Tesco Accounting Misstatements: Myopic Ideologies Overshadowing Larger Organisational Interests

Abstract

This case study explores what went wrong in Tesco that resulted in the fraud of accounting misstatements of the magnitude of £263 million, why the fraud remained undetected over a number of years, which resulted in catastrophic consequences for both Tesco and its stakeholders. Furthermore, it highlights the lessons learnt from this debacle in Tesco, with focus on enterprise risk management, change management, corporate governance, materiality of transactions from accounting perspective, auditors' independence, sound accounting practices, internal controls and, employees' incentives policies. Finally, while the ultimate price of these scandals is paid by the society at large - particularly stockholders who put their hard earned savings in these institutions just on the basis of their trust on them - and while such scandals are often attributed to gaps in internal controls and auditors' negligence, this study concludes that, whatever controls are put in place or whatever accounting and reporting standards are set, if the people who are the part of system themselves decide to bypass the control systems, it is next to impossible to prevent such fraudulent activities. This case study has been prepared for educational purposes based on public available sources such as newspapers, magazines, websites and other referred articles.