Issues With HP's Financial Reporting..Again?

In our first impressions of the H-P 10-K, we noted our surprise that company management and their external auditors did not find material weaknesses or significant deficiencies in the  internal controls over asset protection and financial reporting, given both the processes and results of the Autonomy acquisition, among other issues.

Subsequently, a Wall Street Journal reporter raised an issue about a large-scale receivables sale program that might be distorting the company's reported cash flow from operations.  This issue is interesting, but it may be that the arcane accounting regulations allow wiggle room and ambiguity in the presentation.  The bottom line is that H-P should be tripping over itself to be unimpeachable in its presentation, especially given its most recent credit rating downgrade.

We wouldn't be surprised if the credit rating agencies had their analysts on the phone with HP to dig into this issue, since if it were material, then the rating agencies could have egg on their faces.

Now, a well known accounting blog has taken issue with HP's tax footnote 14.  If the author, a professor of accounting and a former Big 8 auditor, is correct, this issue seems to go beyond presentation and interpretation. The author ends his post with this quote, "And of course, there remains E&Y’s obligation to question the adequacy of the Company’s internal controls over financial reporting."  We couldn't agree more.