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Deloitte fined £15m over auditing failures at Autonomy

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The Financial Reporting Council handed out the record fine, saying the Big Four accountancy firm lost objectivity and lacked integrity.

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Accountancy giant Deloitte failed to properly audit the accounts of software giant Autonomy ahead of its 11 billion-dollar sale to Hewlett Packard almost a decade ago, the accounting regulator has found.

The Financial Reporting Council (FRC) said a tribunal found the firm’s audits in 2009 and 2010 fell significantly short of expected standards for auditors and handed out a record £15 million fine.

Two former Deloitte partners, Richard Knights and Nigel Mercer, were also given fines of £500,000 and £250,000 respectively for their roles in the audits, which HP claimed had been falsified.

The tribunal, according to the FRC which brought the case, said: “The findings of loss of objectivity and lack of integrity against Mr Knights and Deloitte are particularly serious and unusual”.

Deloitte were initially reprimanded at a hearing a year ago, but the firm unsuccessfully appealed the ruling in July this year, with the judgment made public on Thursday this week.

Mike Lynch
Mike Lynch sold Autonomy in 2011 using audited accounts from Deloitte to make the case for its success (Yui Mok/PA)

Mr Knights has also been excluded from membership of the Institute of Chartered Accountants for England and Wales for five years.

The FRC said “integrity, objectivity and independence” had been lost and said the pair had “failed to exercise adequate professional scepticism and to obtain sufficient appropriate audit evidence.

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“Deloitte should not have issued unqualified audit opinions in these years based on the audit evidence obtained.

“Deloitte, Mr Knights and Mr Mercer fell seriously short of the standards to be expected of a reasonable auditor.”

The Tribunal ordered Deloitte to pay the £5.6 million bill for costs of the investigation and tribunal.

It is the latest legal wrangling as part of long-running battles with Hewlett Packard, which bought Autonomy from businessman Mike Lynch in 2011.

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The US tech giant subsequently wrote down the company’s value and took Mr Lynch to court last year.

Elizabeth Barrett, FRC executive counsel, said: “The significant sanctions imposed by the independent tribunal and announced today reflect the gravity and extent of the failings by Deloitte and two of its former partners in discharging their public interest duty concerning Autonomy’s audits.

“The identified failures to act with integrity, objectivity, scepticism and professional competence go to the heart of audit.

“After lengthy, fully contested proceedings, the tribunal concluded that the audit work fell significantly short of the standards expected of an audit firm and its partners.”

The previous record fine handed out by the FRC was against Deloitte’s Big Four rival, PwC, for £10 million over its audit of retailer BHS.

A spokesperson from Deloitte said: “We regret that the FRC tribunal has ruled that aspects of our audit work on Autonomy between 2009 and 2011 fell below professional standards required.

“Our audit practices and processes have evolved significantly since this work was performed over a decade ago and we continue to transform our audit by investing in firm-wide controls, technology and processes.

“We remain committed to playing our role in delivering change that embraces audit quality, improves choice and restores trust in the profession.”

Mr Knights and Mr Mercer issued a statement, saying: “We are disappointed that the Tribunal has criticised our conduct and certain judgments we made in 2009 to 2011.

“At all times we believe we acted professionally, diligently and in good faith and we disagree with the findings. We are grateful for the full and unwavering support of Deloitte in this matter.”

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