The software company Autonomy is to be investigated by the UK's accountancy watchdog over its financial statements in the lead-up to its $11.1bn (£7.1bn) takeover by US giant Hewlett-Packard in 2011.
HP wrote off $8.8bn of the purchase price paid for Autonomy last November, of which it said $5bn was "linked to serious accounting improprieties, misrepresentation and disclosure failures".
The Financial Reporting Council (FRC) is investigating Autonomy's financial reports between January 2009 and June 2011 – audited by Deloitte – after consulting the Institute of Chartered Accountants. The US Department of Justice is already investigating the accounting claims and HP has also asked the Serious Fraud Office to look into the allegations.
Autonomy's former chief executive Mike Lynch, who denies the charges, founded the company in Cambridge in 1996. He personally made around £500m on the sale of the business, although many analysts said at the time that Hewlett-Packard had overpaid. He left the company in May last year.
Mr Lynch said: "The accounts of Autonomy have previously been reviewed by the FRC, including during the period in question, and no actions or changes were recommended or required. Autonomy received unqualified audit reports throughout its life as a public company. This includes the period in question, during which Autonomy was audited by Deloitte. We are fully confident in the financial reporting of the company and look forward to the opportunity to demonstrate this to the FRC."
The FRC can issue an unlimited fine if a disciplinary tribunal upholds a complaint. The biggest fine it has issued was £1.4m against PricewaterhouseCoopers over its auditing of the investment bank JP Morgan. The body could also as an extreme measure withdraw an accountant or auditor's licence to practice.
Deloitte said: "We will co-operate fully with the FRC's investigation … . Deloitte had no knowledge of any accounting improprieties or misrepresentations in Autonomy's financial statements. We conducted our audit work in full compliance with regulation and professional standards."
Sources close to the financial services firm said it was unsurprising that the FRC was investigating.
HP stunned markets three months ago when it said an investigation prompted by a whistleblower had found what appeared to be a "wilful effort on behalf of certain former Autonomy employees" to inflate the value of the company, and "to mislead investors and potential buyers".
The US group, which is struggling against a backdrop of shrinking PC and printer sales, was attracted by Autonomy's high-margin software, which allows users to search "unstructured" data sources such as emails and videos, as well as a roster of blue-clip clients including multinational corporations and government agencies. Autonomy allegedly booked low-margin hardware sales as much higher-margin software licensing revenues, making the company potentially appear more valuable. HP is being sued by US investors over the deal.