Question

Taking consideration of the following articles, solve the follwing question

by Joel Rosenblatt

The former chief financial officer of Autonomy Corp was found guilty of orchestrating an accounting fraud to arrive at the $US10.3 billion price Hewlett-Packard paid for the UK software maker more than six years ago.

A jury voted to convict Sushovan Hussain on Monday on all 16 counts of wire and securities fraud after three days of deliberations in San Francisco federal court.

Autonomy was the UK's second-largest software business when Hewlett-Packard acquired it in 2011. Hewlett-Packard later wrote down its value by $US8.8 billion, citing fraud by Autonomy and asking the US Justice Department to investigate.

The guilty verdict at least partially vindicates Hewlett-Packard. It also gives the company momentum as it heads toward a trial next year in London in a $US5 billion civil suit against Hussain and Autonomy co-founder and former chief executive officer Mike Lynch.

John Keker, Hussain's lawyer, declined to comment. Robert Leach and Adam Reeves, the lead US prosecutors, also declined to comment.

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The US accused Hussain of spinning his company's financials to create a false appearance of growth.

At trial the government presented emails, phone records, earnings statements, press releases, and even an alleged payment of "hush money" to show what prosecutor Adam Reeves called "a balance sheet of fraud".

'Ponzi scheme'

From 2009 to 2011, when most technology companies were struggling in the wake of the 2008 financial crisis, Hussain built a facade to "eek out consensus estimates" of Autonomy's revenue before the merger with Hewlett-Packard, Reeves said in his closing argument.

Autonomy by late 2011 had become an "unsustainable Ponzi scheme", he said, leading Hussain to exhort Lynch to sell the company. Hussain was "desperate", and "constantly anguishing, and looking for revenue", Reeves said.

Keker, Hussain's lawyer, argued that HP bought, and then hobbled, an increasingly profitable software company. It was one of a string of failed acquisitions requiring write-offs, a list that includes Palm, Compaq, and Electronic Data Systems, he said.

Keker described a Hewlett-Packard "machine" that deployed an army of company lawyers and consultants to support the government prosecution, which he said relies on false testimony from cooperating witnesses who buckled under "tremendous pressure".

"They're trying to make this Englishman into a criminal, when committing a crime was the furthest thing from his mind when he was working," Keker said, referring to Hussain during his closing argument. "Everybody gets a pass but he's supposed to be a criminal. This case belongs in a civil case in London where it already is."

This case is U.S. v. Hussain, 16-cr-00462, U.S. District Court, Northern District of California (San Francisco).

In your accounting career you will be required to analyse current accounting issues and communicate your theoretical understanding to your professional colleagues and your clients. For this assignment assume that you are the senior accountant working for a major firm. Question 1 - 9 marks (1,500 words) The CEO has forwarded to you an interesting article and requires you to provide her with a deeper theoretical understanding of the issues discussed so that she can fully engage in the lively discourse at an upcoming conference. You are required to find a newspaper article or web page report of an item of accounting news, i.e. it refers to a current event, consideration, comment or decision that has been published after the 1st of January 2018. Your article could also come from one of the professional journals. The article should not come from an academic journal. Academic journals generally do not contain news articles or articles of less than one page and are usually only published 2 or 4 times a year. If you are having a problem ensuring that your article is from an appropriate source contact your subject coordinator. You then need to explain the article that you have found in your own words and clearly relate the concepts, ideas and facts within the article to one or more of the theories or topics that you have studied this session. Support your analysis of the assumptions and implications of the topic or theory as appropriate with reference to sources in APA 6 style. For example, this article from the Sydney Morning Herald in April 2016 could be linked to the topics of accounting regulation and measurement (and perhaps others). You must provide a copy of the article or web page, with details of the source, date and page number with your answer.

Answer 1

Regulator urges inquiry into breaking up big four accountancy firms.   The Guarian

Making KPMG, Deloitte, PwC and EY spin off auditing arms could end conflict of interest, says FRC

Angela Monaghan

Fri 16 Mar 2018 14.05 GMTLast modified on Fri 16 Mar 2018 15.16 GMT

A break-up of Britain’s big four accountancy firms could end their dominance in auditing the accounts of large companies and address a crisis of confidence facing the sector after a series of scandals, a UK regulator has suggested.

Stephen Haddrill, the chief executive of the Financial Reporting Council, which regulates the sector, called for an investigation into whether KPMG, Deloitte, PwC and EY should have to spin off their UK audit arms into separate businesses.

The aim would be to increase competition and eliminate conflicts of interest arising from the dominance of the four firms.

It follows a series of corporate accounting scandals, including UK construction firm Carillion, whose books were signed off by KPMG and which collapsed under a pile of debt in January. Deloitte is under review by regulators in South Africa after the firm flagged irregularities in the accounts of its client, the furniture group Steinhoff, which owns Poundland, Benson for Beds and Harveys in the UK.

“There is a loss of confidence in audit and I think that the industry needs to address that urgently,” Haddrill told the Financial Times. “In some circles, there is a crisis of confidence.”

Haddrill has held discussions with the Competition and Markets Authority about opening an investigation into the UK audit market, and is planning to hold future meetings on the issue.

The big four accountants audited all but nine of the companies listed on the FTSE 350 at the end of their financial years, according to Manifest, a research firm that provides investors with information on corporate governance.

A previous inquiry into the dominance of the big four by the UK Competition Commission – now replaced by the CMA – resulted in tougher rules for the accountancy sector being introduced in 2013. Measures included a requirement that FTSE 350 companies put their audit business out to tender at least every 10 years.

However, the market share of the four firms subsequently increased, rather than fell.

Haddrill said: “The Competition Commission introduced some remedies to try and encourage more competition. But there is no more competition. So it seems to me that we ought to have another look at [the audit market].”

The CMA told the FT: “We are actively monitoring the remedies put in place following the Competition Commission’s inquiry … This monitoring is ongoing and the [authority] remains open to looking further at this sector in the future.”

Critics of the big four’s dominance have pointed to potential conflicts of interest arising from the rapid growth of their consulting divisions. They argue that an accountancy firm might have a biased approach to a client’s audit if it also has a lucrative consultancy contract with the company, advising it in areas such as tax.

“If you’re in the senior leadership of the firm, I think you need to be focusing heavily on your public interest responsibility, which is the audit bit,” Haddrill said. “[But] so much of your attention is bound to be drawn to the most profitable and the fastest-growing part of your business, which is not the public interest part.”

Audits on Carillion were criticised last month as “a colossal waste of time” by Rachel Reeves, the Labour MP and chair of the business, energy and industrial strategy select committee.

Following a BEIS committee evidence session, Reeves suggested the auditors had a role to play in the collapse of the company.

She said: “We heard from auditors who don’t attend audit meetings, fail to visit projects which they themselves say are at risk, and who provide clarity only about what is not included in an audit rather than what is".

OUR VIEW

THIS shows lack of professionalism in professional.Auditors are the backbone of an economy's financial strength.Such type of incidents make the regulatory authority to make strict laws which will rebuild the lost confidence of the people in auditors.Such type of incidents are eye openers and Govt should make the auditors accountable for such type of incidents.Guilty should be punished by cancelling their membership of professional bodies.