UK watchdog lodges complaint against Autonomy's auditors and finance executives

* FRC lodges complaints against Deloitte, individuals

* FRC's Tribunal will now examine the complaints

* Deloitte says will defend itself (Adds details on possible penalties)

By Paul Sandle and Ben Martin

LONDON, May 31 (Reuters) - Britain's accountancy watchdog has filed formal complaints against the auditors and two former finance executives of Autonomy, the software business that was sold to Hewlett Packard (NYSE: HPQ - news) (HP (Frankfurt: 7HP.F - news) ) for $11 billion in 2011.

The Financial Reporting Council (FRC) said on Thursday the complaints against auditors Deloitte and the executives would now be handled by its Tribunal, which can levy unlimited fines on individuals and institutions, and exclude individuals from the profession or from certain work until they show improvement.

The move comes a month after Autonomy's former chief financial officer Sushovan Hussain was convicted by a U.S. jury of wire fraud and other crimes related to claims that he inflated the firm's value before its sale.

HP bought Autonomy to spearhead a shift into software, but the deal soured a year later when it wrote off three-quarters of Autonomy's value, alleging it was deceived about Autonomy's finances and prospects for growth. The two sides have been locked in an acrimonious battle ever since.

The FRC, which was investigating the numbers reported by Autonomy, said the conduct of auditors Deloitte; Deloitte partners Richard Knights and Nigel Mercer; former Autonomy finance chief Sushovan Hussain and former Autonomy vice president of finance Stephen Chamberlain, had fallen significantly short of standards.

Hussain and Chamberlain were alleged to have acted dishonestly and/or recklessly, including when preparing the company's accounts for 2009 and 2010, the FRC said.

HP has claimed Autonomy's management fraudulently booked revenue and engineered sham sales to some resellers to inflate the company's value.

Autonomy's former management, including its chief executive Michael Lynch, have denied the allegations. Hussain's lawyer said after his conviction that his client would appeal.

The FRC said its investigation had been carried out in parallel with criminal and civil investigations in both the United States and Britain.

It said Autonomy's auditors had failed to challenge the company's accounting and disclosure of purchases and sales of computer hardware and its transactions with resellers.

It also said Knights had failed to correct a misleading statement made by Hussain, and had failed to act with objectivity for a period between 2009 and 2010.

Deloitte UK said it acknowledged Thursday's announcement from the FRC and had fully cooperated with the investigation.

"We are disappointed that these complaints have been brought and we will defend ourselves against them at Tribunal," a Deloitte spokesman said, adding that he was also speaking on behalf of Knights and Mercer.

Knights continues to work at Deloitte, but is not doing statutory audit work, while Mercer has retired, the spokesman said.

A date for a Tribunal hearing will be announced in due course. (Reporting by Ben Martin and Paul Sandle; Editing by Edmund Blair and Mark Potter)