Tesco to face criminal investigation from Serious Fraud Office - UPDATE

The Serious Fraud Office has confirmed that it has begun a criminal investigation into Tesco's accounting practices, leading the Financial Conduct Authority to call off its own probe.

The SFO is looking into how the FTSE 100 supermarket group came to overstate its profits by £263m.

The independent government department, whose director David Green QC exercises powers under the superintendence of the attorney general, said on Wednesday afternoon that its investigation was already underway.

The City regulator said that following consultation with the SFO it had decided to discontinue its own investigation with immediate effect.

Tesco first warned the market of a £250m black hole in its accounts in September, after a whistleblower in the accounting department alerted new chief executive Dave Lewis to a huge overstatement of profits.

It was anticipated that the SFO would also want to look at the matter.

Tesco's accountants Deloitte and law firm Freshfields Bruckhaus Deringer recently completed an internal inquiry, reviewing around 18,000 invoices across the group and analysing 500 in detail, though the company said it was unable to provide any further detail when it reported results last week.

This internal investigation indicated that the problems predated the most recent accounting period with around £118m of the profit overstatement from this financial year, £70m relating to the 2013/14 period and £75m to “pre-2013/14”.

Deloitte and Freshfields found no evidence of the issue spreading overseas.

Due to the ongoing investigations, Tesco has suspended eight executives and said former chief executive Philip Clarke and finance director Laurie McIlwee will have pay withheld until the FCA's investigation is complete.

There was concern that the practices that led to Tesco's accounting woes could be prevalent across the industry after accountants at Moore Stephens said its research had found that the top ten supermarkets owe suppliers approximately £15bn in supplier debt at any one time.

Tesco's rivals Sainsbury's, Waitrose, Asda and Morrisons all responded that they were confident in the accuracy of their accounting.