Tesco’s announcement that it had overstated its expected first-half profit by an estimated £250m is obviously an embarrassment and patently impacts the share price.
Given that £250m represents approximately 22.7% of the original £1.1bn forecast, City reaction is understandable...
The overstatement is apparently down to a combination of the accelerated recognition of commercial income and delayed accrual of costs. In other words, possible booking of anticipated future income, like trade investment in advance of sales and could include, among others, delaying accounts payable, deferred tax liability etc.
As far as Dave Lewis’s reputation is concerned, the error occurred in the month before he joined, he went public as soon as the mistake was discovered, and announced that Deloitte will undertake an independent and comprehensive review of the issues, in collaboration with their legal advisers, i.e. All positive.
The real issue is the impact and distraction that will be caused by an independent audit of process conducted under a City spotlight ‘with lawyers present’, in troubled times.
In other words, accounting procedure that was fine in good times could now be re-assessed from a different perspective, and with the benefit of hindsight….
In practice, it could be difficult to prevent the project becoming a fundamental review of how Tesco does business with suppliers and the public.
As far as NAMs are concerned, this means that retail margins, days credit, settlement-discount arrangements, trade investment and deductions could be assessed in terms of their calculation and how settled.
At best, expect delays and distraction from the normal job of developing joint business opportunities, not only from Tesco, but also from other customers as they conduct lite-versions of the same process, just-in-case….
However, one positive result has to be the buyer's heightened sensitivity to, and appreciation of, the cost and value of dealing with NAMs that can rationalise their cost-base and demonstrate deliverable financial value in every element of their offerings....
Given that £250m represents approximately 22.7% of the original £1.1bn forecast, City reaction is understandable...
The overstatement is apparently down to a combination of the accelerated recognition of commercial income and delayed accrual of costs. In other words, possible booking of anticipated future income, like trade investment in advance of sales and could include, among others, delaying accounts payable, deferred tax liability etc.
As far as Dave Lewis’s reputation is concerned, the error occurred in the month before he joined, he went public as soon as the mistake was discovered, and announced that Deloitte will undertake an independent and comprehensive review of the issues, in collaboration with their legal advisers, i.e. All positive.
The real issue is the impact and distraction that will be caused by an independent audit of process conducted under a City spotlight ‘with lawyers present’, in troubled times.
In other words, accounting procedure that was fine in good times could now be re-assessed from a different perspective, and with the benefit of hindsight….
In practice, it could be difficult to prevent the project becoming a fundamental review of how Tesco does business with suppliers and the public.
As far as NAMs are concerned, this means that retail margins, days credit, settlement-discount arrangements, trade investment and deductions could be assessed in terms of their calculation and how settled.
At best, expect delays and distraction from the normal job of developing joint business opportunities, not only from Tesco, but also from other customers as they conduct lite-versions of the same process, just-in-case….
However, one positive result has to be the buyer's heightened sensitivity to, and appreciation of, the cost and value of dealing with NAMs that can rationalise their cost-base and demonstrate deliverable financial value in every element of their offerings....
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