Chasing The Customer … Retail Book Cook?

 

Cooking Books

 

Tesco

Tesco is a multi-billion dollar retailer located in Europe. It has been over a decade since Sarbanes-Oxley was signed into law in the U.S. … but in reviewing the Tesco article in the Wall Street Journal, it is probably a good time for anyone involved in finance, accounting, marketing and trade promotion in the U.S. to review SOX, the PCAOB, FASB/EITF and related Issues and regulations. The U.S. under the SOX mandate has incorporated some rigorous criminal and civil penalties for those U.S. listed companies and employees that engage in the types of activities alleged at Tesco.


 

From Retailwire

http://www.retailwire.com/discussion/17796/did-someone-cook-the-books-at-tesco

“Tesco has suspended four key executives after announcing that the company overstated profits by nearly $409 million over a six-month period.

Tesco’s new CEO, Dave Lewis, who joined the company on Sept. 1, said the company had found some accounting irregularities and was working with Deloitte and the firm Freshfields to conduct a “full and frank investigation” into the matter.

The four executives suspended are: Chris Bush, Tesco’s managing director in the U.K; Carl Rogberg, the company’s U.K. finance director; Matt Simister, responsible for group sourcing; and John Scouler, commercial director.

“The board, my colleagues, our customers and I expect Tesco to operate with integrity and transparency and we will take decisive action as the results of the investigation become clear,” Mr. Lewis was quoted by The Telegraph.

An employee of the company is reported to have alerted Tesco’s general counsel about a problem with its accounts last Friday. The overstatement is tied to Tesco booking supplier payments too early while not accounting for some costs on a timely basis.”


 

My Comments to the Retail Wire Article

FASB/EITF Issues pretty well define the treatment of both revenue and marketing/trade promotion fund recognition and timing.

The PCAOB and the SEC/DOJ have been given significant regulatory as well as civil and criminal penalty assessment capabilities under SOX. There are multiple other government and compliance organizations such as the New York Stock Exchange and NASDQ that have instituted rigorous requirements for listed companies.

In the U.S., CEOs and CFOs are required to regularly sign attestations that proper systems and rigorous checks and balances are in place and enforced. Regular ethics classes must be scheduled for all listed companies. Interestingly whistleblowing is encouraged and protected under SOX and other regulatory auspices. (A whistleblower alerted regulatory officials in Tesco incident.)

Note: Punishments both civil and criminal are pretty harsh for those that wander from generally accepted accounting principles in the U.S.

SOX and FASB issues were all promulgated as a result of significant accounting anomalies in the late ’90s which significantly distorted revenue, margins and earnings resulting in misleading financial statements. The incidents were similar to what is currently alleged at Tesco.

I had a chance to work with the EITF task force that created the marketing and trade promotion guidance. Probably not a bad idea for all c-level execs to revisit those issues now that the alarm has been re-rung. I am sure it will be on the PCAOB and auditors must-check list.

Ronald Lunde, Principal, The Lunde Co.

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