Tesco Accounting Scandal 2014 and Rational Choice: Law Essay

Tesco Accounting Scandal 2014 and Rational Choice
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Tesco Accounting Scandal 2014 and Rational Choice
The accounting scandal occurred due to Tesco overstating its profit for 2014 using overly aggressive accounting practices. However, it came out as a corporate fraud leaving Tesco liable to heavy financial penalties (Rosnizam et al., 2020). The ‘rational choice’ theory seems valid in this context as the theory deals with individual choices underpinned by the pursuit of maximizing self-interest (Eriksson, 2011). The case is an example of how an organization may jeopardize its reputation by giving precedence to shareholders’ gains over corporate integrity. Therefore, the chosen theory is perfectly aligned with the case in question.
Tesco, the British multinational grocery, is the world’s second-largest merchandise retailer. The multinational company faced an economic crisis in 2013. Richard Broadbent, the chairman with other chief directors of the company, began to realize that their earnings are less than anticipation. Consequently, they began to overstate their earnings instead of finding out other solutions. The continued lying about their profits for around two consecutive years. However, the corporate fraud came to an end in 2014, when the Financial Conduct Authority of Britain detected it and made it public. Broadbent had to terminate his chairmanship as an immediate result, and David Lewis, as a new chairperson, started to investigate the company's accounting scandal. The event unfolded in public through media that Tesco overstated their profit by a considerable margin. Financial Conduct Authority discovered that Tesco overstated “its first-half profits by £263 million” (Anderson, 2014). FCA dropped the criminal investigation and handed over the case to Serious Fraud Office, UK. Current investigations show that 125 official stockholders have filed a class action litigation against the company to lie about profits to the stock market and financially harm them (Bin Rosnizam et al., 2020). Recently, Tesco’s abuse of position as a “white-collar-crime” has reached its final stage or resolution.
Tesco accounting fraud motivations and outcomes connect it to rational choice theory. The rational choice theory applies to a range of disciplines involving economics. According to this theory, individuals focus on their self-interests to make choices like calculation for anticipated advantage. People consider possibilities and choose based on the best and most beneficial for them (Eriksson, 201). Likewise, Broadbent’s decision to lie to the stock market about profits is based on his self-interest for the company's false reputation in the discipline of economics. Tesco considered the option of overstating profit and executed it with a focus on its significant beneficial aspect for the company (Bin Rosnizam et al., 2020). The rational choice theory implies the individual’s rational calculations for rational choices to benefit their personal goals.
Similarly, the outcomes are also aligned with the individual’s self-centred benefits. Ratio...