Noble accounting methods comply with standards: PwC

Noble has consistently and vehemently denied the allegations and has taken multiple steps to improve its transparency to investors, including commissioning the PwC report.

“We note that observable inputs [into valuation models] are used where available, and this is consistent with market practice”, PwC said.

Noble said PricewaterhouseCoopers had completed a review of the company’s use of fair-value, or mark-to-market, accounting methods that have been the focus of criticism this year by several analyst outfits including US short seller Muddy Waters. Noble’s accounting was in some cases more sophisticated than other nonfinancial companies, the firm said. Net asset value was 77 US cents per share, up 2.7 per cent from December 31, while earnings per share was 0.86 US cent, down 2.3 per cent from a year ago. The company said backtesting of its valuation models over the past six months showed that its fair-value estimates had been broadly in line with actual outcomes.

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”.

Shares in Noble have fallen more than 50 per cent since then.

He said the group will provide more information and disclosure at its Investor Day event here on August 17.

Clarification: This article has been updated since first published to include details of PwC’s analysis of Noble’s accounting.

“Noble has put up a decent set of results and the fact that PwC examined each contract to check valuations should provide comfort”, a Singapore-based analyst said.

It also urged the management to continue to enhance quarterly MTM database reports, update the MTM policy to cover all aspects of forecasting volumes and taking of reserves to allow for uncertainty, strengthen compliance or internal audit, and formalise procedures for back-testing and stress-testing the portfolio. It has also closed offices in Hamburg and Oslo as part of that effort.

“There may be some way to go”, said Roger Tan, chief executive of Voyage Research. “So it’s a question of which side of the coin you are arguing on”. “Within the accounting framework, what Noble is doing is within the accounting framework”, he added.

In its response, Iceberg said: “Noble bleeds cash”. It didn’t make a subjective statement answering whether Noble’s accounting could be construed as aggressive, an accusation that had been leveled at the company by its detractors. Revenue in the second-quarter fell 22% to $18.4 billion and profit dropped 4.5% to $63 million.