The relationship between grocers and their suppliers will go under the microscope next year, as regulators attempt to stamp out the sort of behaviour that led to Tesco overstating its profits by £263m.
The Financial Reporting Council, which monitors auditing and accountancy in the UK, said it would spend next year paying particular attention to “businesses where complex supplier arrangements are prevalent, predominantly food, drinks and consumer goods manufacturers and retailers”.
It is hoping to address “recurring issues” by carrying out thorough reviews of arrangements and where necessary dev eloping action plans to address “weaknesses” or putting in additional work “to remedy significant deficiencies”.
The FRC said this work would be carried out because it was crucial for investors to be given accurate financial reports.
Tesco, which is still under investigation by the Serious Fraud Office and the Groceries Code Adjudicator for its profits black hole, is also facing a lawsuit brought by shareholders who claim the supermarket “committed serious violations” by overstating its profits. The group has hired high profile QC Philip Marshall to fight their case.
The supermarket admitted last year it had a profits black hole of £263m "principally due to the accelerates recognition of commercial income and delayed accrual of costs".
Tesco's share price dropped over the months in which the company dealt with the fallout, but the supermarket has shown recovery on the back of Dave Lewis' reforms.
Executive director for conduct Paul George said: “Audit is an integral part of the reporting process that ensures investors have confidence in the information they receive on the performance of the companies they invest in.
“We were pleased that firms responded positively to the new extended auditor reporting requirements. We hope to see further improvements in the clarity of reporting by auditors of how they have addressed the assessed risks.”
Next year the FRC plans to inspect around 140 audits, a step up in activity as the body implements the Competition and Markets Authority’s recommendation that all FTSE 350 audits should be inspected every five years.