The Serious Fraud Office is following events at Tesco closely as Sainsbury’s and Morrisons have been warned by auditors that they could be at risk of an accounting fiasco.
A day after four Tesco senior executives were suspended after it was revealed that it had overstated its profits by £250m, the SFO said it was “following developments at Tesco with interest”.
The Financial Conduct Authority has also been informed of Tesco’s problems. It is thought that the retailer could be obliged to restate accounts going back as far as 2011.
In the US, law firm Glancy Binkow & Goldberg said it is investigating potential claims on behalf of Tesco’s US shareholders over possible violations of federal securities laws, The Independent reported.
The law firm has encouraged Tesco’s US shareholders to get in touch and said its investigation is focusing on “certain statements” issued by Tesco about its operations and financial performance.
Experts believe that Tesco’s bullying tactics towards seeking rebates from suppliers is at the heart of the accounting scandal. Rebates could be sought with little or no notice under the guise of building commercial income for marketing or promotions, according to The Times.
Cantor Fitzgerald retail analyst Mike Dennis said: “This was a well-known practice within Tesco and we believe it has been going on for at least a year or more, and became more desperate as sales full further.
Meanwhile, other retailers have been warned they could face the same issues as Tesco.
Sainsbury’s auditor PwC, which also audits Tesco, has highlighted the way that the grocer accounts for its commercial deals with suppliers, according to The Times. The accountancy firm listed supplier incentives, rebates and discounts at the top of its area of focus in May because it “involves significant manual processes which are more susceptible to error.”
A Sainsbury’s spokesman said: “Sainsbury’s business is built on the values of honesty and integrity. Our accounting principles dictate that we recognise income and costs at the appropriate time and we abide by those principles.”
KPMG, Morrisons’ auditor, also said income from suppliers as a potential risk in its audit of its accounts in March. Morrisons finance team launched an internal audit but identified no “significant control weaknesses were identified”.
A Morrisons spokesman said: “As we said in our Annual Report, Morrisons is satisfied that supplier income is calculated correctly and recognised in the appropriate period. In their report, KPMG described the work they did in their audit on supplier income and gave a clean opinion on the Morrisons accounts.”
In another blow for the supermarket, it was revealed yesterday that prosecutors in South Korea are investigating Tesco-owned supermarket, Homeplus, over allegations that its managers sold customers’ private information to insurance firms.
Tesco discloses £250m overstatement of profit forecasts
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Serious Fraud Office keeps eye on Tesco as other grocers warned over accounting practices