From The Telegraph

A few days ago I came across an article in the National Post that caught my eye. The article was about Tesco, a large UK based supermarket chain, and how they recently suspended four executives for financial fraud. I was quite surprised to see this article, as it was just a few days before that we talked about fraud as part of our financial accounting lecture. The article explains that Tesco overstated their half year profits by just over $400 million.

In class five we talked about how the three main reasons that companies report fraudulent financial statements are greed, incompetence, and pressure. In this case, although Tesco blames incompetence, I believe that pressure was the key factor.

Tesco has long been the biggest supermarket chain in the UK, but in the last few years they have started to lose significant market share to newer companies offering lower prices. This loss in revenue makes Tesco’s financial well-being dependent on its shareholders not losing faith, putting an enormous amount of pressure on executives. This pressure most likely led them to falsify reports.

Unfortunately for Tesco, they got caught and the strategy ultimately backfired. On September 22, the day the news of the fraudulent statements broke, Tesco’s stock dropped 11.6%. I expect it will continue to drop until Tesco fires the executives involved, and announces an actual plan to re-gain lost sales.