LONDON, Dec 8 (Reuters) - British retailers must provide clear information to investors about their income from suppliers, the country’s accounting watchdog said on Monday as it investigates a book-keeping scandal at leading supermarket Tesco.
Tesco has admitted overstating half-year profits by 263 million pounds ($411 million) after identifying accounting irregularities caused by booking income from suppliers too early, and costs too late.
Suppliers typically offer supermarkets rebates for efforts to promote their products.
Britain’s Financial Reporting Council (FRC), which polices accountants and is examining how Tesco’s error came about, said boards of all retailers and suppliers should provide investors with sufficient information on their accounting policies.
The watchdog said it would focus on this area when it comes to reviewing audits for 2014 that will be published next year.
The amounts involved in supplier fees and rebates to retailers often require significant judgements by retailers when estimating when the income should be booked for annual and interim reports, the FRC said.
“Complex supplier arrangements such as fees and discounts may have a significant impact on the reported margins and other results of a company and on investors’ views of its performance,” said Richard Fleck, chairman of the watchdog’s financial reporting review panel.
“Today’s announcement is a reminder to boards of retail companies in particular of what they should consider and encourages them to review their reporting in this area as many have already announced,” Fleck said.
The FRC said there was no single accounting standard for such disclosures and there is an “absence of well-known industry norms”.
1 US dollar = 0.6403 British pound Reporting by Huw Jones; Editing by Pravin Char