Tesco Warned By PwC

The Telegraph reports that PwC, Tesco’s auditor, warned in the company’s annual report in May that it was concerned about how income from commercial deals with suppliers was recognised. It listed the issue as its primary area of focus “because of the judgement required in accounting for the commercial income deals and the risk of manipulation of these balances”.

In response, Ken Hanna, chairman of Tesco’s audit committee, wrote:

“The committee notes that commercial income was an area of focus for the external auditors based on their assessment of gross risks. It is the committee’s view that while commercial income is a significant income for the group and involves an element of judgement, management operates an appropriate control environment which minimises risks in this area. As a result, the committee does not consider that this is a significant issue for disclosure in its report.”

Given that the auditors warned about this in May, does this mean that the previous year's profits were overstated?

Fear

The ongoing, self inflicted credit crunch, is producing an atmosphere of fear in the City. Banks and financial institutions are seeing their share prices drop, as investors fret over which one will be next to announce profit write downs and liquidity problems arising from the credit crunch.

Barclays has decided to try to grab the bull by the horns by asking its auditor, PricewaterhouseCoopers (PwC), to help with a breakdown of Barclays' financial performance for a trading statement due on November 27.

On Friday Barclays shares were briefly suspended, as a result of rumours concerning a possible writedown of £5BN.

Barclays quickly denied the rumours, and John Varley (CEO) issued an internal memo to staff assuring them that the business was sound.

Varley, in his memo to staff, said:

"If there were any substance in the rumours that I have been hearing in recent days, we would not have been required to have made a stock market announcement. But we have not."

What we are now seeing is irrational and unsubstantiated fear undermining the stability of sound financial institutions. This needs to be stopped here and now.

As Roosevelt once warned:

"We have nothing to fear, but fear itself."

The financial services industry and the regulatory authorities need to get a grip on this, otherwise what people fear will take tangible form and the financial markets will totally freeze up.

Annual Credit Card Fees To Return

A recent study by PricewaterhouseCoopers (PWC) says that annual fees for having a credit card could be making an unwelcome return.

The fees were dropped in the 1990s. However, seemingly the credit card companies and banks are simply not making enough money out of their customers; and want to make even more, by charging people for the privilege of owning a credit card.

This is somewhat ironic, given that retailers are charged a percentage for every credit card transaction they make. In effect the consumer is being hit by a double "whammy".

The excuse that our much "respected" banks and credit card companies are making for this extra fee is that new consumer protection measures are costing them money.

The Office of Fair Trading's (OFT) cap on credit card default charges, and its payment-protection insurance probe, has hit card providers' incomes.

PWC say that we can expect annual fees of around £35 per card.

An OFT spokesman is quoted as saying:

"If we find any evidence of collusion (over the re-introduction of annual fees) that will be very serious indeed.

We are likely to see a 'waterbed effect', whereby charges pushed down in one area pop up somewhere else."

Moneyfacts claim that card providers are already getting ready to impose fees.

Michelle Slate, Moneyfacts senior researcher, said:

"Last week Co-op imposed an annual charge and some premium credit cards - with added benefits such as travel insurance - already charge hefty fees.

All it will take is for one of the big providers Barclaycard, MBNA or Capital One to introduce a fee and the rest will follow."

The OFT are working under the misguided belief that if banks tried to recoup their losses, through the re-introduction of annual card fees, consumers would "vote with their feet" and cut up their cards.

That's fine if you don't have any debt. However, a very large number of Britons have credit card debts and cannot end their agreement with the companies until that is paid off.

In effect they are a captive market, ripe for the "plucking".

The OFT seems to be a tad naive in its view of how the market works.

It is hardly surprising that people have little respect for the financial services industry or its regulators.