'Fudge this' blooper haunts company

New Zealand Farming Systems Uruguay's annual financial statements in 2009 included the words "fudge this". Photo / Supplied

An accountant's blunder in the 2009 accounts of New Zealand Farming Systems Uruguay has come back to haunt Singaporean commodities giant Olam International as part of an attack on its performance by an investment firm renowned for shorting Asian stocks.

An undeleted comment to "fudge this", included in notes to the financial statements for the 2009 financial year and released to the NZX by NZFSU, related to the need to round a non-cash depreciation element, but caused acute embarrassment at the time.

Carson Block of US-based Muddy Waters LLC, an investment firm that claims it "sees through appearances to a Chinese company's true worth", said earlier in the week that Olam engaged in "constant 'reclassification' of certain parts of its balance sheet", particularly prematurely booking changes in the value of biological assets.

According to the Financial Times, Block alleged there was one "where office supplies became biological assets".

Bloomberg reported this morning that Olam is suing Muddy Waters and Block over the comments for an undisclosed sum in damages. Senior executives have also accused Block of trying to enter the company's Singapore offices in disguise earlier this month.

Olam is one of the world's largest rice, cotton, and peanut traders. Olam's second-largest shareholder is Singapore government-controlled Temasek Holdings.

Block has gained a reputation for collapsing the stock prices of listed Chinese companies, although Olam is Singaporean with few interests in China.

Among examples of what Block alleged were irregularities in Olam's accounts was the firm's acquisition of NZFSU, in which it now owns a 94 per cent stake, and the publication of the words "fudge this to equal depreciation in FA note 11S 2391" in a note to the 2009 accounts which the company said should have been edited, but were not sinister.

NZFSU issued a statement at the time saying "while the words in the comment were not well chosen, they were merely a prompt for the author of the financial statements to reconfirm the rounding difference expressed in an early draft where there was a minor rounding discrepancy."

FT Alphaville, a daily Financial Times blog looking behind news headlines picked the issue up today, suggesting NZFSU had embarrassed itself but not hurt anyone.

"We kinda feel for the person who put the accounts together," the FT Alphaville authors write. "Have you ever felt the elation of actually getting a balance sheet to balance? Depreciation, as a non-cash item, has to be backed out. But it's often not that easy.

"Overall, ending up with a rounding error doesn't seem too weird."

While Olam shares fell 7.5 per cent immediately after Block's comments the day before yesterday, they rose 5.3 per cent yesterday to be the best-performing stock on Singapore's Straits-Times index.

The stock was quoted unchanged at S$1.695 on the Singapore Stock Exchange this morning, having fallen 24 per cent over the course of this year.