Tesco has confirmed that its subsidiary, Tesco Stores Ltd, has entered into a deferred prosecution agreement (DPA) with the Serious Fraud Office (SFO), under which it will pay a £129m fine, marking the conclusion of the regulator’s investigation into accounting irregularities at the grocery retailer
The DPA was first announced last month, but was awaiting formal judicial approval, which was given yesterday. It relates to the SFO’s probe into £263m black hole in Tesco’s half year interim results in 2014, which was found to be down to revenue recognition issues linked to the way in which income from deals with suppliers was booked by the retailer.
A subsequent investigation into the six-month trading update for the period ending 23 August 2014 identified an overstatement of Tesco’s expected profit for the half year, principally due to the accelerated recognition of commercial income and delayed accrual of costs.
Tesco will take a total exceptional charge of £235m in respect of the DPA of £129m, the expected costs of a Financial Conduct Authority (FCA) compensation scheme of £85m, and related costs. This has been recorded in the financial statements in the year to 25 February 2017 as an adjusting post balance sheet event.
The FCA compensation scheme will be administered by KPMG and will make payments to certain net purchasers of Tesco ordinary shares and listed bonds who purchased those securities for cash between 29 August 2014 and 19 September 2014.
The SFO has made clear that the DPA only relates to the potential criminal liability of Tesco Stores Ltd and does not address whether liability of any sort attaches to Tesco plc or any employee, agent, former employee or former agent of Tesco or Tesco Stores Ltd.
