Updated 11:10 a.m. ET

Shares of Hewlett-Packard (HPQ) were trading down nearly 10% Tuesday after the Silicon Valley stalwart reported that it took an $8.8 billion charge upon finding "serious accounting improprieties, disclosure failures and outright misrepresentations" at Autonomy, a company it acquired in 2011. Oh, let's not forget that the Palo Alto, Calif. company also reported earnings that were god-awful.

HP's announcement regarding Autonomy is simply mind-blowing. Though the company wasn't using the word, CNBC's David Faber described it as "massive fraud." If that's true, it's huge, not Enron- or Worldcom-huge, but enormous nonetheless.

This raises many disturbing questions. How could have HP, its investment bankers, auditors and lawyers been so thoroughly snookered by Autonomy? The first clue that something was amiss came in May when HP CEO Meg Whitman fired Autonomy CEO and founder Mike Lynch, who originally was supposed to stay on and run the company after it was acquired. At the time, investors linked the ouster to Autonomy's poor performance, CNET reported.

Whitman wasn't responsible for the Autonomy deal. That distinction belongs to Leo Apotheker, one of three HP CEOs who have been ousted. Apotheker had argued that the Autonomy deal was needed to enable the company to break its dependence on the PC. In that respect, the acquisition was a dismal failure.

Now that its accounting has come into question, HP should immediately try to recoup some, if not all of the $25 million golden parachute that Apotheker received, according to CNNMoney. CNBC reported that HP has contacted law enforcement officials in the U.K, where Autonomy is based. The Securities and Exchange Commission and the U.S. Department of Justice may get involved as well.

Most investors will probably overlook the HP's quarterly results in the wake of the accounting bombshell. Unfortunately, there wasn't much good news there either. The company reported a net loss of $6.85 billion, or $3.84 per share, an improvement from a loss of $8.86 billion, or $4.49 per share, according to the company's earnings press release. Revenue fell 7% to $30 billion. Excluding one-time items, the company earned $1.16 per share. For those keeping score, HP was forecast to earn $1.14 per share on revenue of $30.4 billion.

Going forward, the company is expected to earn between 68 cents and 71 cents in the first fiscal quarter, way under the 85 cents that analysts had expected. Earnings per share for the year are seen at $3.40 to $3.60. Analysts' expectations were for $4.04 per share.

HP's big problem is hardly a secret: the company has failed to adapt to the post-PC world. This is painfully obvious. Hardware volumes plunged 20% and both desktops and notebooks units were down 12%. Apple (APPL), among others, continues to decimate HP.

Meg Whitman has been tasked with cleaning up the mess that her predecessors made. She's already announced plans to slash 29,000 workers by the end of fiscal 2014, Bloomberg reported. With Tuesday's news about potential massive fraud, her job just got much more difficult. HP may eventually be forced to find a suitor but it seems unlikely that will happen until the Autonomy issues are resolved.

Jonathan Berr does not own shares of the listed stocks. Follow him on Twitter@jdberr.

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