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Fraud and Forensic Accounting

Member: Nifa

News that Tesco is likely to be sued by another group of shareholders over the retailer’s £263m profit mis-statement will almost certainly lead to further forensic investigations on the part of their legal team. The investors are demanding compensation from Tesco following the slump in its share price last autumn.

It is likely that these investigations will involve forensic accountants who will be required to conduct a detailed analysis of the company’s accounts in order to ensure that the numbers reflected reality. In this case, the belief is that the overstatement occurred because of inaccurate booking of revenue from suppliers, into which the Serious Fraud Office (SFO) has launched a formal criminal investigation.

In addition, the Groceries Code Adjudicator and the Financial Reporting Council are undertaking separate inquiries, while the Financial Conduct Authority (FCA) ceased its own probe when the SFO became involved.  A US law firm, which is said to have been retained by the shareholders, has already filed a class action lawsuit against the supermarket chain in the US, accusing it of misleading investors, saying that "International institutions” had asked them to find a way to bring a claim in the UK which they can join. The firm is funding a UK law firm to represent the group, known as Tesco Shareholder Claims Limited, to try to muster enough support for a potential claim. The group said it believed that, had the accounting irregularities not taken place, both the share price and the value of the company would be "materially higher" and they want this investigated.

Author: Roger Isaacs, 30 March 2015

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