money on a company that had been "audited" before they bought it. Where were the auditors? Well, according to Floyd Norris, they were everywhere: "They were consulting. They were advising ... on strategies for optimizing revenue. They were investigating whether books were cooked, and they were signing off on audits approving the books that are now alleged to have been cooked. They were offering advice on executive pay. There are four major accounting firms, and each has some involvement."

The Autonomy dispute (and HP's $8.8 billion write-down of that "asset") breaks down into:

                    * HP buys Autonomy for $11 billion in October, 2011;

                    * Last week, HP says Autonomy has been cooking the books in a variety of ways;

                    * Autonomy was audited by the British arm of Deloitte. HP, which is audited by Ernst &
                       Young, hired KPMG to perform due diligence in connection with the acquisition.

                    * That's three of the big four. So, it should be no surprise that PricewaterhouseCoopers
                       was brought in to do a forensic investigation because of a "whistle-blower." And, 
                       PWC found bad things.

So, unless Floyd Norris has it wrong, that makes the Big Four tally two for Autonomy and two for HP. For me, if that is the case, why do we have Sarbanes and why do we have international accounting principles? And, what do the "Big Four" do?

I like the Floyd Norris perspective: "To an outsider, making sense of the brouhaha is not easy. In a normal accounting scandal, if there is such a thing, the company restates its earnings and details how revenue was inflated or costs hidden. That has not happened here and may never happen ..." HP took an $8.8 billion write-off for a company that never earned more than $1 billion in a year. The write-off represents much of the good will that HP booked when it made the deal. In other words, HP paid way too much and should have known better.

So what we have here is: "Two of the Big Four were fooled, at least according to the other two. Perhaps coincidentally, the firms tended to reach conclusions desired by those who paid them."

I could go on but the "Big Four" don't look so big right now and I'll leave it at that.