The accountancy watchdog, Financial Reporting Council (FRC), will be formally investigating Britain’s biggest supermarket Tesco and auditor PwC over an artificial inflation of profits to the tune of £263m.
The behaviour of the PwC team and the financial team of the ailing retail group, as far back as February 2012, will come under the microscope concerning the auditing of Tesco’s accounts.
If any occurrences of misconduct are proved by the FRC at a tribunal, PwC as well as any chartered accountants in the pay of Tesco could probably be looking at legal costs, unlimited fines and professional boycott.
Affirming support to the investigation, PwC said: "We take our responsibilities very seriously and remain committed to delivering work to the highest professional standards. We will co-operate fully with the FRC in its inquiries."
Tesco too announced support for the investigation.
This latest investigation was launched in October by the Serious Fraud Office, which has since been closely monitored by the FRC.
Soon after Dave Lewis, Tesco’s new chief executive arrived to tackle the retailer’s falling sales, a team of Deloitte accountants ascertained that Tesco had given an overestimation of its first-half profits up to £263m in August.
As per Deloitte’s examination, £118m of the £263m related to the first half of the current fiscal and £145m went back to previous years.
As a result, nine senior executives were suspended, which included the UK food business head Chris Bush. Since then four of them have left the company.
According to some analysts, in order to show the retailer in good light, its executives forced suppliers to give out payments even though profit targets were not being met.
Dismissing any suggestions of fraud, Lewis said: "Nobody gained financially as a consequence of the overstatement of performance."
Still, an already distressed Tesco has been hit hard with the investigations, as Lewis tries to set right Britain’s units while simultaneously managing the troubled overseas outlets.
Beginning of December saw Tesco suffer a severe share slump (a 14-year low), as Lewis confessed that employing extra floor staff and ironing out the problems with suppliers would see the supermarket lose £500m of its annual profits.
A further fall in profits appears in the offing as Lewis prepares his updates for the City on January 8, 2015. Stiff competition is expected from the discounters Lidl and Aldi, while a price war already rages with rivals such as Morrisons and Asda.