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22 Dec 2014 11:03am

FRC launches Tesco investigation

The Financial Reporting Council has opened an investigation into the roles of PwC and various members of the accountancy profession involved in the preparation, approval and audit of Tesco’s accounts

The accountancy watchdog announced a probe of Tesco's accounts for the financial years 2012, 2013 and 2014, after Tesco revealed it had misstated its profits by over a quarter of a billion pounds in October.

PwC would have been responsible for the external audit of these accounts. The Big Four firm has audited the supermarket giant for over 25 years.

In response to the announcement, PwC said, "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 enquiries."

Members of the PwC audit team will be questioned as will those from the Tesco finance side, including Laurie McIlwee, the retailer's former CFO, who is a CIMA member.

It is the latest twist in the Tesco saga following an internal investigation carried out by Deloitte revealed its accounting irregularities were worse than first feared. It found that Tesco has overstated its profits by £263m for at least two years, not six months as was previously thought, and by £13m more than the initial estimate.

The accounting practices resulted in profits being overstated by £118m in the first half of this year, by £70m in the 2013-2014 financial year and by £75m before that, which could pose questions for current auditors PwC.

The issue concerns when payments received from suppliers who pay to run in-store promotions on their behalf are booked.

So far eight executives have been suspended since the accounting scandal broke last in October and chairman Sir Richard Broadbent has resigned while Serious Fraud Office has opened a criminal investigation
  

TESCO TIMELINE

07 April 2014: Tesco CFO Laurie McIlwee announces his decision to stand down, ahead of Tesco’s full year results, which are expected to drop 10%. Tesco assures investors McIleew will oversee the handover with the replacement CFO.

16 April 2014: Tesco announces a 6% profit drop, making 2014 the second year in a row that profits had fallen.

10 July 2014: Marks & Spencer confirms its CFO, Alan Stewart, will join Tesco after a period of garden leave.

21 July 2014: Philip Clarke is sacked after three years as CEO, following a failure to halt slides in sales, profits, and customer defections. Dave Lewis of Unilever is announced as his replacement.

29 August 2014: Lewis’ start as CEO is brought forward one month as Tesco issues a shock profit warning and an interim dividend cut.

22 September 2014: Tesco admits profits were overstated by £250m and calls on Big Four firm Deloitte to investigate the matter. Four executives, including UK managing director Chris Bush, are suspended.

23 September 2014: Tesco announces that Stewart is to start immediately after an effective plea to M&S to waive its garden leave requirement.

24 September 2014: The Financial Reporting Council (FRC) – the accounting watchdog – reveals that it is watching events at Tesco “closely”.

25 September 2014: Tesco admits that McIleew has not made any decisions for five months, leaving the supermarket to address financial woes without a CFO. It emerges that Lewis had set up a separate finance team for the interim period.

1 October 2014: The Financial Conduct Authority (FCA) launches its own investigation into accounting standards at Tesco.

7 October 2014: Kevin Grace, Tesco’s group commercial director, is asked to step down.

14 October 2014: Three more executives are asked to step down.

23 October 2014: Tesco confirms profit hole is actually £263m. The beleaguered supermarket’s chairman, Sir Richard Broadbent, announces he will step down. The store admits a 92% fall in profits, with like-for-like sales down 4.6% for the 26 weeks to 23 August.

29 October 2014: SFO opens criminal investigation into accounting practices.

Raymond Doherty

 

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