Tesco accounting gaffe exposed
Tesco overstated it profits by £250m after revenue recognition irregularities were spotted in its half year results, knocking its share price back 10% this morning.
The supermarket chain has launched a review of the figures to find out why its first half profit prediction was so inflated.
Tesco has asked Deloitte to undertake an “independent and comprehensive” review, which it said involved the accelerated recognition of commercial income and delayed accrual of costs.
Dave Lewis, chief executive at Tesco for just three weeks, said: “We have uncovered a serious issue and responded accordingly.
“We will take decisive action as the results of the investigation become clear,” he said.
He added that a number of people have already been suspended from duty while the investigation is underway, including four senior executives, according to the BBC. UK managing director Chris Bush has been identified as one of those suspended.
Tesco said it discovered the overstatement of its figures, made as part of a 29 August profit warning, during its final preparations for its forthcoming interim results.
It predicted at the time that its half-year trading profit would be around £1.1bn, but this figure has now been cut back by £250m.
The figures, which were overseen by the board, revealed that accruals were carried back into the current financial period and liabilities deferred later to dress up the interims by £250m.
Tesco also said its full-year trading profits could be as low as £2.4bn, some £400m lower than expected after “challenging trading conditions”.
The previous chief executive, Philip Clarke, was forced to step down last month after presiding over a slump in sales and market share during just three years in the role.
In recent months the supermarket has also experienced a decline in its market share as discount chains like Aldi and Lidl have gained in popularity.
The publication of its interim results has been pushed back from 1 October to 21 October.
Deloitte is carrying out its investigation with the group's external legal advisers Freshfields. The grocery chain’s usual auditors are PwC.
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Update: New CFO fast-tracked (23 September)
Tesco has said that its new chief financial officer (CFO), Alan Stewart, is joining the company more than two months earlier than originally planned.
Stewart, who was previously at Marks and Spencer, was originally due to start at Tesco on 1 December.
His predecessor, Laurie McIlwee, resigned in April and left just over a week ago.
The news follows the retailer’s surprise market announcement on Monday that it had overstated its half-year profit guidance by £250m.