Kraft Heinz admits $181m in accounting ‘misstatements’
US food giant Kraft Heinz has revealed it will have to restate almost three years’ worth of accounts after an internal review found ‘certain misstatements’ meaning an estimated $181m (£138m) will have to be restated
7 May 2019
The company's filing to the Securities and Exchange Commission (SEC) also admits the company has identified ‘several employees in the procurement area engaged in misconduct’.
Kraft Heinz said it will restate its accounts for the years ended 30 December 2017 and 31 December 2016 and each of its quarterly and year-to-date periods in fiscal year 2017 and the quarterly and year-to-date periods for the nine months ended 29 September 2018.
It reported that at the start of this month, the company and its audit committee agreed these figures could not be relied upon’ because of certain misstatements contained in those financial statements’.
The company said it did not believe that such misstatements constitute a quantitatively material misstatement to any individual period presented in the company’s prior annual or interim financial statements, ‘but due to the qualitative nature of the matters identified in the investigation, including the number of years over which the misconduct occurred and the number of transactions, suppliers, and procurement employees involved, the company has determined that it is appropriate to correct the misstatements in the company’s previously issued financial statements through restating such financial statements.’
Kraft Heinz said it had discussed the changes with its auditor, PwC.
These misstatements principally related to the incorrect timing of when certain cost and rebate elements associated with what the food and drinks company called ‘complex supplier contracts’. A further review found additional misstatements, primarily related to certain supplier contracts and arrangements where the allocation of value of all or a portion of rebates and up-front payments to contractual elements in the current period should have been deferred and recognised over an applicable contractual period.
The investigation and review identified required adjustments of approximately $208m (£159m), of which approximately $27m was recorded in the previously furnished fourth quarter 2018 cost of products sold. As a result, the cumulative net misstatements to the annual and interim financial statements were approximately $181m.
Additionally, the company identified errors in the allocation of forecasted cash flows to certain brands used as a basis for the interim goodwill and intangible asset impairment testing as of December 2018. Correcting this allocation error resulted in an increase to the impairment loss initially calculated for intangible assets of approximately $278m, partially offset by a reduction to the impairment loss initially calculated for the goodwill reporting units of approximately $173m.
Combined with the correction of supplier rebate misstatements, this resulted in a further reduction to the goodwill impairment loss of approximately $92m. The net impact of these misstatements was an increase of approximately $13m from the previously disclosed $15.4bn impairment loss in the fourth quarter of 2018.
It also reported on the findings of an earlier internal investigation involving forensic accountants which it said ‘identified that several employees in the procurement area engaged in misconduct,’, none of whom were members of the senior management team.
By Pat Sweet