In August 2025, WH Smith – a household name and a company with a heritage exceeding 200 years, hit headlines for all the wrong reasons. £600 million was erased from its’ market value in a single day after disclosing a £30 million accounting mistake at its North American Division.
The cause? Supplier rebates and incentives logged too quickly.
This was more than just a technical error. In addition to inflated profits, the mishap caused a 42% decline in share price! This led to investors doubting governance procedures, and triggered comparisons with Tesco’s 2015 rebate scandal.
What Went Wrong?
Suppliers had been giving WH Smith rebates in exchange for hitting sales targets and providing advertising space. Nevertheless, those rebates, were mistakenly recorded in the fiscal year 2025 when, in fact, they belonged to the subsequent fiscal year.
In accounting terms, this was a breach of IRFS 15, (Revenue from Contracts with Customers) which requires rebates and incentives to be recognised when it is “highly probable” they won’t need to be reversed. It also emphasises the difficulties highlighted by ISA 240, when auditors determine that revenue recognition poses a significant risk for material misstatement and fraud.
The result was stark. Profits in North America plummeted from an expected £55 million down to just to £25 million. The group’s pre-tax profits took a hit of almost £30 million! More importantly, investor confidence has taken a serious hit that may take years to repair.
Why This Matters Beyond WH Smith
Rebate misalignment is something that a lot of businesses struggle with. With rebates marking the line between losses and profitability, misreports and fallouts can have devastating consequences:
- Revenue leakage when rebates aren’t tracked or applied correctly.
- Distorted financial reporting when rebates are recognised too soon or too late.
- Investor distrust when transparency in rebate accruals and visibility is lacking.
The WH Smith case has highlighted that relying on spreadsheets and manual processes to manage supplier incentives is no longer viable. Errors as small as formula mistakes, misplaced journal entries, or overly optimistic assumptions can lead to huge financial consequences (millions lost). Not to mention irreparable damage to reputations with market value at stake.
Learning from WH Smith
This WH Smith incident serves as a warning for manufacturers and retailers across industries that handling rebates is essential to preserving long-term viability and maintaining financial integrity.
Businesses must ask themselves:
- Do our rebate agreements have real-time tracking and transparency?
- Dre our systems guarantee accurate and compliant revenue recognition?
- Are we safeguarding against errors that can damage our reputation with partners, investors, or clients?
Final Thoughts
In today’s market, rebates go beyond being a commercial tactic. They’ve become a fundamental governance priority. WH Smith’s £30 million mistake shows how fragile investor confidence can be if rebate accounting isn’t handles properly.
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