FRC launches Tesco accounting probe

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The Financial Reporting Council (FRC) has revealed it will formally investigate Tesco’s financial statements and results following an accounting blunder earlier in the year.

In addition to SFO and FCA probes, the accounting watchdog will investigate ‘members and a member firm’ in the preparation, approval and audit of Tesco's accounts for the financial years 2012, 2013 and 2014, which PwC oversaw as auditor. The probe will also include the supermarket giant’s first set of interim results for this year, where the accounting irregularities surfaced.

An FRC spokesperson confirmed that the investigation could take more than a year to complete and will also include questioning of ICAEW members from Tesco’s internal financial reporting team, as well as PwC individuals.

PwC commented on the FRC investigation: “We take our responsibilities very seriously and remain committed to delivering work to the highest professional standards. We will cooperate fully with the FRC in its enquiries.”

Back in September Tesco revealed it had mis-stated its profits by more than £250m due to revenue recognition irregularities.

An internal Deloitte investigation revealed the accounting black hole was worse than originally feared, finding that Tesco had overstated its profits by £263m for at least two years, and not six months.

Eight Tesco executives have so far been suspended since the scandal broke in September. Chairman Sir Richard Broadbent also resigned while the SFO opened a criminal investigation.

Over the weekend it was revealed that the SFO was set to meet up with major consumer goods groups as part of its Tesco investigation.

Leading suppliers to Tesco, including Diageo and Unilever, expect to be interviewed by the SFO as part of its investigations at the supermarket giant, the Sunday Telegraph reported.

The FRC has also separately announced that it will investigate PwC under its accountancy scheme over its conduct as Barclays Bank auditors.

It will look at the firm’s role in reporting to the FSA on the bank’s compliance with the FSA’s client asset rules for the years ended 31 December 2007 to 31 December 2011.

About Robert Lovell

Business and finance journalist

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    By KWest
    24th Dec 2014 14:24

    Misnomer

    "Blunder" what blunder? Tesco have been habitually wrongly applying retrospective discounts to profits for hitting agreed levels of purchases in the course of a year. This was either because the agreed period had reached its course or alternatively because they had failed to meet the agreed purchases target. One of my clients tell me this was common practice for years, whereby debit notes were used to create the raison-d'etre for the assignment to profits. It also appears to be the case that large suppliers who would insist on observing the letter of the purchase target agreement would nevertheless accept a debit note on the understanding that it would subsequently be cancelled at a convenient time.

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