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Deloitte partners face ban from accounting over failures on Autonomy

 
Two senior Deloitte accountants are threatened with bans from the accounting profession after the regulator brought formal complaints over their failure to uncover practices at Autonomy that led to string of US fraud convictions for its finance chief.
Six years after Hewlett-Packard alleged Autonomy’s figures were a sham following its ?7.4bn takeover of the FTSE 100 software company, the Financial Reporting Council (FRC) has taken action against the auditors who approved its bookkeeping.
Deloitte partners Richard Knights and Nigel Mercer allegedly failed to hold Autonomy to account over sales of low margin computer hardware and round-trip deals with resellers that falsely inflated sales. The FRC claims they also failed to correct misleading statements by Autonomy to the regulator when its accounts came under scrutiny.
Mr Knights is also accused of having “breached the fundamental principle of integrity” when he “recklessly” failed to correct a misleading statement to the FRC by Autonomy’s chief financial officer Sushovan Hussain in early 2010, more than a year before HP bid for the company.
Mr Mercer has since retired and while Mr Knights remains at Deloitte but is not carrying out statutory audit work.
Hussain is now awaiting sentencing in the United States after his conviction in April on 16 counts of wire and securities fraud. After HP discovered the accounts had been manipulated it wrote down the value of Autonomy by four fifths.
The 54-year-old faces up to 20 years in prison and has said he will appeal. The FRC said it will now seek to have him struck off as a chartered accountant. Stephen Chamberlain, his number two as Autonomy’s vice president of finance, also faces disciplinary action on allegations he acted dishonestly or recklessly in his accounting for of computer hardware sales and failed to provide auditors will information.
Deloitte partners face ban from accounting over failures on Autonomy

Sushovan Hussain, Autonomy's former CFO, is awaiting sentencing
A spokesman for the Big Four accountant said: “We are disappointed that these complaints have been brought and we will defend ourselves against them at Tribunal.”
A date for the hearing has not been set. It will mark the climax of an FRC investigation launched in February 2013, three months after HP’s initial allegations. If the FRC’s complaints are upheld, stripping Mr Knights and Mr Mercer of membership of the accounting profession would be the toughest action the tribunal could take. Unlimited fines are also possible.
The regulator has brought official complaints over Autonomy’s accounts amid criticism of the speed of its inquiries and effectiveness of its punishments. The Government has appointed the former Legal & General chairman Sir John Kingman to review the FRC in the wake of the collapse of Carillion.
MPs have branded the FRC “useless” and “toothless” over its failure to detect the fragility of Carillion’s finances. The regulator’s chief executive Stephen Hadrill argued it was reliant on published statements and did not have the necessary powers to challenge what it was told by Carillion and its auditor KPMG.
The fallout from the Autonomy scandal is due to continue for years. Hussain and the company’s founder Mike Lynch now face a ?3.8bn civil damages from HP in the British courts. Mr Lynch, who denies any wrongdoing and has issued a counterclaim for defamation, did not face criminal charges alongside his right-hand man.
Deloitte also faced a lawsuit from HP. It is understood the two sides agreed a settlement. Mr Knights and Mr Mercer were not called as witnesses in the prosecution of Hussain.
As well as Autonomy, the firm is under FRC investigation over its audits of the struggling outsourcer Mitie. A review of its books found it had used “less conservative” accounting than its rivals in the sector.
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