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Tesco accounting scandal worsens

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23rd Oct 2014
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An investigation carried out by Deloitte into Tesco’s finances has revealed the accounting irregularities are worse than first originally estimated.

The Big Four firm, along with law firm Freshfields, found Tesco overstated its profits by £263m - £13m more than the initial estimate - for the last two years, and not six months.

Profits were overstated by £118m in the first half of this year, £70m in 2013-2014 and £75m before that, the investigation found.

Part of the issue concerned when payments received from suppliers, who pay to run in-store promotions on their behalf, are booked.

The accounting irregularities could also raise questions about the previous auditor, PwC.

Warwick Business School's Crawford Spence commented on the accounting black hole and PwC:

“This latest revelation doesn't tell is much new about Tesco's situation, but it does raise serious questions about their auditors, PwC. The auditors appear to have set a very high materiality threshold, meaning that Tesco's aggressive revenue recognition was not flagged up.

“PwC's most recent audit of Tesco drew attention to commercial income,  but ultimately concluded that Tesco's treatment was satisfactory. The FCA are investigating Tesco. The Financial Reporting Council should also investigate PwC,” Spence said.

Tesco chairman Sir Richard Broadbent also announced his resignation in the wake of the investigation findings.

Broadbent said: “My decision reflects the important principle of accountability on behalf of the Board and will support the company to draw a line under the past as it enters the next phase of its development.”

So far eight executives have been suspended since the scandal was exposed late last month.

The supermarket giant has also scrapped its profits outlook after warning that full year profitability could be further impacted.

The results of the Deloitte investigation have been passed to the Financial Conduct Authority (FCA).

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