For the third time in two months now, Tesco cuts its profit forecast with another major blow to the world’s third best retailer because of accounting errors in suppliers’ contracts. Along with this mistake, the company had to suspend three of its senior executives with its UK boss.
Those who’ve heard about what’s happening to Tesco these past two months are saying that the company have been overly determined with its estimates on sales and profits on its UK food business. The ambitious viewpoints then resulted to lower cash rebates that the company received from its suppliers who pay out when indicated volumes are met.
People familiar with the matter also said that the company has had accounting errors specifically on the cost of ‘wastes’ which refers to expired food as well as on ‘shrinkage’ which defines the unaccounted for or lost/stolen products.
A few days before chief executive Dave Lewis joined the company, a profit warning had exaggerated the forecasted first half profit of $408 million or equivalent to 23%.
The accounting error was found out by the ‘commercial manager’ according to Lewis, who advised the legal counsel when he discovered it while preparing the reports for the approaching second half earnings. The issues drew attention to the company’s lack of a financial director group with only Lewis on board after the ousted CEO Phil Clark.
Lewis refused to provide the name of the commercial manager who reported Tesco’s error and said that it’s very early to say that there was fraud involved in the accounting mistakes The interim results of Tesco’s earnings have been pushed back so instead of providing its second half reports on 13th of October, it was rescheduled for 23rd of October.
Tesco is working hard to establish the extent and impact of its current issues for the full year profit. The company has sought out help in reviewing the issues from an independent group Deloitte that will work side by side Tesco’s external legal advisers, Freshfields.
