Troubled US consumer goods giant, Kraft Heinz Co is facing a widened probe by regulators after having been forced to restate financial reports for the past two and three quarter years to eliminate accounting errors totalling just over$US208 million.
The new probe will examine how Kraft Heinz arrived at the $US15.4 billion write down in January of its key brands, Kraft and Oscar Myer.
Potentially this new investigation could cost the company a lot more money than the just completed probe, the results of which Kraft Heinz released on Monday.
This new probe could explain why Kraft Heinz was unable to issue its March quarter results last week and why its biggest shareholder (with a 26.7% stake) Warren Buffett’s Berkshire Hathaway was forced to issue its quarterly figures on Saturday without any contribution from Kraft Heinz.
Buffett explained that the delay was caused by an unknown disagreement between the company and auditors Price Waterhouse.
The additional probe by the key US regulator the Securities and Exchange Commission (SEC), raises the prospect that the $US15.4 billion write down in January may not have been enough.
Perhaps it is this investigation and the suggestion that Kraft Heinz’s asset values might not be accurate, has led to the stand off between the company and its auditor.
Kraft Heinz said in Monday’s filing that it received an additional subpoena from the SEC on March 1, related to the assessment of goodwill and intangible asset impairments and a request for documents associated with the procurement business.
The company had disclosed in February when it revealed the huge write down that it had been subpoenaed by the SEC related to an investigation into its accounting policies, procedures and internal controls related to its procurement.
Following this the company, together with its external counsel and forensic accountants, initiated an investigation into the procurement practices, the results of which were announced on Monday.
Certainly the results of the restatement revealed yesterday by the company were minor compared to the argument over balance sheet asset values and that huge write down of more than $US15 billion.
The errors discovered in the probe resulted from lapses in procurement practices by some of its employees, tKraft Heinz said in an SEC filing released on Monday.
Kraft Heinz said the misstatements in its reports for the years 2016, 2017 and the first nine months of 2018 mainly relate to the timing and recognition of supplier contracts in the procurement area.
The investigation and review required Kraft Heinz to put aside another $US208 million in losses. That is on top of the $US15.4 billion write-down of its Kraft and Oscar Mayer brands. Monday’s filing revealed that the misstatements would increase the amount by only about $US13 million.
Due to these findings, the company said it would not be able to timely to file its quarterly report for the period ended March 30. The shares fell 1%, then rose in late trading to end up 0.6% at $US32.77. That left the shares down nearly 24% so far in 2019. The S&P 500 is up 17%.
