Saturday, October 25, 2014

Tesco and the Indian government

Tesco, Britain's largest supermarket chain, is caught up in an accounting scandal. Its profit has been overstated by around $420 million by an age-old trick of advanced booking of income and delayed recognition of expenditure. The company's CEO, Philip Clarke and Chairman, Sir Richard Broadbent have been forced to quit. Company's share has shed nearly 50% of its market value so far this year.

Credit rating agencies have warned of a probable downward movement in rating of the company's securities. The normally infallible investor, Warren Buffett has regretted Berkshire Hathaway's investment in Tesco.

Indian government had adopted this accounting trick during 2013-14 in order to 'contain' fiscal deficit. Cash system of accounting facilitated this manipulation. It remains to be seen whether the new government will persist with this pernicious practice.

Richard Broadbent will be remembered for a long time for his infamous and injudicious response when he was asked how he was not aware of what was going on in his company: "Things are always unnoticed until they are noticed". How come Manmohan Singh never said this?


Anonymous said...

That maybe a Rumsfeld's quote??

K.R.Srivarahan said...

Though this may remind one of Rumsfeld's (profound?) observation on unknown unknowns, this is perhaps too obvious and mundane to be associated with Donald Rumsfeld.