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  "documentTitle": "Olam International Ltd. (SGX:O32)",
  "authorId": "51_Muddy_Waters",
  "authorName": "Carson Block",
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  "presentationDate": "2012-11-27 00:00:00",
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  "notes": "The slide argues that Olam recognizes future income as current profit, drawing a parallel to Enron's accounting.",
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      "text": "Olam uses potential future income from biological assets as a significant portion of its present net income.",
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      "text": "Aggressive accounting isn't exclusive to Olam's income statement. Part of Olam's biological assets is its annual crops: Annual crops consist of seeds for various commodities (cotton, onions, tomatoes and other vegetables) that are given to farmers to sow and grow. Farmers take all the harvest risks and bear all the farming costs. On harvesting of the commodities, the Group has the first right to buy the produce from these farms.",
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      "text": "Generally, people do not refer to how much money they might make in future years as though it has already been earned. But that is exactly what Olam does in its accounting statements: Olam uses potential future income from biological assets as a significant portion of its present net income. This accounting mitigates the P&L impact of its poor business performance.",
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      "text": "Biological gains actually have a higher future cost than does negative goodwill. Companies may take biological gains on biological assets (e.g., livestock, almond orchards) when the estimated present value of those assets has increased above their carrying values. However, today's biological gain is tomorrow's loss. Unlike negative goodwill, the gains booked today must be balanced out by losses as the asset's productivity decreases.",
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      "text": "You read that right: Olam is booking farmers' future crops as its own assets. Further, in FY2012, Olam managed to record S$46.8 million in net additions to biological assets, which it reported was primarily from annual crops and livestock, despite the fact that the total hectares of annual crops were cut in half over the year (emphasis added): At the end of the year, the Group's total planted area of plantations and annual crops that is yielding is approximately 15,374 (2011: 14,710) hectares and 2,522 (2011: 4,504) hectares respectively excluding hectares for those commodities whose plantations are not managed by the Group.",
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      "text": "Olam has booked a total of S$264.2 million in profit from biological gains. Biological gains for each period are determined via an internal model that has numerous inputs that are not made public – as a result, it could be susceptible to manipulation by Management. Biological assets are a mark-to-model asset, and Olam treats them similar to how Enron treated its power contracts: recognizing big gains upfront.",
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      "text": "68 Olam 2012 Annual Report, p. 142.",
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      "text": "Biological Assets",
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