Hewlett-Packard investors are calling on the board of directors to fire Ernst & Young as the company's external auditor and overhaul the company's oversight of its audit process.

In a nine-page letter to Rajiv Gupta, H-P's lead director and chairman of the corporate governance committee, the CtW Investment Group says H-P needs to take a hard look at “serious weaknesses in the quality and credibility of the outside audit function” in light of H-P's allegations of accounting improprieties at its recently acquired Autonomy software business. H-P's $8 billion impairment charge related to Autonomy -- taken partly because of alleged accounting problems and partly because of business and stock performance -- has shaken shareholder confidence in the company's financial reporting, internal controls, and accounting decisions, says William Patterson, executive director of CtW. Gupta could not be reached for comment on the letter.

The letters says H-P should cut ties with Ernst & Young, install new leadership over the company's audit committee, and launch an independent investigation on the Autonomy acquisition as well as the earlier troubled acquisition of technology firm EDS. CtW ticked off a list of concerns about Ernst & Young that it implores the board to consider, including “excessive non-audit fees” paid to Ernst & Young, the August 2012 goodwill impairment charge taken in connect with EDS, the failure of E&Y or KPMG to detect any accounting problems that H-P has alleged related to Autonomy, and actions against E&Y by the Public Company Accounting Oversight Board.

In focusing on non-audit fees paid to E&Y, CtW focuses the board's attention on the conflict of interest that can arise when a company's external auditor is also retained for various non-audit consulting services. CtW says while H-P competitors like Apple, and Dell retain their external auditors for non-audit services roughly in line with most public companies, H-P's reliance on E&Y for non-audit services is much greater. CtW says non-audit fees paid to E&Y reached a high of 43 percent of all fees paid in 2009 while most other companies are in the range of 20 percent. Based on the data reviewed by CtW, the investment group wonders if H-P relied on E&Y to take a role in assessing the accounting behind acquisition targets.

The letter also details concerns over E&Y's tax consulting and lobbying activities, numerous concerns over the Autonomy acquisition, and concerns about the number of inspection criticisms that E&Y has taken from the PCAOB.

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