Tesco chairman Sir Richard Broadbent is to quit as an inquiry into its accounting practices reveals a £263m profit overstatement, resulting in a 92% fall in first-half profits.
The supermarket chain said an internal investigation by Deloitte into its procedures had found historic failures in its UK food business going back a number of years.
It had suggested in September that the error was a one-off but said today the overstatement figure reflected previous reporting periods too.
Its share price fell 7% when the FTSE 100 opened for business in the wake of the statement but later eased back.
A wider sell-off of supermarket stock saw £1bn wiped off the value of Tesco, Sainsbury's and Morrisons combined.
Eight senior executives had been suspended pending the outcome of the inquiry, which examined how Tesco logged suppliers' rebates and if they were reported in the correct accounting period.
Tesco said there was no evidence anyone at Tesco had sought to gain personally but the findings raise questions about the leadership of former chief executive Philip Clarke, who stepped down in the summer before the accounting issues were made public.
Tesco said his pay-off - and that of former finance chief Laurie McIlwee - was being delayed until such time as inquiries were complete.
Sir Richard said his decision to stand down reflected "the important principle of accountability."
The business, which has been battling hard discounters and strong competition from other major chains, made the announcements as it confirmed the effect on its current half-year results.
Pre-tax profits fell 92% to £112m while UK trading profit was down 55.9% to £499m.
UK like-for-like sales were 4.6% lower - slightly better than expected.
Chief executive Dave Lewis said: "We know that we have got a lot of work to do.
"We know what it is we need to do to turn the business around".
Tesco's market value - which has lost £17.6bn in the last five years - has plunged more than 50% in the past 12 months alone as a consequence of its UK dominance being eaten away by rivals.
It had previously admitted taking its eye off the ball while hunting growth overseas though its big investment in America fell flat.
The results statement said: "We have three immediate priorities. The first is restoring competitiveness in our core UK business.
The second is protecting and strengthening our balance sheet. The third is to begin the long journey of rebuilding trust and transparency in the business and the brand."
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