30 October 2014 by Alexandra Jones
The Serious Fraud Office (SFO) has opened a criminal investigation into accounting practices at supermarket giant Tesco.
The SFO will take over from the Financial Conduct Authority (FCA), the City regulator that began the initial probe.
The FCA will discontinue its work on the case and hand over all the information it has gathered so far to the SFO.
The investigation centres on Tesco’s accounting errors that came to light in September, in which Tesco admitted that it had overstated the Group’s profit for the first half of 2014 by £250 million.
Further announcements by the retailer last week confirmed that its overstatement was more likely to be in the region of £263 million.
Tesco was notified of the SFO’s action on 29 October and is said to be co-operating fully with the investigation.
Commenting on the news, Peter Swabey, Policy and Research Director at ICSA, said: ‘The announcement from the SFO clearly increases the stakes for Tesco. For the SFO to announce a criminal investigation and the FCA to decide "following consultation with the SFO … to discontinue its investigation with immediate effect" suggests that the accounting practices may be a more serious issue than they first appeared.
‘Although it is possible that different management teams might make different judgements as to how to implement accounting standards, and that poor judgement may attract regulatory censure, poor judgement would not normally attract the attention of the SFO. Consequently, although their investigation may not find any evidence of wrongdoing, the fact of the investigation is, of itself, enough to cause concern for investors, even if only on the principle of “no smoke without fire”.’