Accounting Errors Report - Analysis of Tesco's Accounting Errors

This report examines accounting errors, specifically focusing on the case of Tesco's 2014 profitability misstatement. The report details the incident, which involved an overestimation of profits due to incorrect rebate income calculations. It analyzes the consequences, including a significant drop in the company's share value and a reduction in profit forecasts. The report also outlines the steps taken to rectify the situation, such as an independent inquiry and revised profit projections. Furthermore, it recommends improvements in accountability, such as establishing an external audit committee. The report leverages information from reputable sources like The Economist and The Telegraph to support its findings. The report explores the implications of accounting errors and suggests ways to enhance financial reporting accuracy. The report serves as a valuable resource for students studying accounting and finance, providing insights into real-world examples and best practices.

Running head: ACCOUNTING ERRORS
ACCOUNTING ERRORS
Name of the Student
Name of the University
Author Note

1ACCOUNTING ERRORS
Question and Answers
Incident and Actions
The incident which has been chosen relates to that of the Profitability reflection blunder
as made by Tesco in the year 2014 (Economist.com ,2014). The company stated that it had stated
its profits to be too high in lieu of the additional rebate income which it was supposed to receive
from its supply. However, such a situation can be stated to be a measurement bias. This is
because, the PwC gave it a clean chit and there had been a miscalculation in the profit
estimation.
Consequences of the Action
The consequences of the action was that the share value of the company went down
considerably when the scandal was discovered. In the same manner, Mr. Buffet lost around $750
million on Tesco and stated the scenario to be a blunder. Later on in the month of December, the
company cut down its profit forecast by 30% stating that, it was required to put a stop to
artificially improving the results by reducing the particular service at the end of the year. Hence,
it accepted its mistake (Telegraph.co.uk ,2014).
Steps taken to rectify the situation
After the profit blunder was discovered the company commissioned an independent
inquiry into the particular issue and worked upon to investigate whether the mistake was a
genuine one or not (Economist.com ,2014). Moreover, as stated previously back in December
2014, it cut down the profit forecasts which it had estimated for itself and planned to be more
effective and practical.
Recommended steps to improve quality
In order to improve upon the accountability quality, the company can being about an
external audit committee regularly into the operations of the business to inspect upon the
truthfulness of the operations.

2ACCOUNTING ERRORS
References
Economist.com (2014). The Dozy watchdogs [online]. Available at:
https://www.economist.com/briefing/2014/12/11/the-dozy-watchdogs (Retrieved on: 14
Jan. 2018).
Telegraph.co.uk (2014). Retail and consumer. [Online]. Available at:
https://www.telegraph.co.uk/finance/newsbysector/retailandconsumer/11113623/Five-
embarrassing-accounting-blunders.html (Retrieved on: 14 Jan. 2018).

3ACCOUNTING ERRORS
Appendix
economist_com.pdf