Tesco’s book-keeping scandal has prompted Britain’s accounting policeman to turn a spotlight on annual reports in the retail sector to check for similar irregularities.
The Financial Reporting Council (FRC) has already opened a probe into Tesco’s accounts and said yesterday that scrutiny of sample audits in the coming year will focus on the food, drinks, and retail sector.
Tesco said in September it had overstated its first-half profits by £250m due to incorrectly booking payments from suppliers, a figure it later raised to £263m.
“We will pay attention to the extent to which the audit team has challenged and checked the appropriateness of how these arrangements are accounted for,” said FRC executive director Paul George.
Routine supervision also uncovered complex arrangements between suppliers and customers entered into financial reporting and audit risks, he said.
The Chartered Accountants Regulatory Board in Ireland said it may start similar “themed” investigations into auditing practises here next year.
“CARB’s priorities for 2015, as agreed with the Irish Auditing and Accounting Supervisory Authority and the FRC, is to complete the statutory inspection cycle set out in the EU Statutory Audit Directive for all audit firms,” a spokesman said.
“It is not our plan in 2015 to adopt the themed approach of FRC to concentrate on specific sectors, but to review a wider range of engagements. We may adopt the themed approach in 2016 when we complete the statutory target.”
Reforms in Britain and the EU are forcing companies to switch their accountant every few years after some firms kept the same auditor for decades, raising questions about independence.
The FRC yesterday published its annual report on checks of 109 company audits, saying quality had risen to record levels but a third still needed improvements.
The watchdog used new powers for the first time to fine two accounting firms for deficiencies in auditing. EY was fined £52,500, and Mazars £10,400.
“More importantly than the fines, we are imposing conditions as well around methodology and training. In some ways writing a cheque is straightforward, but the actual conditions attached to the fine require clear action on the accounting firms to up their game,” Mr George said.
© Irish Examiner Ltd. All rights reserved