LONDON The Financial Reporting Council (FRC) said it was investigating the financial reports of software firm Autonomy before it was bought by Hewlett-Packard (HPQ.N), a deal that was later subject to accusations of fraud.
The FRC, an independent watchdog that sets standards for accountants and auditors, said on Monday it would investigate Autonomy's published accounts between January 1 2009 and June. 30 2011, two months before the deal was announced.
The probe follows consultation with The Institute of Chartered Accountants of England and Wales, a professional organisation for accountants, the FRC said.
The body does not have the power to bring criminal charges, but it operates a disciplinary process that can result in the suspension of accountants and fines.
Deloitte DLTE.UL which audited Autonomy's accounts, said it would co-operate fully with the FRC probe.
"As previously stated, Deloitte had no knowledge of any accounting improprieties or misrepresentations in Autonomy's financial statements," a spokesman said.
"We conducted our audit work in full compliance with regulation and professional standards."
U.S.-based PC and printer maker Hewlett-Packard paid $11 billion (7 billion pounds) in 2011 to make Autonomy the centrepiece of a shift into software.
But little over a year later it wrote off some $5 billion of the company's value and accused its former management of accounting improprieties that inflated the company's value.
Mike Lynch, Autonomy's founder and former chief executive, has strenuously denied the allegations.
He has demanded that HP provide more details, but HP has said that it wants the claims to be heard in court.
A spokeswoman for Autonomy's former management welcomed the FRC investigation, saying it would be the first independent third-party scrutiny of HP's claims.
"Autonomy received unqualified audit reports throughout its life as a public company. This includes the period in question, during which Autonomy was audited by Deloitte. We are fully confident in the financial reporting of the company and look forward to the opportunity to demonstrate this to the FRC."
HP confirmed in December that it had passed evidence from a whistleblower to the U.S. Department of Justice, the Securities and Exchange Commission and Britain's Serious Fraud Office.
It is also facing a number of lawsuits from disgruntled shareholders, which allege the company's directors and auditors missed numerous red flags about Autonomy's accounting.
(Reporting by Paul Sandle; Editing by Erica Billingham)