By Matt Waldron, CPA
How much does $8.8 billion in $1 bills weigh? The weight of a $1 bill is about 1 gram.
How much does $8.8 billion in $1 bills weigh when it is a write-down of an acquisition?
Write-downs related to acquisitions, such as the one taken by Caterpillar (CAT) and reported on by Bloomberg’s Jonathon Weil, are disclosed as “non-cash” write-downs. As Weil explains, the term “non-cash” is disclosure that seemingly softens the blow of an ill-fated acquisition. “Non-cash” is technically correct in that no cash was lost today, but it is misleading since real cash was paid to acquire that entity — so “non-cash” today but real cash yesterday. Such was the case with Hewlett-Packard’s (HPQ) $8.8 billion write-down of its acquisition of Autonomy. But the reasons for this write-down will now be subject to further scrutiny.
Recently the Financial Reporting Council (FRC), which sets the U.K. standards for accounting and auditing, announced that it would open an investigation into Hewlett-Packard’s $8.8 billion write-down of its acquisition of Autonomy. The Financial Times reported that this is the first time the FRC has launched such an inquiry under a new disciplinary process that was established at the end of 2012 — meant to streamline and simplify the way the FRC works and to counter criticisms that the regulator lacks teeth.
As reported by the Financial Times, the investigation will cover Autonomy’s accounts from 1 January 2009 to 30 June 2011 — the time frame immediately preceding the acquisition. As many who have been following this story know, there have been accusations of accounting improprieties or misrepresentations associated with Autonomy’s financial statements, which were audited by Deloitte. Deloitte stands by its work saying it was conducted in full compliance with regulations and professional standards.
Clearly the investigation surrounding the Hewlett-Packard write-down must run its course, so there shouldn’t be a rush to judge. But the fact that the FRC is exercising its powers to launch an investigation should come as good news to investors who are watching this matter closely. Regulators such as the FRC are empowered to protect the interests of the investing public. Regardless of the outcome from the FRC’s inquiry, oversight may increase and build further trust in the capital markets among investors.
Now back to those initial questions posed at the beginning of this blog post. The $8.8 billion in $1 bills weighs about 19.5 million pounds and would require about 200 semi-trailer trucks to haul. The write-down, however, is as light as air.