Ateneo Graduate School of
Business
Managerial Accounting
Assignment 2
Submitted to:
Professor Ricardo Palo
TSMANACC
Submitted by:
A.R.
16 October 2012
Founded in November 2008, Groupon
(NASDAQ:GRPN) pioneered the online daily deals market, which offers subscribers
deep discounts on everything from restaurant meals to tech gadgets to weekend
getaways.[i] Groupon has been taking an aggressive
approach to several line items in their financial statements. Recording
revenues gross of what they owed to merchants for the coupons they peddle is
one SEC forced them to adjust.[ii] On 30 March 2012, Groupon announced that it
would slash its fourth-quarter revenue outlook and incur deeper losses as a
result of higher-than-expected customer refunds. On 02 April 2012, the trading day
immediately following the announcement, Groupon’s stock plunge 14% as its
first-as-a-public company 10-K filing with the Securities and Exchange Commission
revealed that its auditor, Ernst and Young, found a “a material weakness in its
internal control over financial statement close process.”[iii]
Groupon has taken “aggressive”
accounting in terms of not providing for potential customer refunds, when it
had to. This has resulted to bloated
revenues in the earlier quarters of the year and massive refunds waiting at the
later quarter of the year. Investors
had relied on the available financial information at that time only to be
informed subsequently by Groupon that revenues are “bloated” and a
“restatement” will be made. Investors have
already made decisions based on the financial information available at that time and now they hold on to
their shares just for them to see how the share prices had plunged by 14%. Although
we cannot establish at this point whether there has been or there has been no deliberate
misrepresentation of information, the immediate victim will always be the
investors.
It could be seen that there have
been a loss of investor confidence from the first day it had listed its shares
in NASDAQ when its stock price was sold initially at $26.11 per share. On 30 March 2012, the date of the
announcement of restatement, stocks plunged to $18.38 per share, which
continues its downward trend to $5.20 on 15 October 2012.[iv] This is a staggering 80% loss in value!
Groupon, as a business has also
its share of defeat because of the unethical practice of its management. As Groupon’s market capitalization and stock
prices has decreased exponentially, Groupon’s cost to raise capital has
increased, thereby stripping the business of ability to pursue available
opportunities for growth. Groupon may
have to resort to costly debt or costly share issuances for it to support any
viable business opportunity that it would want to dwell into for growth and the
opportunity costs are just too high to afford.
The end of the story may be a flat growth for Groupon.
More importantly, as a customer
of Groupon, the confidence that I have with their business and products has been
tainted. Although, the accounting
scandal that Groupon is currently facing has no direct impact on my daily affairs
as a customer, it made me feel that Groupon really does not care much about its
stakeholders at all, less if at all for its customers.
-.oOo -
[i] Ortutay, Barbara (2012). “Groupon
restatement sparks more worries”. http://news.yahoo.com/groupon-restatement-sparks-more-worries-173524715.html.
[ii] McKenna, Francine (2011). “SEC
Cuts Off Some Aggressive Accounting At Groupon” http://www.forbes.com/sites/francinemckenna/2011/09/24/sec-cuts-off-some-aggressive-accounting-at-groupon/
[iii] Rosenbaum, David (2012).
“Groupon Restatement Raises Reserving Questions”. http://www3.cfo.com/article/2012/4/accounting-tax_groupon-ernst-young-restatement
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