LONDON: Tesco cut its profit forecast for the third time in two months and suspended its UK boss with three other executives after finding a major fault in its accounts — another blow to the reputation of the world’s No. 3 retailer.
Its shares fell nearly 13 percent at one point yesterday after Tesco said it had called in its lawyers and new accountants to investigate the error in its UK food business that forced it to cut its first-half profit outlook by £250m.
A profit warning on August 29, three days before its new Chief Executive Dave Lewis joined, had overstated expected first half profit by 23 percent, it said.
Tesco’s error — caused by the early booking of commercial income and delayed recognition of costs — was discovered by a “commercial manager”, Lewis told reporters, who informed the firm’s legal counsel on Friday when he discovered it during preparations for the forthcoming first half results.
Lewis declined to name the individual and said it was too early to say if the issue involved fraud. The interim results have now been pushed back from October 1 to October 23.
“This is something completely out of the ordinary. Never mind the (Tesco) finance function —the auditors didn’t catch it,” said Chairman Richard Broadbent, who told reporters he would not be resigning because he wanted to be “part of the solution” to the firm’s problems.
PwC, Tesco’s auditor since 1983, declined to comment.
In its 2013-2014 report it highlighted commercial income as an “area of focus” due to “the risk of manipulation” in accounting for deals. Tesco’s audit committee responded then that it believed it had appropriate management controls.
Lewis said that commercial income covered all transactions between Tesco and its suppliers.
Reuters
