Tesco commercial income scandal
Prior to 2014 different analyst warned that Tesco seemed to be undertaking aggressive accounting policies. Due to the complexity of estimating the commercial income, the auditors included a note in the 2014 report …show more content…
Following the uncovering of the commercial income accounting issue, Tesco suspended eight senior UK executives. In addition, on 29th of October 2014 the UK Serious Fraud Office launched a criminal investigation of Tesco accounting practices.
Impact on Tesco financial statements
In 2015, Tesco annual report established that the 2014 annual report profits had been overstated by £53m and by £155m as a total for the years prior to 2014. The UK division gross profit in 2014 was £2191m. It could be argued that considering the profit adjustment represented less than 10% of the 2014 gross profit, the damage to Tesco’s image was worse than any gain achieved by the overstated numbers.
Although the adjustments to the Annual Reports in 2015 were not in excess of £150m for any of the preceding years, which was below the materiality threshold (£150m) the auditors had established in the financial statements, the shareholders considered it significant and Tesco stock reached 15-year low on December 9th 2014 (Exhibit 1).
A true measure of the importance of commercial