Tesco accounting error 'stratospheric'

Tesco executives could be quizzed by MPs after its "stratospheric" error over profits, the chairman of the Parliamentary Business Committee, Adrian Bailey, has told the BBC.

He told Radio 5 live's Wake Up To Money it was "unbelievable" that the retailer could get into "such a mess".

On Monday, Tesco admitted that it had overstated its guidance for half-year profits by £250m.

The UK's accountancy watchdog says it is "monitoring the situation closely".

However, the Financial Reporting Council, said it would not act until Tesco's own investigation was completed.

Too little, too late?

On Tuesday, Tesco said that its new chief financial officer, Alan Stewart, would be joining the company immediately, more than two months earlier than originally planned.

He replaced Laurie McIlwee, who resigned from Tesco in April but was not due to leave the company officially until October.

On Wednesday evening, Tesco admitted that

Mr McIlwee had not had any input into the retailer's financial matters since he resigned.

"Tesco stated on the 4th of April that until he officially left the company in October, Laurie McIlwee would be available to carry out transitional activities and support handover with colleagues as required," the company said.

"During the transition period, Laurie has in fact not been called upon by Tesco and has not been involved or had any input to any financial matters or held any position of responsibility in the company."

Tesco has appointed Deloitte to carry out an investigation into the overstatement, together with Freshfields, the group's external legal advisers.

Mr Bailey told the BBC that his reaction when he heard the news of the accounting error was of "disbelief".

He added he was not happy with Tesco's response. "They should never have got themselves into this mess and it may be too little too late."

Mr Bailey also said it seemed "incredible they could not have had a full-time finance officer overseeing everything".

Asked whether he might summon Tesco former chief executive, Philip Clarke, to appear before the business committee, Mr Bailey said: "It may well come to that."

"We need to have the outcome from [Tesco's own] inquiry and following that there may well be further inquiries.

"Depending on the train of events… we may well as a committee want to look at this. Not just at Tesco but at what is going on in the retail industry and in the relationship with the suppliers to see if problems haven't been addressed - because they should have been."

Tesco's shares have fallen sharply since news of the profit guidance error stunned the markets on Monday.

However, Sports Direct - the sportswear retailer controlled by founder Mike Ashley - has announced it has taken out a put option on 23 million Tesco shares, representing 0.28% of the firm's capital.

The move means in effect that Sports Direct has made a bet on Tesco shares recovering.

Sports Direct said its maximum exposure under the deal was about £43m.

"This investment reflects Sports Direct's growing relationship with Tesco and belief in Tesco's long-term future," the company said.

BBC Business