Accounting Policies' Impact on TESCO PLC's Profit Disclosure

This report examines the impact of inappropriate accounting policies on the disclosure of profits and revenues at TESCO PLC. It begins with an introduction to corporate governance and the rationale for the research, focusing on the importance of accurate financial reporting for stakeholders. The report outlines the research aim, objectives, and questions, followed by a conceptual framework. A literature review explores the concept of accounting policies, the significance of profit and revenue disclosure, and the influence of inappropriate policies on TESCO PLC. The methodology includes both primary and secondary research, with results presented and discussed. The report concludes with recommendations and an action plan to help TESCO PLC overcome the negative impacts of inappropriate accounting policies, ensuring transparency and accurate financial representation to stakeholders. The analysis covers topics like going concern, consistency, accrual, prudence, and materiality, which are crucial for stakeholders' decision-making.

Corporate Strategy and
Governance

Table of Contents
TITLE:.............................................................................................................................................1
INTRODUCTION...........................................................................................................................1
Background of research..........................................................................................................1
Overview of organisation.......................................................................................................1
Rationale of research..............................................................................................................2
Research Aim.........................................................................................................................2
Research objectives................................................................................................................2
Research questions.................................................................................................................3
Conceptual framework...........................................................................................................3
LITERATURE REVIEW................................................................................................................5
The concept of accounting policies........................................................................................5
The importance of disclosure profit and revenue of association...........................................6
The influence of inappropriate accounting policies on revenues and profits of TESCO PLC7
The different ways through which TESCO PLC can easily overcome impact of inappropriate
accounting policies.................................................................................................................8
DISCUSSION OF PRIMARY AND SECONDARY RESEARCH................................................9
RESULTS OF SECONDARY AND PRIMARY RESEARCH....................................................13
Results of primary research..................................................................................................13
Results of Secondary research..............................................................................................21
RECOMMENDATIONS AND ACTION PLAN..........................................................................23
CONCLUSION..............................................................................................................................27
REFERENCES..............................................................................................................................28

TITLE:
“To identify the impact of inappropriate accounting policies on disclosure of profits
and revenues of association.” A case on TESCO.
INTRODUCTION
Background of research
Corporate governance refers to the process, mechanism, relations under which
organisation can be controlled, managed. This is the framework through which management
within an organisation can perform business activities in effective and reliable manner. Under
corporate governance, there are some strategies through which transparency, fairness,
accountability, etc. are the maintained (Albu, Lupu and Sandu, 2014). This helps to provide
complete and relevant information to stakeholders. Corporate governance framework has
following aspects-
 Explicit and implicit contracts between organisation and stakeholders in order to
distribute roles, responsibilities and powers.
 Reconciliation in case of conflict of interest of stakeholders in compilation to their duties,
roles, etc.
 Procedure for supervision, manage flow of information, control, etc. within organisation.
With maintaining business operations according to these framework, it is easy to
maintain long term relations with stakeholders because true and fair representation of operations
and accounts provides satisfaction.
This research is based on TESCO is the organisation which is one of the leading
organisation in British this organisation has head quarter in Welwyn Garden City, Hertfordshire,
England, United Kingdom. In terms of revenue, this is the third largest organisation in world.
TESCO PLC deals in grocery, clothing, mobile, banking sector, etc.
Overview of organisation
TESCO PLC is the largest British retail store in UK. This organisation serves in different
parts of world such as Hungary, India, China, Europe, etc. These days there are some rules and
regulations which has to be followed by organisation. This helps to maintain safe and secure
environment and maintain loyalty with stakeholders (Aoyagi and Ganelli, 2014). Stakeholders
are the individuals or group of individuals or organisation who are concern about organisation's
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actions and activities. It is important and relevant to analyse consumer demand which helps to
make long term relations with workers. These days, there is requirement of performing business
operations in authentic form. There are many stakeholders of TESCO PLC such as consumers,
suppliers, debtors, bank, competitors, employees, shareholders, etc. Hence it is important to
communicate them plans and policies of organisation. In this research, there is discussion about
accounting policies of TESCO PLC and its impact on disclosure of profits.
Rationale of research
In this research, there is discussion about corporate governance policies. Corporate
governance policies sets some framework which are relevant in current market because it
provides complete information about working style of organisation, change in plans and policies,
etc. Reason behind conducting this research is to analyse impact on inappropriate accounting
policies on disclosure of profits. There are issues in disclosing half yearly profits of TESCO PLC
which affects ran image of TESCO PLC. Stakeholders wants to analyse actual performance of
TESCO PLC because they have interest in operations of organisation. Hence with the help of this
research, it is easy to understand reason of inappropriate counting policies and its impact on
disclosing of profits (ArAs and et. al., 2016).
With the help of this research, it is easy to provide ways through which correct measures
can be provided to TESCO PLC. This also helps reader to provide knowledge about importance
of accounting policies in decision making of stakeholders. With the help of this research, it is
easy to recommend changes which has to be made by manager while changing their accounting
policies.
Research Aim
“To identify the impact of inappropriate accounting policies on disclosure of profits
and revenues of association.” A case on TESCO.
Research objectives
 To understand the concept of accounting policies.
 To evaluate the importance of disclosure profit and revenue of association.
 To analyse the influence of inappropriate accounting policies on revenues and profits of
TESCO.
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 To recommend the different ways through which TESCO can easily overcome impact of
inappropriate accounting policies.
Research questions
 Do you understand the concept of accounting policies?
 What is the importance of disclosure profit and revenue of association?
 What is the influence of inappropriate accounting policies on revenues and profits of
TESCO?
 What are the different ways through which TESCO can easily overcome impact of
inappropriate accounting policies?
Conceptual framework
Conceptual framework is the way through which all the activities which are conducted
while conducting research is analysed. With the help of this framework, it is easy to understand
description which is taking place in various research activities. Research is process through
which in- depth analysis can be done on some specific topic. Hence research is conducted under
different chapters. Under conceptual framework it is easy to understand aspects which are
covered under various chapters of research.
 Introduction is prime chapter which covers overview of research, background of
company, research aims and objectives, etc. With this section, it is easy to understand
about topic of research topic and organisation. Hence it is easy to make blue print related
to research in mind of reader with this section.
 Second section is about literature review (Bain and Band, 2016). This is the concept
which talks about objectives discussed in introduction. In literature review, opinion is
authentic as per view of some specific author. This makes complete research authentic
and reliable.
 Section third is about discussion about primary and secondary. This is the concept which
helps to collect information from respondents to give complete and relevant information.
Research is conducted with different activities such as introduction, literature review,
data collect and analysis, etc. which jointly known as research methodology.
 Section four is about discussing results. With collecting data with the help of primary
and secondary method, then outcomes are discussed in this section. In this section,
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interpretation on the basis of primary data is discussed and gist is discussed of secondary
data collected discussed under literature review.
 Last section is about recommendations and action plan. After discussing research
outcomes, there are recommendations through which issues faced by organisation can be
overcome. Action plan is the way through which actions can be taken by managers of
organisation to overcome issues (Bell, 2014).
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LITERATURE REVIEW
Literature review is the section in which objectives of research are discussed with some
authentic source. This is part of secondary data because information is collected from books,
online sources, journals, etc. In this research, there is discussion about impact of inappropriate
accounting policies on disclosing profits and revenue. Hence in this literature review, there is
discussion about author's view over the research objectives.
The concept of accounting policies
Accounting policies refers to the specific principles and methods which are implemented
while managing financial statement of organisation. These are the measurement system,
procedures for preparing books and accounts of TESCO PLC. According to Breitbarth and et. al.,
2015 accounting policies is different from accounting principles. Accounting principles are legal
laws and revelations which has to be considered while framing accounts for specific
organisation. TESCO PLC are legally bind towards these principles. For instance: depreciation
method, recognition of goodwill, research and development cost, valuation of stock, etc. are
accounting policies. While accounting principles are going concern principle, matching concept,
revenue recognition, etc. For instance: there is specific method through which stock within
organisation can be valued. There are different methods for valuation of stock such as LIFO,
FIFO, Weighted average, etc. There is specific method which is used by TESCO PLC for
showing their balance of stock. In order to make consistency in books of accounts and provide
complete and relevant information to stakeholders, specific method is used to year after year.
There is difference in accounting policies as per difference in organisation. But there are
some assumptions which has to be followed by managers of TESCO PLC which helps to get
appropriate and relevant outcome. In order to understand fundamental accounting policies, these
assumption are considered-
 Going concern. As per this assumption, it is assumed that business will operate for longer
period of time in industry. Hence there is no assumptions related to closing down of
business after specific period of time.
 Consistency. As per this assumption, it is assumed that accounting policies which are
used by managers of TESCO PLC is consistent in next year as well. This helps to
disclose profits and revenue appropriate and significant.
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 Accural. Third assumption is that income or cost which are incurred whether received or
not, it must be recorded in period to which they are related. This helps to get actual
knowledge about expenses and incomes.
Hence accounting policies are different as per company. There is no specific policies with
which organisations are bind. There are some considerations which has to be followed by
TESCO PLC while farming financial statement. These are discussed as under-
 Prudence. In organisation, future is uncertain, hence there are many activities which are
estimated for future. As per this accounting concept, in case of losses and expenses when
they are estimates are recorded (even if hey are not paid). While in case of profits and
revenues, it must be recorded only when it is received. Hence it is clear that in accounting
policies, risk is secured when it is identified, while in case of profits they are recorded on
received basis.
 Substance over form. As per this principle, it is important to record financial data as per
governed principles (Chen and et. al., 2015).
 Materiality. As per this principle, it is identified that only material things has to be
considered by managers of TESCO PLC. These are the factors which affects decisions of
stakeholders.
The importance of disclosure profit and revenue of association
There are many parties which deals with TESCO PLC in direct or indirect manner such
as consumers, suppliers, management, employees, etc. These are the people who have interest in
organisation's operations hence organisation has to disclose their books of accounts in
appropriate manner. It is important for TESCO PLC to disclose their profits and revenues
because stakeholders analyse performance and financial condition of company in appropriate and
relevant manner. There are many people whoo wants to analyse financial performance of
TESCO PLC due to different reasons. For instance: for shareholders books of accounts provides
complete and relevant information whether to invest or withdrawal. Hence books of accounts
plays crucial role in affecting decision making of individuals.
Financial position such as revenue, debt equity ration, pay back period, etc. are important
for suppliers as they give credit to TESCO PLC. Hence financial books of accounts are important
for analysing whether to give debt or not. According to Ciampi, 2015 in order to provide
complete and relevant information to stakeholders disclosure of profits and revenues is
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important. Employees must be aware about gains and profits because personal objectives of
employees can be achieved with progress of TESCO PLC. So in case of good profits, there must
be sharing to employees. This helps to maintain long term relations with workers and they give
their best. Accounting policies are used, so books of accounts give correct and authentic
information to external and internal parties of TESCO PLC.
As per case of TESCO PLC, there is inappropriate accounting policies. Hence in this
case, this gives wrong information to stakeholders because revenues and profits are not disclosed
correctly. There is issue in profits of half year after composition of composition of board of
directors and inappropriate accounting policies. With the help of constant accounting policies, it
is easy to give complete and relevant information to stakeholders. With providing complete
information regarding financial process of company, it is easy to get donations, sponsorship, etc.
because with sponsors wants to invest with big brands having good financial position for the
purpose of marketing.
The influence of inappropriate accounting policies on revenues and profits of TESCO PLC
There is direct impact of accounting policies on profits and revenues of company. When
accounts department of TESCO PLC is changing accounting policies frequently, then there is
effect on profits and revenues. Due to change in policies, there are possibilities that profits can be
under value or overvalued. Books of accounts does not give true and fair information. For
instance: manager of TESCO PLC is using FIFO method for valuation of stock. But in
subsequent year, they are using LIFO. As per FIFO method, while realising stock, old stock is
sold out first. While in case of LIFO, stock with collected later is realised first. According to
Clarke, 2015 there is difference in cost of stock, hence this affects overall profits and revenues of
both the year. Due to this difference, it is tough for stakeholders to analyse actual outcome for
analysis.
With change in accounting policies, actual position may gets misguide. In case of
TESCO PLC, they are using inappropriate accounting policies which affects results shown by
books of accounts. This issue arise because of change in board of directors. As per change in
accounting policies, financial position of TESCO PLC mislead which affects decisions of
stakeholders. There is issue in books of accounts but inappropriate accounting policies are
accepted by audit committee and profits are signed by board of directors. When books of
accounts does not have appropriate accounting policies of change in accounting technique, then
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it is responsibility of managers of TESCO PLC to disclose reason of changing accounting policy.
It is important to communicate with stakeholders regarding impact of change in accounting
policies. Hence with considering inappropriate accounting policies, profits and revenues gets
may be over or under valued.
The different ways through which TESCO PLC can easily overcome impact of inappropriate
accounting policies
In case of TESCO PLC, there is negative impact on brand image because books of
accounts does not give true and fair information. There is requirement of some changes in
disclosing accounting policies. There must be working notes which gives information to
stakeholders regarding impact of inappropriate accounting techniques. There are some basic
norms of accounting which has to be followed in order to make balance in asset, liability,
expenses and revenues. There must be complete information in books of accounts elated to any
assumption.
According to Coffee and Palia, 2015 there must be hiring of expertise personnel in
accounts department of TESCO PLC. There must be time to time audit which shows the
relevance of books of accounts. Board of Directors must frame policies which are free from
biasness. In case of any suspect, in- depth analysis of books of accounts must be done. In order
to overcome issues related to inappropriate accounting policies, difference in actual results and
outcome must be shown in working working with their impact.
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DISCUSSION OF PRIMARY AND SECONDARY RESEARCH
Research is the way through which investigation is done by individual on some specific
research topic. There are different techniques which has to be considered in order to get
appropriate outcome as recommendations and conclusions. These aspects are covered in research
methodology. Research methodology is the framework which covers different aspects of
research such as philosophy, approach, time, cost, method, sources, etc. There are two sources of
collecting data i.e. primary and secondary method. These methods are discussed as under-
PRIMARY RESEARCH
Primary research refers to the method in which individual collect data on their own
through different sources such as personal interview, questionnaire, etc. In this method, there is
personal interaction among researcher and respondents in case of personal interview. Hence in
this method, actual data is collected which is effective for giving recommendations and
conclusions. Data collection with the help of primary research is new and specific according to
research topic. Under this method, it is easy to get answer of issues, questions related to research
topic. While collecting data related to inappropriate accounting policies, it is easy to analyse
reactions of respondents over this issue (Cook and Glass, 2015). There are different methods
which are collecting primary data from respondents which is discussed as under-
Interview- Interview is the process in which some questions are asked with respondents
related to research topic. In this method, focus of researcher is on list of questions and this is
usually with some specific individuals. Interview can be conducted through face to face or
telephone media. In interview researcher has to record opinion to give some specific view. It is
ability of researcher to engage respondents to give clear and appropriate results.
Focus Group- Focus group refers to the method in which number of individuals are
observed when they re discussing about research topic. This helps to get knowledge about view
of majority of people on specific topic. Moderator analyse views of individuals and motivate
everyone to take part in discussion. Sometimes, there are possibilities that views are irrelevant
which affects decision of researcher (Crowther and Seifi, 2018).
Questionnaire- Questionnaire is also form of primary source which helps to collect
information about research topic. There are some set of questions framed by researcher related to
research issue. It is important for researcher to collect questionnaire from respondents. This is the
best method to collect primary sources from respondents because this method helps to get
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authentic return in written form. In this research questionnaire is used to collect primary data.
There are 10 questions related to research topic. There are 30 employees and 20 consumers from
whom information about research topic is collected.
QUESTIONNAIRE
Name:
Age:
Gender:
Q1) Do you understand the concept of accounting policies?
a) Yes
b) No
Q2) Does accounting policies affects information of books of accounts?
a) Yes
b) No
Q3) What is the impact of inappropriate accounting policies on performance of TESCO
PLC?
a) Negative impact on brand image
b) Lower down the value of shares
c) Increment in expenses
Q4) What is the role of accounting policies for stakeholders of TESCO PLC?
a) Better decision making
b) Interpretation of financial information
c) True and fair information about financial performance
Q5) What are the reasons of inappropriate accounting policies at TESCO PLC?
a) Composition of board of directors
b) Lack of knowledge about accounting
c) Focus on short term objectives
Q6) What are the challenges faced by managers of TESCO PLC in abiding corporate
governance policies?
a) Disclosure of off-balance sheet transactions
b) Diversity
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