The UK’s accounting watchdog has written to Sainsbury’s after the big four grocer failed to disclose income from suppliers in its recent annual report.
Following Tesco’s accounting scandal last year, where a £263m hole was discovered in the supermarket’s accounts, the Financial Reporting Council (FRC) warned that all retailers must provide investors with sufficient information on their accounting policies. Around one third of the companies whose accounts are reviewed by the watchdog are contacted with questions. An exploratory letter, such as the one sent to Sainsbury’s, is the first step in the FRC’s review process.
This news comes after a period of calm for Britain’s third largest supermarket. Its like-for-like sales rose during this year’s second quarter, and analysts were in agreement that the long term prospects for the retailer are bright.
“We are aware of updated FRC guidance and have updated our own policies accordingly,” said a Sainsbury’s spokesman.
The issue with Tesco’s accounts came as a result of supplier income being recorded too early and costs too late. The FRC now focuses on retailer’s supplier agreements when reviewing audits, which it will do with Sainsbury’s.
Some supermarket sources have suggested that Sainsbury’s full supplier income could reveal a heavy reliance on promotions to sell stock. This would mean that it would have charged suppliers a hefty loyalty bonus with the potential to contribute several billion pounds to the company’s total profits.
Sainsbury’s has said that supplier income information is "commercially sensitive", and "not significant in the context of the balance sheet."
“We have always been comfortable with our accounting of supplier income and remain so. We have responded to the FRC to this effect,” added the spokesperson.