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FRC drops Tesco audit probe into PwC

6th Jun 2017
Head of Insight AccountingWEB
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Tesco superstore
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Tesco superstore

Big Four accountant PwC will not have to face disciplinary charges for its audits of Tesco, the Financial Reporting Council (FRC) said on Monday morning.

In the view of the FRC’s executive counsel, “There is not a realistic prospect that a tribunal would make an adverse finding against PwC.”

The FRC launched an investigation in December 2014 into the preparation, approval and audit of Tesco’s accounts for the financial years 2012-2014, which PwC oversaw as auditor. The probe stemmed from a £263m overstatement in trading figures released in August 2014.

The Serious Fraud Office (SFO) investigated and found overstatement was the result of accelerated recognition of suppliers’ promotional payments and delayed accrual of costs.

In its audit report for the previous year, PwC had highlighted this area as a potential risk because of “the judgment required in accounting for the commercial income deals and the risk of manipulation of these balances”.

In the view of Warwick University accounting professor Crawford Spence at that time, the FRC was not “sufficiently rigorous” in deciding whether PwC had applied the concept of materiality correctly in Tesco’s accounts.

The SFO ultimately found Tesco had committed market abuse by inflating its profits £326m. In a deferred prosecution agreement, the SFO fined Tesco £129m. The supermarket paid another £85m in compensation to thousands of investors in a separate settlement.

The FRC probe had to work around the police activity, but focused on the behaviour of PwC and members of its Tesco audit team, along with qualified members of Tesco’s finance department.

Last year, the FRC also cleared former Tesco chief finance officer Laurie McIlwee after concluding that there was “no realistic that a tribunal would make an adverse finding in relation to [his] conduct”.

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