In September, as Britain’ biggest retailer, Tesco admitted that an accounting error meant their half-year profit was overstated by £250 Million, which was 23% less than the profit they had stated (£ 1.1 billion ) in August. Tesco said the error is “principally due to the accelerated recognition of commercial income and delayed accrual of costs”, but whatever the reason behind, they have to face the serious situation that shares in the company has dropped 40 percent and their stakeholders have lost confidence. After the shocking announcement, the accountancy firm Deloitte and FCA have launched full investigation into this case.
From this case we can know the importance of accounting in company’s operation. Accounting errors will cause tremendous harm to both the internal and external stakeholders. In fact, Tesco’s finance director Laurie McIlwee had stopped involvement in any financial matters for the past five months, and no new director was introduced to that position, so I think it was the main cause of inflating profit because no one monitors or control the accounting work. So far, we cannot estimate that this issue is related to financial statement fraud. However, if it actually have some hiding transactions, then the problem of Tesco will be more complicated.
Work Cited
http://www.businessinsider.com/tesco-accounts-investigation-2014-9
http://www.reuters.com/article/2014/10/02/us-tesco-accounts-probe-insight-idUSKCN0HR0BW20141002
http://smallbusiness.chron.com/financial-statement-fraud-57182.html
http://www.investopedia.com/terms/f/financialaccounting.asp
Pictures
http://static.guim.co.uk/sys-images/Guardian/Pix/pixies/2013/3/10/1362943280533/Tesco–008.jpg