City watchdog launches probe into Tesco

The scandal has seen a number of Tesco executives suspended. Picture: Neil Doig
The scandal has seen a number of Tesco executives suspended. Picture: Neil Doig
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The accounting watchdog has launched an investigation into a £263 million overstatement of profit expectations at Tesco.

A probe by the Financial Reporting Council (FRC) will focus on financial figures reported and prepared by Britain’s biggest supermarket and auditor PwC.

The scandal is already being investigated by the Serious Fraud Office and has seen a number of Tesco executives suspended – some of whom have now left. Chairman Sir Richard Broadbent has also announced he is to step down.

Tesco first announced in September that it had discovered an accounting problem relating to expected results for the first half of the current financial year.

A subsequent probe by Deloitte into the affair, which involved rebates from suppliers being moved to different periods on the company’s balance sheet, found it had been going on at least as far back as the 2012-13 period.

The FRC has already said it was “giving careful consideration” as to whether it should take regulatory action.

Yesterday, the body said it had launched a probe “in relation to the preparation, approval and audit” of Tesco’s financial statements in the financial years ending in 2012, 2013 and 2014.

It will also cover “conduct in relation to the matters reported in the company’s interim results” for the first half of the current financial year – when the Deloitte probe was published.

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The investigation will cover members of professional accountancy bodies, from either Tesco or its auditors, who were involved with the accounts, as well as member firm PwC, which remains Tesco’s auditor.

PwC said in a statement: “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 inquiries.”

The announcement opens up Tesco’s books to scrutiny going back a year further than the previous investigation by Deloitte.Results of that probe published alongside half-year figures this year showed a £118m hit for the latest period, plus £70m for 2013-14 and £75m for 2012-13. But the FRC investigation goes back to the year ended 2012.

The FRC has powers to issue unlimited fines to individuals or firms or to suspend them from professional accounting bodies.

A Tesco spokesman said: “We note the FRC is launching an investigation into individuals and a member firm in relation to the preparation, approval and audit of our accounts for the last three years. We will provide support to the FRC’s investigation.”

Tesco recently issued a £500m profits warning – its fourth this year. Tesco said earnings would be hit by investments in price and availability of its products, as well as a shake-up of the way it handles its supply chain in the wake of the accounting scandal.

Cantor Fitzgerald analyst Mike Dennis said the profits warning implied its UK profits for the second half would be virtually wiped out.

Chief executive Dave Lewis, appointed in September, has temporarily taken charge of the supermarket’s UK operations.

Eight executives, including UK managing director Chris Bush, were suspended in the wake of the accounting scandal.

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