US Edition The accounting scandal at Tesco deepened on Monday after the UK accountancy watchdog launched an investigation into the retailer’s auditor PwC.
The FRC said it would be scrutinising Tesco’s internal accountants and the role of PwC’s auditors in relation to the “preparation, approval and audit of the financial statements” at the supermarket giant for the financial years ended February 2012, 2013 and 2014.
In a further blow to PwC, the watchdog said it was opening a separate inquiry into the Big Four accountancy firm’s submission of regulatory reports for Barclays bank, after the City watchdog found inadequate records had been kept of customers money.
Tesco was forced to write off £263m in profits earlier this year following an internal investigation, having intially said it had mis-stated its half-year profit guidance by £250m.
PwC had warned in last year’s annual report that the company’s revenue was at “risk of manipulation”.
The Tesco accounting scandal is thought to centre on the early recognition of cash payments from suppliers in a bid to boost sales figures and profits.
An internal investigation completed at Tesco by accountants Deloitte is understood to have uncovered evidence that a “small group” of people at the retailer allegedly misled its auditors and accountants to flatter its financial results.
Four Tesco executives have left the business following the discovery of the scandal, including Chris Bush who was managing director of the UK business. The FTSE 100 retailer is also looking for a new chairman, following the announcement that Sir Richard Broadbent will leave.
The supplier payments issue at Tesco is already under scrutiny from the Serious Fraud Office which is set to take evidence from some of the UKs biggest companies such as Diageo and Unilever. The SFO is expected to interview staff at the companies who worked on deals with Tesco and study the paperwork associated with its supplier agreements.
Tesco issued its fourth profits warning in a year earlier this month. Dave Lewis, the new chief executive who replaced Philip Clarke in September, will update the City on the crucial Christmas trading period and his strategy to turn around the beleaguered retailer next month.
In a further blow to PwC, the FRC yesterday said that it had opened a separate case that will review the accountant’s conduct in completing and signing off Barclay’s reporting of customer money to the City regulator in the four years to 2011.
Barclay’s was fined £3.7m in September by the Financial Conduct Authority for failing to keep proper records on about £16.5bn of customer’s money that had passed out of the bank’s control, despite PwC giving the bank a clean bill of health.
The FRC monitors the conduct of UK accountants and actuaries and has the ability to hit those found guilty of wrongdoing with unlimited fines and sanctions, or suspend the membership and withdraw the license of audit firms.