Newly appointed CEO Dave Lewis started his tenure at Tesco by suspending four executives after discovering some serious accounting irregularities.
The company came to know of the issue when an informed employee went to the company’s general counsel to report the matter. The issue was that the company had been overly ambitious when predicting the sales of products in its UK food business. The company apparently also misreported in its accounts the costs of waste and shrinkage. Overstatement of income and understatement of expenses led to an overstatement of expected profit by ~$400M for the first half of the year.
The company’s auditor PWC had not yet examined the figures for the first half profit. But in its fiscal 2014 audit report on Tesco, released in May, PwC paid particular attention to commercial income and it matched up Tesco’s recognized commercial income with contractual evidence. Tesco has now engaged Deloitte to investigate the irregularity. Hopefully the new auditors won’t discover any new irregularity!