This video talks about Noble Group, once one of the

This video talks about Noble Group, once one of the world’s biggest commodity trading houses. During 2015, a series of reports by Iceberg Research, an anonymous group, began attacking Noble’s accounting practices. Iceberg Research was actually Arnaud Vagner, who is characterized by Noble as a disgruntled former junior employee. Iceberg claimed that Noble had inflated its balance sheet with type of Repo 105 repurchase agreement that appeared to have banks buying commodity inventory and compared its accounting practices to failed energy trader Enron Corp. The key claim was that Noble had aggressively booked profits on long-term commodity contracts that would not materialize for years, if at all. As the combined value of Noble’s equity and debt plunged by about $10 billion, Vagner did not speak about his involvement with Iceberg, even when defending Iceberg against Noble’s legal suit, which has cost him HK$3 million ($380,000) in legal fees. His criticism of Noble’s accounting practices and mark-to-market models were echoed by short-seller, Muddy Waters, and Former Morgan Stanley executive Michael Dee. The first Iceberg report in 2015 stated that Noble’s long-term contracts were probably overvalued by about $3.8 billion. Noble hired PricewaterhouseCoopers LLP in 2015 to review its accounting methods in valuing long-term contracts signed off by its long-time auditor Ernst & Young LLP. Since then, Noble has written down, or taken reserves against, more than that. After writing down billions of dollars, Noble’s market capitalization stood at $115 million in August 2018. At its peak in 2011, the company was valued at $11.7 billion. Noble defaulted on its bonds and in August 2018 faced a do-or-die struggle to keep going with restructuring through a $3.5 billion debt-for-equity rescue that will hand control to creditors. This restructuring became dubious when a surprise raid by Singapore’s white-collar crime unit on Nov. 20 was coupled with a claim of suspected false and misleading statements by Noble.

 Required:

Explain at which step of the auditor’s examination of Noble, auditors should have asked questions about the company’s accounting practices regarding commodity sales of inventory. 

Explain how you understand the scheme that Noble used to hide billions of losses by creating fake assets. 

What are your thoughts about the auditor relationship mentioned in the Noble case and how long is too long to employ the same external auditor?