Can someone summarize these parts?

“‘Prebate Transactions’—KHC procurement division employees agreed to future-year commitments, like contract extensions and future-year volume purchases, in exchange for savings discounts and credits by suppliers (‘Prebates’), but mischaracterized the savings in contract documentation, which stated that they were for past or same-year purchases made by KHC (‘Rebates’);

“‘Clawback Transactions’—KHC procurement division employees agreed to take upfront payments subject to repayment through future price increases or volume commitments, but documented the transaction in ways which obscured the repayment obligation; and

“‘Price Phasing Transactions’—Suppliers agreed to reduce their prices during a certain period in exchange for an offsetting price increase in a future period, but the full nature of the arrangement was not communicated by KHC procurement division employees to KHC controller group employees.”

Under GAAP, the Order charges, the company should have recognized the savings that were in exchange for future commitments over the period of time that the company performed the commitments. That is, “if the upfront cash and discounts are tied to future commitments, then the expense savings must be recognized over the period the future obligations are satisfied.” As a result, the savings from prebates given for a contract extension or future volume commitment “should have been recognized over the life of the extension or the future period in which KHC purchased the goods from the supplier. Conversely, rebate savings from past or same-year commitments should have been recognized ratably over the period in which they were earned. Finally, clawback transactions should have been recognized ratably over the clawback period—when it was reasonably estimable that KHC would satisfy its repayment obligation.”

Answer rating: 100% (QA)

KHC agreed to future commitments with suppliers in exchange for savings discounts and ... View the full answer