Tesco accounts face fresh inquiry

Tesco bags Image copyright AFP

The Financial Reporting Council (FRC) has announced an inquiry into Tesco's accounts for 2012, 2013 and 2014.

The FRC is an independent disciplinary body for UK accountants and actuaries.

The FRC's investigation will include business services giant PwC's auditing and preparation of Tesco's accounts. PwC remains as Tesco's auditor.

In September, Tesco said it had mis-stated its half-year profit guidance by £250m - a figure that was subsequently revised to £263m in October.

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."

And Tesco said: "We will provide support to the FRC's investigation."

Slump in profits

In December, Tesco said full-year profits would be well below market expectations.

Instead of the £1.8bn to £2.2bn expected by the markets, the supermarket chain said group trading profit for the full financial year "will not exceed £1.4bn".

Analysis: Kamal Ahmed, business editor

The announcement by the Financial Reporting Council that it is investigating Tesco's accounts will heap pressure on the beleaguered retailer. The Serious Fraud Office is already investigating allegations of accounting irregularities following the admission in September that Tesco had over-stated its profits by £263m.

The FRC's inquiry will be into PwC's auditing of Tesco's accounts as well as the preparation of those accounts. The fact that the inquiry will investigate three years of accounts will concern investors as it could reveal further evidence that the problems go back further than initially thought.

The FRC's arsenal if any wrongdoing is found is formidable. It can impose unlimited fines on PWC; it can demand unlimited costs; and it can strike off any individual found to have behaved improperly.

The fact that the FRC's investigation is likely to take at least a year (and the SFO inquiry could take two years) means that Tesco will be dealing with its accounting problems until at least 2016.

In October, Tesco reported that underlying profits for the first half of its financial year slumped to £783m, down almost 47% on the previous year.

The company's share price has fallen nearly 45% over the last year as the accounting scandal and falling sales have disappointed investors.

The scandal, which is being investigated by the Serious Fraud Office, saw eight executives suspended - one of whom has been reinstated while others have since left the company.

And chairman Sir Richard Broadbent has announced he is to step down.

An investigation by accountancy firm Deloitte found that rebates from suppliers had been moved to different periods on the company's balance sheet, and that this practice went at least as far back as Tesco's 2012/13 accounting period.

The FRC is also investigating PwC over its work with Barclays following the bank's fine of £38m for putting £16.5bn of client assets at risk.

Turbulent times for Tesco

  • 21 July: Philip Clarke quits as chief executive after profit warning
  • 29 August: Tesco issues third profit warning of the year, slashes dividend by 75%
  • 1 September: New boss Dave Lewis starts
  • 22 September: Tesco admits profit projections overstated by £250m; four executives step aside
  • 1 October: Financial Conduct Authority launches investigation into the accounting scandal
  • 2 October: Investor Warren Buffett says buying shares in Tesco was "a huge mistake"
  • 14 October: Tesco suspends another three executives taking total to eight
  • 16 October: Buffett sells off more of his Tesco stake
  • 23 October: Tesco publishes delayed interim results - profits overstatement revised up to £263m; pre-tax profits plunge 92% to £112m; chairman Sir Richard Broadbent to step down
  • 29 October: Serious Fraud Office takes over probe into the accounting scandal
  • 29 November: three suspended Tesco executives reportedly leave the retailer
  • 1 December: Dave Lewis takes over temporary responsibility for Tesco's UK operations, shakes up senior management team
  • 9 December: Mr Lewis marks 100th day in charge with another profit warning - says full-year trading profit will be no higher than £1.4bn, well below market expectations
  • 22 December: Financial Reporting Council announces investigation into Tesco's accounts for 2012, 2013 and 2014.

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