Tesco, Britain's biggest retailer and one of its great corporate success stories of the past decade, has been thrown into turmoil after disclosing that it had overstated its first-half profit by £250 million.
Four senior executives were suspended and Tesco shares fell 12 per cent to 203p, their lowest level for 11 years, as it issued its third profit warning in three months.
Tesco, whose auditor is PwC, has asked Deloitte and Freshfields to investigate the accounting errors.
The Financial Conduct Authority, the UK financial regulator, has been informed.
The crisis comes three weeks after former Unilever executive Dave Lewis took over as chief executive. His predecessor, Philip Clarke, was ousted in July.
The latest upheaval was sparked when a manager in the finance department questioned figures for the first half of the year. He brought these to the company’s general counsel on Friday afternoon, who took them to Mr Lewis.
Tesco said the overstatement related to a trading update at the end of August, when it unveiled its biggest profit alert, cut its dividend and slashed planned investment. Mr Lewis said the matter related to income Tesco received from suppliers, including money to help fund promotions.
Richard Broadbent, a veteran City of London figure, who has been company chairman since 2011, said: "The shareholders will decide whether I'm part of the solution or part of the problem. My intention is to continue to be part of the solution."
The accounting errors relate to the “commercial income” Tesco receives from suppliers, according to three people who know the business well. When supermarkets reach deals with suppliers they agree a price for the goods they buy. But the suppliers try to motivate the supermarkets to sell more of their products with cash rebates if they sell a certain amount of goods, or by helping the supermarkets fund promotions.
Dave McCarthy, analyst at HSBC, said: "Tesco may have been booking promotional rebates based on historic precedent rather than on current volumes." – Copyright The Financial Times Limited 2014