UK – There are many fantasists. This is fine. We all need to boost our ego’s from time to time. In the world of business the truth is a flexible concept, a commodity. For the most part the ability to make Sales depend on this. Salesmen and Women need to believe in what they are selling.
There is also a saying that you can lie all that you like. But you must not start believe those lies. There is one department in all businesses that this saying is the golden rule. The company accounts department and in particular the balance sheet.
The law requires companies to file accounts – called “statutory accounts” – annually. The law dictates how these accounts are formatted and built. The Balance sheet is a snapshot of the financial health of the that company at that moment.
This is for a number of reasons. There is the matter of corporation Tax. The directors also need a honest accounting of the position of the company. If they do not have a True and accurate picture how can the discharge their legal duties as directors?
In fact a well run company will at least do the accounts on a monthly or even weekly basis in these days of computerised accounts. It is in this way that a company can tell if and when a company is in financial trouble.
The sooner the company is aware of a problem, the sooner that they can make the adjustments required to do something about that problem.
Others reasons for publishing the accounts include for the protection of the shareholders and potential investors. The assessment of the credit risks when making decisions whether or not becoming a supplier of goods to, or the provision of banking services to that company.
Now it appears that the countries largest retailer Tesco has been indulging in some curious practices when it preparing their statutory accounts.
The news that they had overstated their profits by as much as £ 250 Million. Shares in Tesco fell by as much as 12.5% wiping some £2 billion of the market value of the company. Tesco shares have lost nearly 40 per cent over the past 12 months.
For some time the city has questioned how Tesco was supporting 5.2% UK trading margins with falling sales and rising costs. When other supermarkets — with the notable exception of Aldi or Lidl — have been reporting falling profits and declining market share.
The answer has to be that they have been indulging in some dubious accounting practices. For instance delaying the payment of goods for as long as possible. One suspects delaying the payment for one order until the next order for goods with long periods between re stocking.
This is an example of what happens when there is a limited number of outlets for goods. The Consumers start to dictate the terms of payment and the price.
This is the very situation that the Competition and Markets Authority is supposed to prevent happening. But with a Conservative government in power we have no chance of there will be any action against Tesco or the the other three major supermarkets.