FCA begins Tesco probe
The Financial Conduct Authority (FCA) has begun a probe into the activities of retailer Tesco, amid concerns that it may have breached regulations regarding accurate financial disclosures.
It has advised Tesco that it is investigating whether the company broke the rules in providing a wildly incorrect estimate of its half-year profits, which turned out to be £1.1 billion – not only down on last year’s £1.6 billion figure, but, crucially, £250 million less than it had projected. The Financial Reporting Council, the accountancy watchdog and the Serious Fraud Office are also monitoring the situation.
The final figures – showing a significant decline in revenues at the retailer – shocked investors and sent the Tesco share price plunging, as well as prompting suspicions that somebody had deliberately withheld information. Tesco has already begun its own internal investigation, with the aid of accountants Deloittes and law firm Freshfields.
In a statement to the Stock Exchange, Tesco said: “The Financial Conduct Authority has notified Tesco that it has commenced a full investigation following the overstatement of expected profit for the half year which was described in our announcement of 22 September 2014 and which is currently the subject of an independent review by Deloitte.
“Tesco will continue to cooperate fully with the FCA and other relevant authorities considering this matter.”
Rival Sainsbury’s responded to Tesco’s woes by asserting that it was confident in its own figures. Finance director John Rogers said the notion that giving the stock market inflated estimates of profits is a “grey area” in accounting rules is not true, saying any such suggestion is a “gross misrepresentation” of clear regulations.
This could end up being one of the most serious corporate scandals in years and with four senior managers at Tesco suspended, the damage could be lasting.
At the time of the announcement of the probe by Deloitte and Freshfields, Tesco Group chief executive Dave Lewis said every Tesco stakeholder was expecting the company to operate with “integrity and transparency”. The extent to which it has failed to do so may not be clear for some time yet.
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