Tesco faces new financial investigation
UK supermarket giant Tesco is facing a new investigation of its finances from the UK Financial Reporting Council (FRC).
The FRC launched the investigation late in December 2014 under the Accountancy Scheme into members and a member firm in relation to the preparation, approval and audit of the financial statements of Tesco PLC for the financial years ended 25 February 2012, 23 February 2013 and 22 February 2014 and its conduct in relation to the matters reported in the company’s interim results for the 26 weeks ended 23 August 2014.
The FRC’s investigation is expected to last about a year, and if evidence of malpractice is found, the FRC could impose unlimited fines, order the payment of unlimited costs and strike off any individual proved to be guilty of wrongdoing.
Serious Fraud Office investigation
The investigation by the FRC follows the announcement in late October 2014 of an investigation by the Serious Fraud Office into Tesco’s accounting irregularities, which led the supermarket group to overstate its first-half profits by £263 million. In its interim results in October 2014, Tesco had stated that the commercial income overstatement would affect its second half results as the supermarket revisited its plans with the new management team.
The SFO inquiry could take up to two years.
Eight senior executives were suspended following the overstatement of commercial income. One was later reinstated, while others left the business. Tesco’s Chairman, Sir Richard Broadbent, announced his intention to step down, saying his decision reflected “the important principle of accountability on behalf of the Board” and “would support the company to draw a line under the past as it enters the next phase of its development”.
Early in December 2014, Tesco announced a trading update stating that it was anticipated that group trading profit for the financial year ending February 2015 would not exceed £1.4billion.
“Tesco is focused, and will continue to focus, on doing the right thing for customers,” said Dave Lewis, CEO. “This means running our business in a way that everything we do creates sustainable value,” he said.
“Whilst the steps we are taking to achieve this are impacting short-term profitability, they are essential to restoring the health of our business,” Mr Lewis said. “We will not engage in short term actions that compromise in any way our offer for customers,” he said.