If Tesco boss Dave Lewis thought he would be able to end the year focusing on that all-important task of selling people their Christmas dinner then he was mistaken, as Britain’s largest supermarket faces the prospect of yet another uncomfortable light being shone on its accounts.
The Financial Reporting Council, the UK’s independent accounting watchdog, has announced an investigation into the ‘preparation, approval and audit’ of Tesco’s financial statements, the latter by PwC, stretching back to the fiscal year ending in February 2012.
It’s not good news for PwC, but it’s certainly not the early Christmas present Tesco needed either, as the FRC has the power to fine, demand costs and strike off individuals who are members of any accountacy professional body - which could include current or former Tesco finance staff if the FRC does find any wrongdoing.
The Serious Fraud Office is already investigating a £263m profit overstatement that was first brought to light in September, prompting chairman Sir Richard Broadbent to resign in October. Deloitte, commissioned by Tesco, said then that the black hole relates to payments and rebates from suppliers being shifted into earlier reporting periods, while costs were moved forward, and that the practice was going on at least as early as the supermarket’s 2012/13 financial year.
But the FRC probe now raises the prospect that even earlier fiddling could be uncovered – although probably not all the way back in the now-fabled Sir Terry Leahy era, which ended in March 2011. Investors weren’t too concerned, though, perhaps used to bad news by now. Shares were down a little under 1% to 183.7p in mid-morning trading, having fallen more than 45% in the last year.
But the new investigation also ratchets up the pressure on the relationship between Tesco and its suppliers – which Lewis said he was going to ‘reset’ when he dished up the fourth profit warning this year to unhappy investors two weeks ago. Consumer goods giants including Unilever and Diageo already expect to be interviewed by the SFO, according to the Sunday Telegraph.
A FRC spokesperson said it would be asking Tesco to cooperate, but that it couldn't say yet whether they would also ask questions of its suppliers. Nonetheless, Britain’s largest supermarket will surely already be asking which of its suppliers will be laying its practices bare to the SFO.
So as yet more distractions pile up in Tesco’s core UK business, the other question for Dave Lewis in the New Year must be whether he’s going to slim it down – spinning off Tesco Bank, as has been rumoured, or selling all or part of its profitable Asian and European arms. After all, its farther flung businesses can’t be getting much Christmas cheer sent over from its Cheshunt HQ right now.