The fallout from the revelation that Tesco had been
overstating their profits has and will continue to be immense. Following their
mea culpa on Monday the market responded with a sell-off which wiped £2 billion
off of the value of the company.
The scenario has become all too familiar over recent years.
Companies seemingly enjoying a never ending run of profits and nobody willing
or prepared to ask the difficult some might say obvious questions.
The initial statement referred to accounting errors in the
previous 6 months which then raised questions about the validity and integrity
of previous results.
In the only course of action open to the management of Tesco
they launched an independent enquiry. This will not only focus on the role of
Tesco senior management but also their auditors of long standing Messrs PWC.
How many times has the scenario played out? Loose
governance, directors preoccupied with their own bonus structure, Auditors not
getting to grips with the fundamental issues of the business they are auditing.
Either the figures are wrong through incompetence or
deliberate falsification it can only be one of these two issues.
In smaller companies it is not unusual for management under
pressure to resort to “massaging the figures” whilst unacceptable business
practice it does not have the implications that accompany the Tesco situation.
The damage to shareholder confidence and the brand itself is
incalculable. It will be difficult to rebuild trust from either the market of
its customers with the overhanging feeling that there may well be more
skeletons lurking in the cupboard.
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