FRC ends Tesco probe with no disciplinary actions

The Financial Reporting Council (FRC) has closed its five-year investigation into accounting irregularities at Tesco, and has dropped plans to take any further disciplinary action regarding accountants working at the supermarket chain, having also earlier halted its probes into auditor PwC and ICAEW members

The FRC’s investigation was announced in December 2014, and followed on from Tesco revealing an overstatement of profit of approximately £250m in its interim financial reporting. This was subsequently increased to £263m and found to relate to booking income from suppliers too early.

At the time, the regulator said it planned to examine the conduct of ICAEW members and PwC in relation to the preparation, approval and audit of the financial statements of Tesco for the financial years ended 25 February 2012, 23 February 2013 and 22 February 2014 and the preparation, approval and review of financial information relating to the 26 weeks ended 23 August 2014 leading to the publication of the company’s interim results on 23 October 2014.

Subsequently, in August 2016 the FRC announced it had closed its investigation into Laurie McIlwee Tesco’s former chief financial officer, having concluded that there was no realistic prospect that a tribunal would make an ‘adverse finding’ in relation to his conduct.

A year later, in June 2017, the FRC closed its investigation into PwC and ICAEW members who were auditors of Tesco, also on the grounds there was no realistic prospect of a tribunal making an adverse finding.

During the course of the investigation, a number of accountant employees within Tesco were added as subjects. The investigation into these individuals was subsequently paused pending the Serious Fraud Office’s (SFO) trial of three (non-accountant) senior Tesco employees on charges relating to the overstatement.

Now the FRC has said that following the conclusion of the SFO proceedings, and consideration of relevant material and information subsequently obtained from the SFO, it has decided to discontinue the matters in relation to each of the remaining subjects. Accordingly, the matter has been closed without service of a formal complaint.

The decision means the FRC has taken no formal disciplinary action against members or a member organisation in relation to the Tesco accounting ‘black hole’, although the high street chain has been censured by the Serious Fraud Office (SFO).

In April 2017 Tesco agreed a deferred prosecution agreement (DPA) with SFO, which had launched a criminal investigation into the accounting irregularities.

Under the terms of the deal the retailer paid the SFO a £129m fine and agreed to pay £85m for the expected costs of an FCA compensation scheme.

However, a protracted SFO court case against three former senior Tesco executives eventually collapsed. Carl Rogberg, the former UK finance director at Tesco, was acquitted at Southwark crown court on 23 January 2019 after the SFO withdrew the case against him.

This followed on from Chris Bush, former Tesco UK managing director, and John Scouler, former UK food commercial director being acquitted by the Criminal Court of Appeal in 2018 after judges backed the ruling of the trial judge, Sir John Royce, that they had no case to answer.  Royce said the prosecution case was ‘so weak’ it should not be put before a jury.

A Tesco spokesperson said: ‘There has been no FRC investigation of Tesco as a company, and we have never commented on the position of any individual in relation to these issues.

‘Since 2014, we have fundamentally transformed our business. Our turnaround journey is now complete, and we have fully satisfied the terms of the DPA we entered into with the SFO in 2017.’

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