A hotly anticipated third-party assurance review of Noble Group's valuation contracts and methods has found that the group's practices comply with relevant standards, although it notes that there are areas of weaknesses.
Accounting firm PricewaterhouseCoopers (PwC) said in a report yesterday that the commodities trader has adhered to international requirements and standard industry practices when valuing contracts using what is termed a "mark-to-market" model.
"Indeed, in some aspects of the model construction (such as the development of discount rates and development of counterparty credit risk curves), Noble has an approach which is more sophisticated than that of many non-financial companies," it noted.
But PwC added that more needs to be done to improve the group's overall governance and oversight framework. It recommended that Noble strengthen the role of compliance or internal audit in order to improve its valuation of some commodity contracts. This includes reducing the "high degree of reliance on key individuals" when it comes to measuring contract values.
Noble has come under fire since it was first accused of poor accounting practices by a group called Iceberg Research in February, with its share price tumbling nearly 50 per cent to reach 58 cents last Thursday. It refuted all allegations, while hiring PwC last month to review its accounting methods.
PwC, in its report, which was published in full, had examined 81 per cent of the value of the group's derivative contracts with a maturity of over two years, or 98 per cent of its Level3 or illiquid net assets. This equates to US$2.6 billion (S$3.6 billion) of net fair value gains on commodity contracts and derivative financial instruments as at June 30.
PwC cautioned that its work was limited and that it did not have a mandate to review individual transactions or accounts.
Noble said in a statement that it will implement PwC's recommendations immediately to ensure the company "remains a leader in its industry" with regard to mark-to-market valuations.
Chairman Richard Elman said: "I am delighted that we have received a strong validation of our processes and controls and shareholders can now be assured, as we have always known, that our balance sheet fairly reflects the value of our long-term contracts."
Iceberg Research noted in a statement that PwC "did not challenge the realism of Noble's assumptions for its mark-to-market".
"This review will fail to answer the market's concerns," it said.
"The market wants to know the real value of these mark-to-model, not whether Noble successfully exploits accounting loopholes."
Responding to those remarks, Noble chief executive Yusuf Alireza said at the group's results briefing yesterday: "Any credible market participant who takes the time to read (the report) cannot conclude what this market manipulator or blogger is (saying).
"We don't run our business for market manipulators, we run our business for our investors."
He said the group will provide more information and disclosure at its Investor Day event here on Aug 17. "Hopefully it will put to rest any questions and concerns about how we run our business."
Bourse operator Singapore Exchange said it is closely monitoring developments relating to Noble.
