Hewlett-Packard Co.'s claims of financial improprieties atAutonomy Corp. have accounting experts questioning whether theallegations are an attempt to divert attention from yet another badacquisition.

Hewlett-Packard said yesterday it recorded an $8.8 billionwritedown related to its purchase last year of Autonomy, the U.K.software maker. More than $5 billion of that impairment charge wasthe result of accounting practices at Autonomy, Hewlett-Packardsaid in a statement. About $200 million of Autonomy's revenue hadbeen recorded prematurely or improperly, according toHewlett-Packard's general counsel.

“How does that translate into a $5 billion write-off?” said LynnE. Turner, former chief accountant of the U.S. Securities andExchange Commission and a managing director at LitiNomics Inc., aneconomic and forensic consulting firm. “The big issue isn't thefraud they're talking about. The big issue is that HP has madeacquisitions that have turned out to be a disaster.”

The writedown follows Hewlett-Packard's August announcement thatit would take a charge of $9.2 billion, largely related to itspurchase of Electronic Data Systems Corp. When companies make anacquisition, the difference between the value of the target's hardassets and the purchase price is known as goodwill. That getscarried on the company's balance sheet as an asset and is reviewedperiodically by public companies.

The Autonomy and EDS writedowns together total $18 billion,while Hewlett-Packard's balance sheet as of April showed almost $45billion in goodwill.

“Those were decisions approved by the board and they raiseserious questions about the competency of the board and managementteam,” Turner said.

Former Hewlett-Packard Chief Executive Officer Leo Apothekeragreed to buy Autonomy in August 2011 for $10.3 billion to expandinto data-search software for corporations and then left inSeptember 2011 after less than a year on the job. Current CEO MegWhitman and Chairman Ray Lane served on the board when it signedoff on the deal.

Michael Thacker, a spokesman for Hewlett-Packard, didn't returncalls seeking comment.

Hewlett-Packard alleges Autonomy mischaracterized some revenuefrom “negative margin” hardware sales and improperly included it as“license revenue,” according to a company statement. The hardwarecomprised an estimated 10 percent to 15 percent of Autonomy'srevenue, Hewlett-Packard said.

'Created' Revenue

Hewlett-Packard also said in its statement that Autonomy usedlicensing transactions with resellers to inappropriately acceleraterevenue recognition “or worse, create revenue where no end-usercustomer existed at the time of sale.”

Autonomy accelerated, miscategorized and “created” more than$200 million in revenue over a two-year period beginning in 2009,said John Schultz, Hewlett-Packard's general counsel in aninterview. That would equate to about 12 percent of Autonomy's$1.61 billion in revenue for 2009 and 2010, based on the company's2010 annual report.

Autonomy resold Dell Inc. desktop and laptop computers, andcomputer mice, and recorded those sales so they appeared to besoftware revenue, Schultz said. He also said Autonomy fabricatedsome sales through resellers.

Deloitte, Autonomy's auditor, “obviously didn't catch theseissues at the time” Schultz said.

Deloitte “categorically denies” any knowledge of improperaccounting or misrepresentations in Autonomy's financial reports,it said in a statement today. The firm said it didn't provide duediligence related to the takeover by Hewlett-Packard and its mostrecent audit opinion was for 2010.

Autonomy generated most of its sales in 2010 through more than400 resellers, including Accenture Plc, International BusinessMachines Corp., Cap Gemini SA and Wipro Ltd., according to the 2010annual report.

Hewlett-Packard became aware of the situation after an executivewho still works there stepped forward after former Autonomy CEO andfounder Mike Lynch departed in May. Autonomy's former topmanagement team “flatly rejects” the allegations, according toVanessa Colomar, a spokeswoman for Lynch. Autonomy has beenmismanaged by Hewlett-Packard, she said.

Lynch said in an interview on CNBC that he wasn't contacted byHewlett-Packard before the company made its allegations public.

Deal Stumbles

The world's biggest technology companies often stumble inacquisitions because they fail to understand what they're buying,said Stephen E. Arnold, president of Harrod's Creek, Kentucky-basedArnold Information Technology, which advises clients on search andcontent processing.

“The arrogance of the buying company is they believe they aresmarter and can do a better job,” he said. “For that big a deal,you don't do this kind of detail after you've owned them. You takeyour time and do it first.”

Hewlett-Packard's allegations of aggressive revenue recognitionecho accounting scandals of the late 1990s and early 2000s, saidJack T. Ciesielski, publisher of The Analyst's Accounting Observerand former adviser to the Financial Accounting Standards Board.

Back then, companies including Computer Associates InternationalInc. and Lucent Technologies Inc. were investigated over theirrevenue recognition practices.

Turner, the former SEC accountant, said that while there havebeen specific rules governing software revenue recognition since1997, Silicon Valley companies have a track record of trying tomake themselves look more profitable.

Deloitte last December issued a 208-page “road map” devoted tonavigating the various accounting standards governing therecognition of software revenue.

Calculating when to book revenue at software companies iscomplex, Ciesielski said.

“It's not like somebody just shipped a bunch of cans of limabeans to a store and they're ready to go,” he said. That's becausethe contracts typically include physically delivering products andalso providing services, maintenance and customization.

As a result, “it's not a hard thing to obfuscate, let's put itthat way,” he said. “There are tons of ways to make it difficultfor the accountants.”

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