nottheaverageactuary

Actuarial news and views from Cape Town and beyond

Do you even account? Tesco’s accounting blunder

2 Comments

While frantically searching for articles, I conveniently stumbled across a huge accounting blunder committed by Tesco* that was also overlooked by its external auditor PwC.

On Monday, 22 September 2014, Tesco was forced to admit a major accounting error which resulted in overstating first-half profits by £250m. It is suspected that this was due to the early booking of commercial income and delayed recognition of costs. The “commercial manager” who found the error has been kept anonymous. Of course shareholders were first to the scene which resulted in a share price drop of nearly 13%.

Tesco has now appointed a new adviser, Deloitte, to investigate the issue. Interestingly Deloitte will be working closely with Freshfields, its external legal advisers. After reading between the lines a Bernstein analyst, Bruno Monteyne, states that including Freshfields “implies there is potential foul play, beyond simple account stretching.”

Below is the link to a Reuters article which provides all the necessary information:

http://uk.reuters.com/article/2014/09/22/uk-tesco-results-idUKKCN0HH0P320140922

The following link provides the comments made by various analysts:

http://www.theguardian.com/business/2014/sep/22/tesco-what-the-analysts-say

Finally the last link provides a brief overview of a few accounting blunders we have seen in the past as well as Tesco’s:

http://www.telegraph.co.uk/finance/newsbysector/retailandconsumer/11113623/Five-embarrassing-accounting-blunders.html

*For those who don’t know “Tesco PLC is a multinational grocery and general merchandise retailer headquartered in Cheshunt, Hertfordshire, England, United Kingdom.”

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2 thoughts on “Do you even account? Tesco’s accounting blunder

  1. Ethics surrounding disclosure:

    Is this a blunder? In New York, PwC were convicted of improperly altering a document sent to regulators after it was pressured by a banking client. They received a $25 million fine and were suspended from consulting to New York banks for 2 years.

    http://money.cnn.com/2014/08/18/news/companies/pwc-suspension/index.html

  2. I tried not to take a stance on whether it was ethical or not. For the moment, the statement made by Tesco suggests that it was an accounting “error” on their part. However when considering the comments made by various analysts and insights of many articles, there is evidence which suggests that this is an ethical issue. So you definitely have a valid point but I am more prone to take a stance of ethically innocent until proven guilty, mainly because there won’t be a report on the investigation for quite some time. Therefore most of the conclusions that are made are speculation. The matter has also been reported to the Financial Conduct Authority so we will be provided with more information soon enough and may then be able to assert whether it was a blunder at all.

    Take a look at this article for an explanation of the accounting practices which caused the issue (Towards the end she does also allude to the possibility of an ethics issue):

    http://www.forbes.com/sites/paularosenblum/2014/09/22/tescos-accounting-irregularities-are-mind-blowing/

    The following article provides some more up to date information on Tesco matters:

    http://www.theguardian.com/business/2014/sep/22/tesco-loses-2bn-value-250m-profit-overstatement-investigation

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