KRAFT HEINZ MAJOR ACCOUNTING

ISSUES AND THEIR SOLUTIONS

Student’s First Name, Middle Initial(s), Last Name
Institutional Affiliation
Course Number and Name
Instructor’s Name and Title
Assignment Due Date
 INTRODUCTION
• Kraft Heinz is an American international food company formed due to a merger between two companies (Kraft Foods and Heinz
Company). The company is headquartered in Chicago and Pittsburg and has been operating since July 2015. The merger led the
company to make an effort to reduce operational costs and redundancies, and it promised the investors to maintain cost savings
throughout the company's operation.
• Companies engaging in global business operations often face accounting challenges due to differences in tax laws, tax systems,
and compliance requirements that may hold the company reliable. Accountants also encounter differences in GAAPs (Generally
Accepted Accounting Principles) of different countries. This may affect the accounting treatment and recognition of many items.
• Another challenge includes reporting incorrect data from the various departments and segments across the operating jurisdictions.
• Kraft Heinz has experienced procurement and accounting misconduct that cost it $ 62 million to settle charges over
misrepresenting financial statements.
• (Kraft Heinz, 2022).
 MAJOR ACCOUNTING ISSUES
Reporting Incorrect Data
• Kraft Heinz is in the spotlight for the overstatement of financial statements. The procurement division
inappropriately reduced the cost of goods sold to achieve cost savings linked to performance.
• The accounts department reported overstated EBITDA, thus misleading the investors.
• Inaccurate financial reporting led to legal issues, bad decision-making, and adverse effects on the
company’s stock prices.
• The company is set to pay $ 62 million to settle the Securities Exchange Commission charges (SEC).
• This is a familiar challenge accountants face which is often caused by recording incorrect data from
the various departments leading to improper reporting of financial statements
• (Posner, 2021).
 MAJOR ACCOUNTING ISSUEs
Inaccurate Recognition of Accounting Items
• The procurement department negotiated with suppliers for future discounts by obtaining upfront cash
payments.
• The accounting issue resulted in improper documenting and recognition of expense savings. The accountants
recognized the cost savings prematurely, which led to misleading information.
• According to GAAP, future commitments cannot be recognized upfront but when the future obligation has
been fulfilled. Accounting for certain considerations received from a vendor should be done separately.
• The company had over 59 improperly recognized transactions resulting in an overstatement of the financial
statements. The public financial statements were inaccurately accounted for, with approximately $ 50 million
overstated.
• This information deceived the shareholders and other interested stakeholders
• (Posner, 2021).
 MAJOR ACCOUNTING ISSUES…cont.
Improper Expense Management
•Misstated accounting entries and accounting transactions led to accountants manipulating financial statements.
•The information reflected in the financial statements and the annual report indicated cost savings and elimination
of redundancies which was not the case.
•Misrepresentation of the true nature of transactions led to accounting errors and overstatement of accounting
information.
•Recognizing cost savings in the period was improper, and the act violated the generally accepted accounting
principles and standards.
•Agreements with suppliers were not recognized as future contracts, and proper accounting entries were made for
these transactions.
•Improper recognition of cost savings led to false and misleading annual reports and financial statements due to
understatement of the cost of goods sold. Accountants often encounter misstatements when business transactions
are not correctly treated in the financial statements (Posner, 2021).
 SOLUTIONS TO RECTIFY THE ISSUES
Implementing Internal Controls
• Internal controls help to prevent errors and misstatement of financial statements. This includes compliance with laws,
policies, and regulations.
• The management should also increase the integrity of the accounts department and internal audit functions to
enhance transparency and accountability.
• For instance, using reconciliations to compare similar records and verify transactions before posting the information
in the financial statements.
• Additionally, transactions and activity reviews are essential as they help monitor performance.
• Application of information processing controls effectively checks the accuracy of information and sequence of
transactions.
• Financial statement assertions can be addressed using internal controls for authenticity and correctness
• (Wakida, 2015).
 SOLUTIONS TO RECTIFY THE
ISSUES…CONT.
• Automation of the expense management process is effective in keeping track of procurement expenses and other
business processes to reduce accounting errors when recording financial statements. It is also effective for
comparison purposes and maintaining the budget.
• Digitization of the expense management process reduces errors and time spent manually recording transactions, thus
increasing accuracy. It also helps in increasing efficiency and compliance with the expense management policy.
• Using expense management software will reduce the costs incurred in manual processing and reduce the chances of
employees committing fraud. It reduces the chances of data manipulation and instances of employees changing data.
• Using software with advanced security features will limit the ability of employees to manipulate financial statements.
• Accountants should regularly examine data entry and compare information in the financial statements to check for
inconsistencies.
• Moreover, following the GAAP regulations is essential to ensure that accounting transactions are recognized
according to the country's set rules and regulations of accounting practices.
 CONCLUSION
• Maintaining books of accounts is challenging considering the different commonly accepted accounting standards
of different locations and practices, rules and regulations.
• Different countries use different GAAP, and no reporting standard is considered universal. Regulations concerning
accounting and recognizing various transactions and accounting items differ, which is challenging for accountants.
• Furthermore, it is a challenge to have correct data for recording and preparing annual reports since they rely on
information from different departments. To solve this issue, accountants should aim at reconciliations to verify
transactions before posting.
• Finally, tracking transactions to maintain accuracy and verify the authenticity of transactions to minimize errors
and incorrect data will solve the misrepresentation of financial statements.
• The implementation of internal controls is an effective solution for the accounting challenges as they help prevent
errors, fraud, and other risks of misrepresentation of financial statements.
 REFERENCES
• Kraft Heinz. (2022). About the Kraft Heinz company. The Kraft Heinz Company. 
https://ir.kraftheinzcompany.com/company-profile
• Posner, C. (2021, September 16). SEC charges Kraft Heinz with improper expense
management scheme. The Harvard Law School Forum on Corporate Governance.
https://corpgov.law.harvard.edu/2021/09/16/sec-charges-kraft-heinz-with-improper
-expense-management-scheme
• Wakida, E. (2015, August 25). (PDF) Internal controls in financial management:
Balancing controls and risks. ResearchGate. 
https://www.researchgate.net/publication/281235837_INTERNAL_CONTROLS_I
N_FINANCIAL_MANAGEMENT_Balancing_Controls_and_Risks