Accounting Scandal at Tesco: Discussion and Analysis

DISCUSSION
TESCO
STUDENT ID:
[Pick the date]

Post 1
The above post highlights the accounting scandal at Tesco. It clearly indicates that the
flexibility available to the management with regards to financial accounting can be
potentially abused on account of underlying subjectivity. However, if the accounting
standards are made too rigid, then it would not be fruitful as relevant information would not
be able to reach the external users (McLaney & Atrill, 2014). Thus, while requisite flexibility
in the financial accounting ought to be maintained, simultaneously stringent punishments for
the managements that engage in fraudulent accounting practices need to be practised
(Heisinger,2014).
Another pivotal aspect indicated in your post is the need to focus on both profits and cash
flow. This is quite significant since focus on one of the above would not present a reliable
analysis of the financial performance of the underlying entity. This has already been indicated
in earlier scandals such as Enron where high profits were reported in order to pump the share
price but it was not supported by the cash flows which were quite minimal. It is essential that
investors need to possess requisite financial skills in order to raise suitable suspicions when
one of the two (i.e. cash flow and profits is not supporting the other (Petty et. al., 2015).
References
Heisinger, K.(2014) Essentials of Managerial Accounting 4th ed. London: Cengage Learning.
McLaney, E. & Atrill, P. (2014) Accounting and Finance: An Introduction, 7th ed. Harlow:
Pearson Education Limited
Petty, J.W., Titman, S., Keown, A.J., Martin, P., Martin J.D. and Burrow, M.(2015),
Financial Management: Principles and Applications 6th ed. Sydney: Pearson Australia