Regulation
Corporate Governance

Tesco Launches Inquiry and Suspends Execs Over Profit Exaggeration

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Tesco's overstatement was more than a little - Picture sourced from Shutterstock

British-based retailer Tesco has suspended four of its executives and launched an inquiry after the firm overstated its half-year profits.

The firm, which is understood to have suspended its UK managing director Chris Bush as one of the four, overstated its profit guidance by £250 million, a quarter of its announced profits to date.

Chris Bush will be replaced throughout the duration of the investigation by Robin Terrell, the multi-channel director for Tesco.

Disappointment would be an understatement

Launching the investigation being led by Deloitte, the CEO of the firm, Dave Lewis said that to say he was disappointed would be an understatement. Mr Lewis, who only took over at the top of the firm at the start of September said:

"It doesn't take away from what I'm able to build at Tesco".

Mr Lewis also went on to say that the suspensions were not as part of any disciplinary action being taken by the firm or should be perceived as an admission of guilt in regards to the individuals involved.

Uncertain for investors

With shares in Tesco falling by over 8% in morning trading on the London Stock Exchange, market analyst Robert Gregory told the BBC Breakfast programme:

"Investors are really uncertain about Tesco at the moment and its future direction."

Clive Black, an analyst at Shore Capital said:

"Such an announcement is not the stuff of a well operated FTSE-100 organisation.”

At the end of August, the retailer said its expected trading profit for the first half of 2014 was around £1.1bn. In its latest statement to the stock market however, Tesco said this overstatement was largely as a result of an:

“accelerated recognition of commercial income and delayed accrual of costs".

It also apportioned some of the blame to accounting issues with its suppliers.

Alerted to the error by ‘an informed employee’, Tesco said that the Financial Conduct Authority, the financial regulator for the UK, had been informed.

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