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April 23, 2015

Tesco financial woes continue in wake of accounting scandal

By Isabella Grotto

Tesco yesterday announced preliminary annual financial results including a loss worth £6.4bn ($9.5bn) in the wake of the accounting scandal that hit it last autumn.

A stark contrast to the £2.26bn profit posted by the UK grocer a year ago, the record loss is reportedly one of the largest in British business history.

The accounting scandal, heralded by a £263m profit outlook revision announced last year, has prompted investigations into both Tesco and external auditors PwC by the Serious Fraud Office (SFO) and the Financial Reporting Council (FRC), respectively.

The FRC’s investigation into Tesco centres on the preparation, approval and audit of the financial statements for the financial years ended 25 February 2012, 23 February 2013 and 22 February 2014.

The inquiry into the preparation, approval and internal audit will pertain to Tesco itself, while the external audit investigation will centre on PwC conduct as the company’s auditor.

Commenting on the announcement in December, a spokesperson for PwC expressed the firm’s intention to cooperate fully with the FRC in its enquiries, adding: "We take our responsibilities very seriously and remain committed to delivering work to the highest professional standards."

The overstatement is thought to have been rooted in issues around Tesco’s relationship with its suppliers, specifically the system it used to charge for displaying products in premium shelf positions within its stores.

The overstatement is believed to have been caused by what some have described as a long-term policy of account stretching within a context of "aggressive" accounting practices.

Tesco said last year the mistake was due to "the accelerated recognition of commercial income" and a delay in the recognition of costs.

Contacted by the IAB today, the FRC declined to comment, except to say the investigation is ongoing.

Related articles:

Tesco revised outlook points to "aggressive" accounting practices

FRC to investigate PwC UK over Tesco accounting blunder

SFO launches investigation into accounting practices at Tesco

 

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