Tesco will avoid prosecution for overstating profits in 2014, but will have to pay a fine of £129m.
Following a two-year investigation, the retailer was able to reach a deferred prosecution agreement (DPA) with the Serious Fraud Office (SFO).
The SFO said the agreement came after Tesco had demonstrated a great deal of co-operation, and had been through “extensive” changes.
Tesco have also reached an agreement with the Financial Conduct Authority (FCA) over compensation for investors, a figure which is believed to be £85m.
In order to be eligible to receive compensation, investors are classed as anyone who bought bonds or shares between 29 August and 19 September of that year.
The order is the first of its kind for the FCA, who has not issued its own penalties, and Tesco accept the investigatory findings of “market abuse”.
The investigation found that between February and September 2014, Tesco had given an account of its performance that did not match the reality, which ultimately led to a trading statement on 29 August 2014 that greatly inflated the company’s profits.
One month later Tesco released another statement estimating it had overstated profits by about £250m, although this figure was subsequently revised up to £326m.
Tesco’s current chief executive, Dave Lewis, said: “Over the last two-and-a-half years, we have fully co-operated with this investigation into historic accounting practices, while at the same time fundamentally transforming our business.
“We sincerely regret the issues which occurred in 2014 and we are committed to doing everything we can to continue to restore trust in our business and brand.”
Tesco expects to take an exceptional charge of £235m to cover the penalty, compensation scheme and related costs.
Laith Khalaf, senior analyst, at Hargreaves Lansdown stockbrokers, said the accounting error uncovered was “exceptionally rare” in the UK stock market.
“This is a big slap on the wrist for Tesco, reflecting the seriousness of the offence and its impact on the share price in 2014,” he said.
“Dave Lewis underwent a baptism of fire when he took over as CEO in 2014, just as the accounting scandal struck. He and the supermarket will now be hoping to draw a line under the matter, and concentrate on nurturing Tesco’s nascent recovery.”