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Financial investigation results in share price rising

Service Area: Completion accounts disputes and expert determinations

Member: Roger Isaacs

Shares in Kraft Heinz rose after the food giant announced it had completed an accounting investigation and changed its financial practices accordingly. The business finally filed its results to the Securities and Exchange Commission (SEC) having concluded its internal investigation into accounting irregularities in its procurement division. The filing, completed more than three months late, sent shares up more than four per cent in pre-market trading.

In February, the business reported weaker-than-expected Q4 results and disclosed a continuing investigation by the SEC, a $15.4 billion asset write-down related to its Kraft and Oscar Mayer brands, and a dividend cut. It appears that there had been a number of accounting problems at the company going back as far as 2016.

In its annual report, Kraft said it undervalued the cost of products sold by $208 million, including $175 million in misstatements. However, the company argued that the errors were not “quantitatively material” but warranted a correction. Last month, Kraft said it would restate financial reports for the past three years due to the discrepancies, which the firm attributed to multiple employees. An internal review into who was responsible for the misstatements continues.

However, now that the return has been filed, the uncertainty that sent shares in the business down by almost 38 per cent this year appears to be over, although there is still a lot of work to do to restore investors’ confidence.

A forensic accounting investigation can restore faith in a business because it illustrates that the leadership team is happy to investigate where there might be problems and be open to change. In this case, irregularities were found but the way the business works will change as a result of the lessons learned.

Roger Isaacs, Forensic Partner at Milsted Langdon, said: “The result of the financial investigation shows the importance of forensic accounting. Kraft Heinz has restored confidence in their business, resulting in their share price increasing following the drop in February.

Author: Roger Isaacs 14 June 2019

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