U.K. Accounting Watchdog fines Deloitte, former partners over autonomy audits

The U.K. accounting watchdog said it has fined Deloitte £15 million ($19.5 million) and sanctioned two former partners over past audits of British software company Autonomy Corporation PLC. The Financial Reporting Council said Deloitte and former partners Richard Knights and Nigel Mercer were disciplined after an independent disciplinary tribunal found misconduct in relation to Autonomy audits between January 2009 and June 2011.

The FRC tribunal found that Deloitte, Mr. Knights and to a lesser extent Mr. Mercer were culpable of serious and serial failures. Mr. Knights was fined £500,000 and excluded from membership of the Institute of Chartered Accountants for England and Wales for five years, while Mr. Mercer was fined £250,000 and received a severe reprimand, the accounting watchdog said. The FRC said Deloitte has also been severely reprimanded and agreed to provide a root-cause analysis of the reasons for the misconduct.

Autonomy was bought in 2011 by Hewlett-Packard for $11.1 billion. A year later, the U.S. company took a write-down related to the deal and said it was duped into overpaying because of what it said appeared to be will-fully inflated financial statements. The bulk of Autonomy was later acquired by U.K. software group Micro Focus International PLC. Deloitte said it regrets that the FRC ruled that aspects of its audit work on Autonomy didn’t meet professional standards, and that it remains committed to deliver change that restores trust in the profession. “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 firmwide controls, technology and processes,” a Deloitte spokesperson said. The FRC said the tribunal found shortcomings in relation to Autonomy’s audits and certain of its sales. Mr. Knights was also found culpable of further misconduct for a loss of his objectivity, the FRC said.

“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,” Messrs. Knights and Mercer said in a statement on Thursday. The FRC also ordered Deloitte to pay all costs of the investigation claimed by its executive counsel, amounting to £5.6 million, together with costs of the tribunal.