RegulationCorporate GovernanceLeader: Tesco’s woes sees ‘materiality’ question raised

Leader: Tesco's woes sees 'materiality' question raised

Even if 'materiality' proves not to be a key aspect of the Tesco debacle, it won't stop navel-gazing among the audit profession

Leader: Tesco’s woes sees ‘materiality’ question raised

SOME 36 HOURS after Tesco’s trading update, and the key fact provided in those words to the stock exchange – that its profit overstatements stretch back at least two years, has left us with more to ponder.

Some issues remain the same. How has the governance and culture at Tesco allowed such an occurrence of what is, at the very least, aggressive accounting to take place, still needs to be resolved. The role of auditors PwC in this debacle requires clarification. We await the facts to be ascertained of the acts of the eight suspended Tesco executives.

But what also needs to be broached is the ‘materiality’ question. While the various restatements, in isolation, are unlikely to be classed as a ‘material’ matter that requires flagging up by an auditor, we have reached a point where the black hole is front page news – and seems to encapsulate Tesco’s various woes.

We don’t know, of course, whether PwC were even aware of the accounting practices that seem to have allegedly been employed by a few staff. If not, then materiality is immaterial as far as trying to stop the Tesco debacle happening again.

But, putting that to one side, materiality as a discussion point is apt. A numerical cut-off point for materiality seems a strange concept if disassociated with the risks a business has taken – we need assurance that the financial materiality threshold works in tandem with broader risk-gauging.

Whether the materiality issue does apply to Tesco is unknown. But it is likely to continue to be talked about, with more navel-gazing ahead for the profession.

Related Articles

One in 20 audit firms quit as market evolves

Audit One in 20 audit firms quit as market evolves

1y Kevin Reed, Writer
PwC and Deloitte chiefs sign Remain letter

Business Regulation PwC and Deloitte chiefs sign Remain letter

1y Kevin Reed, Writer
Leader: Audit competition drives change, not necessarily quality

Accounting Firms Leader: Audit competition drives change, not necessarily quality

1y Kevin Reed, Writer
Friday Afternoon Live: Big Four push into SME space, more Heelgate and our new quiz!

Corporate Governance Friday Afternoon Live: Big Four push into SME space, more Heelgate and our new quiz!

1y Accountancy Age, Reporters
Deloitte ditched as Balfour Beatty and SEGRO pick new auditors

Accounting Firms Deloitte ditched as Balfour Beatty and SEGRO pick new auditors

2y Kevin Reed, Writer
EU audit reform to open up £10bn market for firms

Accounting Firms EU audit reform to open up £10bn market for firms

1y Richard Crump, Writer
PwC questioned over BHS ‘going concern’ audit

Accounting Firms PwC questioned over BHS ‘going concern’ audit

1y Chris Warmoll, Writer
MPs hear from trio of Big Four firms over BHS advice

Accounting Firms MPs hear from trio of Big Four firms over BHS advice

1y Chris Warmoll, Writer