Tesco Starts Full Investigation Into Accounting Error

By Ian Walker

LONDON--U.K.-based supermarket chain Tesco PLC (TSCO.LN) said Wednesday it has started a full investigation following the overstatement of expected profit for the half year, and is cooperating fully with the U.K. Financial Reporting Council and other relevant authorities considering this matter.

On Sept. 22 the grocer suspended four senior executives and called in outside auditors and legal counsel to investigate the 250 million pound ($405.7 million) overstatement of the supermarket operator's forecast first-half profit. The issue involved the early booking of commercial income and delayed booking of costs, the company said, triggering a third profit warning in three months.

The FCA confirmed on Sept. 24 that it's monitoring Tesco's situation following its discovery of the accounting error. However, the regulator said while it doesn't have powers to monitor or require the restatement of unaudited trading statements, the Financial Reporting Review Panel can require a company to restate its financial statements. The FRC also has the power to discipline accountants for misconduct.

The FRC said it "will consider the outcome of the investigation announced by the company and determine whether it should take regulatory action."

Shares have fallen over 40% so far this year, reaching lows of 186 pence on Tuesday.

Write to Ian Walker at [e-mail]

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