Tesco
Trolleys are stacked outside a Tesco store in Hammersmith, west LondonReuters

Shares in Tesco plunged 11% on market open after the group revealed that an accounting error resulted in the retailer overstating its profits by hundreds of millions of pounds.

The Tesco stock price fell sharply before slightly recovering to 209.00p around half an hour after market open.

The company said in a trading update that the guidance issued on 29 August for the group profits for the six months to 23 August 2014 was overstated by an estimated £250m ($407m, €317m). Some of this impact includes in-year timing differences, the company noted.

On 29 August, Tesco said it expected first-half profit of £1.1bn.

It added that the error was primarily "due to the accelerated recognition of commercial income and delayed accrual of costs."

"Work is ongoing to establish the extent of these issues and what impact they will have on the full year," Tesco added.

The company asked its accountants Deloitte to "undertake an independent and comprehensive review of these issues", and is working closely with its external legal advisers, Freshfields.

"We have uncovered a serious issue and have responded accordingly. The chairman and I have acted quickly to establish a comprehensive independent investigation," said CEO Dave Lewis.

"The Board, my colleagues, our customers and I expect Tesco to operate with integrity and transparency and we will take decisive action as the results of the investigation become clear."

The company noted that it will now release its interim results on 23 October, rather than 1 October, and will provide a further update on the issue at the release.