HP’s big bath and switch

I just did something embarrassing and you are gawking at me. “Look, over there!” say I to distract you, thus ending the focus on my embarrassment.

That is an extremely short version of Grumpy Old Accountant Dr. Catanach’s post “H-P Throws Its Accountants Under the Bus! But Why?”

The professor has relocated his home for Grumpy Old Accountants to new digs. Check it out!  Then add it to your RSS feed.

His hypothesis:

But what really makes my blood boil is the market’s cavalier attitude toward this “big bath” loss, which may well be one of the most cleverly executed earnings management strategies in recent financial history.

He points out that since HP booked $6.6B of goodwill and intangibles of $4.6B for core technology and patents, they probably knew to look very carefully at the purchase price. The areas that HP is now claiming as problems are areas that all accountants with more than a few years experience know are the major issues in technology audits.

He has a hard time thinking that KPMG and Ernst & Young and Deloitte and a few law firms and a due diligence team reportedly totaling 300 experienced professionals all missed the boat.

The real issue, suggests the professor? A big bath to hide a bad acquisition. Check out his article for stock market indicators (hint – decline in the price-to-book-value ratio) suggesting the market has known for a while that the goodwill was not good.

The ‘big bath’ is an $8B writeoff of goodwill.

The switch is saying it is the fault of all those accounting firms.

Thus, the gaze moves to those bad ol’ Big 4 firms.

It’s looking more and more like we need a far more detailed explanation from HP.

Superb article from the Grumpy Old Accountant(s). Check it out. Link is above.

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