23 December 2014
The Financial Reporting Council (FRC) has announced that it is to investigate Tesco and in particular, the preparation, approval and audit of financial statements.
Launched under the Accountancy Scheme, the regulator is looking into members and a member firm regarding the financial statements for the financial years ended 25 February 2012, 23 February 2013 and 22 February 2014.
PwC were Tesco’s auditors for all the financial statements in question.
Commenting on the auditors and their part to play in the retail giant’s accounting errors, ICSA Policy and Research Director Peter Swabey commented that what is ‘concerning is the length of time over which the practice of misreporting has flourished, as previous years’ results will have been audited and this brings into question the degree of culpability that can be laid at the door of Tesco’s auditor.
‘How clear were any warnings [given] to the Audit Committee, the board or shareholders?’
Swabey also pointed out that PwC signed off the last accounts [who] stated that the recognition of commercial income was one of the areas on which their audit focused – with this in mind, Swabey questions whether ‘a note in the report of the Audit Committee was a sufficiently fair, balanced and understandable disclosure.’
‘The note [stated] that “commercial income was an area of focus for the external auditors based on their assessment of gross risks [but that] management operates an appropriate control environment which minimises risks in this area. As a result, the Committee does not consider that this is a significant issue for disclosure in its report”,’ which is now being heavily scrutinised and questioned.