Question

in accordance with the definition of a liability, as set out in the International Accounting Standards Board’s (IASB) Conceptual Framework, when does TESCO first have a liability for compensation to aggrieved shareholders that were misled by TESCO when basing their investment decisions on TESCO’s misstated financial information (ie compensation to investors who purchased TESCO shares and bonds on or after the 29/08/2014 and who still held those securities when the statement was corrected on 22/09/2014)?

1. (a) on 29/08/2014 when TESCO published the misleading financial information;

2. (b) on 22/09/2014 when TESCO published corrections of the misleading financial

   information;

3. (c) 22/12/2014 when the UK FRC announces its investigation in relation to the

   preparation, approval and audit of Tesco’s financial statements for the financial years ended 02/2012, 02/2013 and 02/2014 and their conduct in relation to the matters reported in its interim results for the 26 weeks ended 23/08/2014;

4. (d) on 31/10/2016 when institutional funds filed a claim for damages against Tesco over alleged breaches of the Financial Services & Markets Act in relation to over- statement of earnings; or

5. (e) On 28/03/2017 when the UK Financial Conduct Authority (FCA) announces that Tesco agrees that they committed market abuse by giving a false or misleading impression about the value of publicly traded Tesco shares and bonds and that Tesco has agreed to pay compensation to investors who purchased Tesco shares and bonds on or after the 29/08/2014 and who still held those securities when the statement was corrected on 22/09/2014.

Answer 1

The latest definition of a liability, as set out in the International Accounting Standards Board’s (IASB) Conceptual Framework , emphasises the following points:

1.the obligation /duty to transfer resource of economic value,to the third party , has come into existence at present

2.that had arisen due to some past events

3.the obligation is unavoidable , due to past practices /procedures, or future commitment given by the company liable.

So,

the answer fitting with all the above is e., ie.

e) On 28/03/2017 when the UK Financial Conduct Authority (FCA) announces that Tesco agrees that they committed market abuse by giving a false or misleading impression about the value of publicly traded Tesco shares and bonds and that Tesco has agreed to pay compensation to investors who purchased Tesco shares and bonds on or after the 29/08/2014 and who still held those securities when the statement was corrected on 22/09/2014.

Comparing with the definition,

1.the obligation /duty to transfer resource of economic value,to the third party , has come into existence at present, ie. ---On 28/03/2017 when the UK Financial Conduct Authority (FCA) announces that Tesco agrees that they committed market abuse by giving a false or misleading impression about the value of publicly traded Tesco shares and bonds

2.that had arisen due to some past events---by giving a false or misleading impression about the value of publicly traded Tesco shares and bonds , in those intervening years

3.the obligation is unavoidable , due to past practices /procedures, or future commitment given by the company liable---Tesco has agreed to pay compensation to investors who purchased Tesco shares and bonds -- the point is it has committed to redress in future, the consequences of its past (mis)doings---now it has no practical ability /means to avoid that liability & obligated to honour.

So,

TESCO first have a liability for compensation to aggrieved shareholders

as in e.on 28/03/2017--when they publicly agreed to the abuse of the financial statements and also accepted responsibility to address the grievance & came out with a concrete plan agreeing over the period , when the abuse/misuse took place.