{"id":7808,"date":"2011-09-25T23:02:26","date_gmt":"2011-09-26T04:02:26","guid":{"rendered":"http:\/\/www.sequenceinc.com\/fraudfiles\/?p=7808"},"modified":"2011-09-27T07:42:29","modified_gmt":"2011-09-27T12:42:29","slug":"groupon-restated-numbers-reveal-failure-of-business","status":"publish","type":"post","link":"https:\/\/www.sequenceinc.com\/fraudfiles\/groupon-restated-numbers-reveal-failure-of-business\/","title":{"rendered":"Groupon: Restated Numbers Reveal Failure of Business"},"content":{"rendered":"

\"\"<\/a>In July, critics attacked Groupon (GRPN) and it use of a made-up accounting measure management called Adjusted CSOI<\/a>. I suggested that the company made up the measure to exclude many of the company’s expenses to make the company look more successful.<\/p>\n

There was more to the story, however, as the Grumpy Old Accountants revealed Generally Accepted Accounting Principles (GAAP) violations in reporting revenue.<\/a> Essentially, Groupon was recording more than twice the amount of revenue it should have been reporting under GAAP. The Grumpies explained:<\/p>\n

This means that if the Company sells a coupon for $40 promising $80 in services, it records the entire $40 as revenue, despite its having to remit 50% or more of the coupon proceeds to the merchant that actually provides the goods or services. Has Groupon really earned $40 (gross revenue recognition) or $20 (net recording, Groupon\u2019s actual marketing commission).<\/p><\/blockquote>\n

On Friday, Groupon restated its financial statements to correct the accounting revenue error<\/a>, and the new financial statements were enlightening. The company’s bottom line for 2008 through 2010 remained unchanged, but top line revenue was reduced to under half the original numbers. This was expected.<\/p>\n

But Groupon apparently didn’t want to let go of that much larger gross number, so management found a way to included it in the \u201cOperating Metrics\u201d section of the filing. The company cites \u201cgross billings\u201d and defines that as the amount collected from customers for Groupons sold, net of estimated refunds.<\/p>\n

Curiously, the numbers reported for \u201cgross billings\u201d are larger that the original revenue number reported, with no explanation for the discrepancy. As customers purchasing Groupons are required to pay for them immediately, it appears that the original (faulty) revenue figures and the amounts collected from customers (called gross billings) should be nearly identical. They are not:<\/p>\n

\"\"<\/a><\/p>\n

More interesting, however, is how the revenue and expense numbers stack up once the revenue is reported in accordance with GAAP. As you can see below, there are significant changes in many metrics based on the restatement of numbers in accordance with GAAP:<\/p>\n