HP's Accounting Fraud - Research Paper Example

?Research paper Legal frameworks and moral constructs regulate behavior among professionals. Politically established rules that are enforced by legalsystems regulate legal environments while enforcement of ethical provisions majorly relies on an individual’s conscience and fundamentals of integrity. Accounting is one of the professions that experiences legal and moral breaches as employees engage in malpractices. The profession reports cases of fraud as professionals seek to extract money from organizations and individuals through misrepresentation of information on financial statements’ items such as assets, liabilities, revenues, expenses or income. Some misrepresentations however aim at esteeming an organization’s financial position to present a better image to stakeholders. I, in this paper, review cases of accounting fraud. Worthen reports a claim by Hewlett Packard that Autonomy, a United Kingdom based company that it acquired two years ago, had misrepresented its financial position to the harm of Hewlett Packard. Hewlett Packard reports that the acquisition was overvalued and the transfer of ownership led to an almost nine billion dollar write off and a consequent loss in hp’s trading. hp claims that its internal audit detected gross misrepresentation by Autonomy prior to the 2011 acquisition with claims of intentional motive to overstate both income and profitability of the organization. The perpetrators, according to the article, further intended to conceal such acts but Autonomy’s founder dismissed the claims as false. The founder, Mr. Lynch who worked with hp after the acquisition however cited poor management by the new owner of his former software enterprise as the possible cause of the financial conditions at Hewlett Packard. Reports of formal action by hp for legal investigations and action by both United States and United Kingdom authorities identified significance of the case that would transcend international legal systems. History of Hewlett Packard, prior to the acquisition, had however been marred with integrity compromises that led to reorganization of its top management and the departure of its two chief executives in 2010 and 2011. While Mr. Hurd had to resign in the year 2010 for conflict of interest that manifested in relationship with a client, his successor who also spearheaded the Autonomy deal bowed down to pressure after barely a year (Worthen 1). Investigations into the fraud case were initiated in May 2012 after Hewlett Packard’s lead legal personnel reported allegations from a member of Autonomy’s management team that gross manipulation of accounting records occurred before the property’s transfer to Hewlett Packard. While the informant’s anonymity was maintained, Autonomy’s auditing firm expressed its positions of having no interest of knowledge of such malpractices though the accounting firm did not express confidence in its client’s accounting records prior to the sales. Mr. Lynch however maintained that his former business was developed on integrity and was stable before internal differences among hp’s management team led to its collapse. Supporting Lynch’s allegations are reports of other managerial challenges such as mobility among hp’s top executives, reduced costs, increasing liabilities and reducing demand for some of the organization’s products. Even though private audit identified inconsistency in classification of items for recording, hp’s allegations of gross misrepresentation was downplayed by its representation by distinguished accounting firms during the acquisition and the fact that the firms did not detect such claims (Worthen 1). Even though existing information does not establish validity of the claim, Autonomy appears to have misrepresented its accounting records to portray a profitable and competitive enterprise that it was not. The primary motives of such misrepresentations have however not been established but occurrence prior to Autonomy’s sales suggest that the misrepresentation aimed at deceiving potential investors of a viable business opportunity. The misrepresentation was based on classification of transactions for recording and not on item values but hp reported overpayment of five billion dollars due to the misrepresentations (Svensson 1). Factors around the case that identify previous ethical compromises indicate “situational pressure” as a main cause of fraud that could have been deeply rooted in hp (Jenkins 15). The Olympus scandal is another reported accounting fraud that involved perceived misrepresentation of financial information. In the article by Eavis, security personnel arrested Mr. Chan who was linked to accounting malpractice. The accused was paid by Olympus to maintain an international shell game whose assets allowed Olympus to conceal its losses over a long period. Olympus determined to hide its losses that totaled to $ 1.7 billion and the malpractice was only detected in the year 2011 after the company fired one of its executives and the aggrieved executive blew the whistle (Eavis 1). Even though the author does not identify Olympus’ objective into the misrepresentation of its returns and the use of a third party to cover its losses, the need to maintain investors’ confidence in the company must have played a major role. This is because the company did not want to face impacts of such losses on its balance sheet. Such impacts would include long term and short-term liquidity positions, factors that are significant to investors and creditors. The company misrepresented its losses on assumption that its act will not be known (The Wall Street Journal 1; Harel and Hylton 204). Woodford’s article that was published in The Economist offers another insight into Olympus’ accounting fraud in which financial information was managed instead of representation of actual value. The former president of the Olympus explains his experience with the company in which his initiatives to ensure integrity led to his sacking. The article identifies malpractices that let to Olympus’ non disclosure of its losses. The author explains that Olympus purchased three companies at $ 800 million while the companies did not demonstrate profitability prospects. Writing down of 75 percent of the purchased companies’ values followed in the same year at a fee of $ 700 million dollars and Mr. Woodford’s attempt to correct the malpractices met internal objection. The two acts identify manipulated expenses as the $ 700 million could not be traced and a significant percentage of the purchase price had to be written off without professional approach to managing the associated loss. The motives for the improper management of the funds are not established in the article but personal financial interest is probable because the acts were against the company’s interest. This identifies greed as the main cause of the reported fraud (Woodford 1; Schiller 1). Works cited Eavis, Peter. “U.S makes arrest in Olympus scandal.” New York Times. December 20, 2012. Web. May 1, 2013. < http://www.nytimes.com/2012/12/21/technology/us-makes-arrest-in-olympus-accounting-scandal.html?_r=0>. Harel, Alon, and Hylton, Keith. Research handbook on the economics of criminal law. Northampton, MA: Edward Elgar Publishing, 2012. Print. Jenkins, J. Managerial accounting: A focus on ethical decision making. Mason, OH: Cengage Learning, 2008. Print. Schiller, Jon. Financial fraud. New York, NY: CreateSpace, 2010. Print. Svensson, Peter. “HP claims fraud prompted $ 5B overpayment.” US News. November 20, 2012. Web. May 1, 2013. < http://www.usnews.com/news/technology/articles/2012/11/20/hp-says-acquired-company-lied-about-finances-2>. The Wall Street Journal. “At Olympus, stumbles in scandal.” The Wall Street Journal. December 21, 2011. Web. May 1, 2012. < http://online.wsj.com/article/SB10001424052970203686204577112040112625120.html >. Woodford, Michael. “Paying a price for doing what’s right: What really happened at Japan’s premier camera-maker.” November 24, 2012. Web. May 1, 2013. < http://www.economist.com/news/books-and-arts/21567046-what-really-happened-japans-premier-camera-maker-paying-price-doing-whats-right>. Worthen, Ben. “H-P says it was duped, takes $ 8.8 billion charge.” The Wall Street Journal. November 20, 2012. Web. May 1, 2013. < http://online.wsj.com/article/SB10001424127887324352004578130712448913412.html>. Read More