WH Smith’s US adventure is now stuck in an accounting hole

Investors in WH Smith will want a comprehensive account of how financial controls could have failed so badly. Photograph: Jill Mead/The Guardian

This is how, in retail-land, to shatter your credibility with investors in one short statement: confess to a significant overstatement of profits related to the recognition of payments from suppliers.

This stuff is both sensitive – witness the upheaval after an episode at Tesco a decade ago – and basic. While it is normal for retailers to receive payments from suppliers related to the volume of goods sold, or promotional activity, accounting rules are strict. The sums must be booked as they are earned. In a multi-year agreement, payments cannot all be taken upfront.