The initial concern was raised already in August before Philip Clarke, the former CEO of the giant UK grocery retailer, left the company.

The whistleblower, an accountant inside the company, warned his superiors about the inconsistencies in the accounting reports, but “failed to get traction”. Later, on September 1^st, after Mr. Clarke’s departure, the employee delivered the information to the Tesco’s general counsel, and the new CEO Dave Lewis was alerted to the problem on September 19^th. In a few days the company revealed that it had overestimated its first half trading profit by £250m. In this case, what caused this overstatement and why the former CEO ignored the employee’s concerns? “We have an investigation under way and we will await the findings before drawing any conclusions,” a Tesco’s representative stated.

According to The Economist (2014), the source of inaccuracies is expected to be the premature recognition of revenue, which, in its turn, originates from either “timing differences” or fake sales. In case Tesco’s financial statements are deliberately modified by its managers, “it would be the biggest fraud of its type in retailing since the scandal at US Foodservice in 2000-03.”

Yet whatever circumstances caused this incident, Tesco is facing grievous consequences. Its shares dropped around 16% for the last week, the fact that impairs company’s situation even more, considering a substantial share decrease in the last year. Apart from that, the accounting scandal resulted in the retirement of four chief executives, including the finance director Carl Rogberg. Moreover, Tesco hired outside auditors and legal counsel to scrutinize the origins of misleading financial statements and examine the company’s culture.

Thomas, N. (2014, September 28). Tesco’s £250m accounting black hole first flagged during Phil Clarke’s reign. The Telegraph.

Not so funny. (2014, September 27). The Economist.