Tesco-style accounting risks
Tesco Plc’s disclosure of huge accounting mistakes over contracts with its suppliers shocked industry analysts and executives, but not because they didn’t realise the potential for disaster.
On the contrary, they assumed that everyone in retailing was fully aware of the risks involved in accounting for rebates paid by suppliers to Britain’s biggest supermarket groups, thanks to auditors’ warnings.
Therefore Tesco’s revelation on Monday that it had overstated its profit forecast for the first half of the year by 250 million pounds ($409 million) came as a nasty surprise and wiped 2 billion pounds off its stock market value.
Auditors routinely list risks that companies may face, and this year they have raised the supplier rebates – which have become a major part of the grocery business – in a number of firms’ accounts following a change in disclosure rules.
Companies don’t publish how much they receive in payments from suppliers.
The company blamed “accelerated recognition of commercial income and delayed accrual of costs” within its UK food business for the overstatement of its expected half-year profit.
“This, in our view, is not all an accounting issue but more a behavioural issue instilled by previous management,” said Mike Dennis, retail analyst at Cantor Fitzgerald in London.
Source: reuters- Tesco-style accounting risks
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