Fair Value Accounting Controversy at Noble Group

Case Solution

Siko Sikochi, Suraj Srinivasan, Quinn Pitcher
Harvard Business School ()

Founded in 1986, Noble Group was a major commodities trader based in Hong Kong and listed on the Singapore Stock Exchange. In 2012, Noble changed its business strategy to an asset-light model. Under this model, Noble did not own mines or farms to produce raw materials, but instead developed raw material sourcing capabilities by working with and investing in producers in exchange for sales and marketing contracts. Noble also worked with clients to secure supply contracts. At the end of 2014, Noble had a portfolio of 12,000 commodity contracts. The contracts were valued at fair value. Iceberg Research, an anonymous blog, published a series of reports in February 2015 claiming that Noble was too aggressive in accounting for the fair value of contracts and investing in producers. Iceberg did not accuse Noble of fraud, but hinted that Noble’s earnings and balance sheet were hugely inflated and Noble was headed for disaster. Noble upheld his accounting principles and engaged PricewaterhouseCoopers (PwC) to conduct an independent review of the fair value measurement. PwC has released a positive review of Noble’s accounting records. However, the question remained whether Noble’s contracts and investments were overvalued. The case is investigating Noble’s business and examining whether there have been any questions about his accounting practices in the past after it was confirmed by PwC.

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