Tesco admits incredible error

In a further blow to Tesco's already battered reputation, four senior members of staff have been suspended and auditing firm Deloitte has been asked to investigate after the firm overstated its first-half profit guidance by an unbelievable £250 million.

Just as we suspected last month, Tesco was storing more problems for investors. And this is a whopper.

In August, the company confidently predicted that trading profit for the six months ended 23 August 2014 would be about £1.1 billion. Not now, thanks to a massive accounting error blamed on timing differences and "the accelerated recognition of commercial income and delayed accrual of costs."

As the supermarket's share price plunged to 202.5p - its lowest in over 11-years - long-suffering shareholders must be wondering what next? Tesco has already shocked the market with a pair of profit warnings this summer and slashed the dividend, but financial foul-ups like this raise serious questions about the inner working of Tesco, which only further undermine investor confidence.

New chief executive Dave Lewis, recently parachuted in a month early to fix the fallen food retailer, must be wondering what he’s got himself into.

"We have uncovered a serious issue and have responded accordingly," he said Monday. "The board, my colleagues, our customers and I expect Tesco to operate with integrity and transparency and we will take decisive action as the results of the investigation become clear."

While contrarians may see this as a perfect entry point for a long-term investment, this is one step too far for Marc Kimsey, a senior trader at Accendo Markets.

"Tesco is no longer a viable investment," he said. "Traders are clearing the books of all holdings and reallocating funds in sector peers. The last two years have tested investors' patience but with the dividend being cut back and today's revelation, justification to hold is non-existent."

With Deloitte's number crunchers on the case, Tesco has put back publication of its half-year results by three weeks to 23 October.

This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.