Groupon Reports Accounting Blunder
March 31, 2012 (United Press International) Online discount company Groupon Inc. said that an audit had found it did not set aside enough funds for refunds to customers in the fourth quarter.
The audit was done by accounting firm Ernst & Young. The accountants blamed Groupon's "material weakness in its internal controls."
Groupon went public in November and raised $11 billion in market capitalization.
In a regulatory filing, however, the firm said it lacked "adequate policies and procedures," to assess its financial assumptions, The Wall Street Journal reported Saturday.
Groupon also said it had higher refund costs than expected in part because of deals it was promoting for higher cost merchandise. The firm also said it was also having trouble collecting refund reimbursements from merchants and that this "could have an adverse effect on our liquidity and profitability."
The company had already reported a loss of $37 million for its fourth quarter. The accounting error reduces the firm's revenue by $14.3 million and adds $22.6 million to its quarterly loss, the Journal said.
Moreover, the mistake, a basic accounting blunder, shakes confidence in the firm.
"It really demonstrates, for an initial public offering, were they really ready to go? Did they have the financial systems, did they have the processes and procedures in place?" said Sandra Peters, head of financial reporting policy for the CFA Institute.
"We're playing with the big boys now. You can recover but it isn't altogether confidence inspiring," said Morningstar analyst Rick Summers.
"We remain confident in the fundamentals of our business, as our performance continues to highlight the value that we provide to customers and merchants," Groupon Chief Financial Officer Jason Child said.