Tesco chairman Richard Broadbent announced his resignation, as Deloitte’s investigation concluded the British grocery giant’s profit overstatement was £13m larger than initially foreseen.
Broadbent’s resignation follows the dismissal of eight executives in relation to the accounting malpractice revelations and comes amid plummeting trading performance for the retailer, whose sales declined 4.6% over the past year.
Deloitte was appointed by Tesco to undertake ‘an independent and comprehensive review’ following the discovery on 22 September that the company’s six-month profit had been overstated by £250m.
Key findings of the investigation, made public today as part of the company’s interim results for 2014/2015, showed the error to be larger than initially estimated at £263m. They also found Tesco UK had contravened the wider group’s accounting practices.
"Amounts have been pulled forward or deferred, contrary to Tesco Group accounting policies," stated Deloitte’s review, also stating: "there have been similar practices in prior reporting periods."
According to the report, "the current and prior practices appear to be linked as income pulled forward grew period by period". In particular, revenues were found to have been overstated by £118m in the first six months of 2014, £70m in the previous financial year and £75m prior to 2013/2014.
The FCA announced on 1 October it would carry out a full investigation into the facts, amid intensifying public criticism of Tesco’s alleged ‘aggressive accounting practices’ and perceived long-standing culture of ‘creative’ reporting.
An instance of such practices allegedly saw Tesco counting profits from supplier promotions prematurely, while delaying the costs.
"Given the outstanding investigation, we can make no further statement at this stage about how these events came about," outgoing chairman Richard Broadbent commented in the company’s interim results report.
However, he described the issues as "deeply disappointing" and added: "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."
Despite Tesco’s assurance that no evidence of fraud or personal gain through the overstatement had emerged so far, the investigation’s finding that accounting irregularities occurred in periods prior to the first six months of 2014 is likely to prompt questions as to why Tesco’s auditors PwC failed to spot the profit gap.
At the time of publication PwC UK was not commenting on the matter.