The voluntary disclosure of the misrepresentation of financial statements by the management of the UK-based retailer Tesco plc (Tesco) in September 2014 impacted the market price of its share, affecting the investment value of its shareholders. The shareholders expressed resentment over the negligence of Tesco’s management and filed legal suits against it, demanding compensation for the losses they had suffered as a result of the financial statements being misrepresented.
The present case study ‘Accounting Scandal at Tesco’ focuses on the events that led to the misrepresentation of financial statements – the market position, process of determining the revenue streams, relationship with suppliers, and related issues. Also the case focuses on the steps initiated by the management of Tesco to overcome the crisis situation, and the role of regulatory authorities in handling the situation.
Further the case study also provides scope for a discussion on the importance of accounting principles and their role in determining the investment objectives of various stakeholders. It also provides scope for a discussion on the importance of ethics in the auditing profession and the challenges faced by the auditors.
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The case is structured to achieve the following teaching objectives:
Importance of accounting principles in preparing financial statements
Ethical challenges in auditing
Impact of financial information on shareholders’ investments