Accounting Irregularities at Groupon - 1017 Words

Accounting Irregularities at Groupon Introduction In September 23 2011, Groupon (the Company), a rapidly growing online coupon merchant was forced by the SEC to file a restated S-1 registration statement. The reason for the restatement was that the SEC objected to the accounting methods that Groupon used in the calculation of its revenue, causing it to be overstated. According to Villanova University (2012), Groupon’s auditors at Ernst Young stated that Groupon was not setting aside sufficient funds to cover potential refunds to customers and this was allowed to persist due to â€Å"material weakness in the company’s internal controls†. Background When a customer purchases a coupon through Groupon’s website, the Company and the†¦show more content†¦Restated Income Statement Prior to Groupon’s IPO, the SEC forced the Company to restate the S-1 financials for 2008, 2009 and 2010 under GAAP. Gone was the ACSOI accounting metric that allowed it to inflate its revenue figures. The company also reported in its updated 10-K filing that it had started to use an improved refund model to better track and ensure that it maintains a reserve for anticipated refunds. The new more subdued figures can be seen below in Figure 2. Figure 2 Conclusion Having reported their earnings in the S-1 filing with less stratospheric revenue figures, investors were afforded the ability to approach the titan coupon merchant with a less gullible sense of enthusiasm and a more realistic sense of skittishness that should be warranted with an IPO sporting such inflated figures. As of this writing, the company does show good revenue growth but net income has been bumpy with consistent losses in the hundreds of millions. The new numbers show a company with an unproven business model and a justifiably meek stock price near an all time low of $3.83 for investors who might be looking for a lottery-ticket quality investment. In an age where corporations like Xerox and Enron have managed to scam investors with accounting irregularities, the fact that this questionable practice was discovered prior to the Company’s IPO makes this a story about how sometimes the system works. References Catanach, A. H. (2011).Show MoreRelatedEssay about Jet Task 1 Financial Analysis.8422 Words   |  34 Pagesto gain additional data. Trend percentages shall help us with indication of what direction Competitive Bikes are taking. b. Review the vertical analysis, analyze the results, and discuss operational areas of concern. As learned from Horngren, Accounting, 8th edition, we know that â€Å"vertical analysis is analysis of a financial statement that reveals the relationship of each statement item to a special base, which is 100% figure.†-1 We will be performing vertical analysis of income statement where