Tesco’s Accounting Scandal

It has recently been reporting that Britain’s largest grocer, Tesco, was involved in a massive accounting scandal. The company had overstated its first half expected profits by 250 million euros. The FCA is now investigating the matter to determine whether this was genuine mistake or a deliberate cover up. Tesco’s shares also dropped by 3%, marking they’re lowest stock level since 2003. This all happening under new CEO David Lewis who was forced to suspend four senior managers. This matter involves both managerial and financial accounting. As we learned in class, there are certain standards that must be adhered to with regards to financial accounting. These are standards are the same for all companies and are clearly outlined. I’m assuming that if Tesco deliberately overstated, it was because they’re sales must have been diminishing and in order to keep they’re stakeholders happy, they had no choice but to overstate. If FCA concludes that this was done on purpose, then some people could be in some serious trouble and face either hefty fines or jail time. This has an adverse affect on Britain’s economy because Tesco has almost 500 000 employees and is a blue chip stock.

Sources:

http://www.economist.com/news/business/21620227-booking-revenues-comedy-all-about-timing-not-so-funny

http://uk.reuters.com/article/2014/10/01/uk-tesco-probe-idUKKCN0HQ33L20141001

http://www.theguardian.com/business/2014/oct/01/tesco-investigated-fca-accounting-scandal