Groupon Essay

Essay 1 Groupon’s Accounting Lingo Gets Scrutiny

In reviewing the article written for the Wall Street Journal on July 28, 2011 by Shayndi Racie and Nick Wingfield the reader learns of Groupon’s recent challenges with the SEC and their attempt to utilize “adjusted consolidated segment operating income”, also known as CSOI. Groupon which has shown profound growth since its inception two and half years ago came under fire from the SEC after it filed for an Initial Public Offering (IPO). The SEC scrutinized Groupon’s use of CSOI because it was masking marketing expenses and attempting to draw attention to profits which had yet to account for the expenses. Groupon took this approach because the company had been hemorrhaging money causing losses due to the heavy spending on marketing to acquire customers. Groupon claimed they generated $81.6 million in adjusted CSOI in the first quarter of 2011, though if marketing costs are taken into account that figure would be a loss of $98 million. To address this concern Groupon filed an amendment to its initial SEC filing. In that amendment, Group clarified the metric “Should not be considered as a measure of discretionary cash available to us to invest in the growth of our business or as a valuation metric.” The company went on to point out that “Investors should look at standard financial metrics such as cash flow, net loss and others when evaluating its performance.” One has to question if Groupon’s approach was ethical. Clearly they made the required changes to the IPO filing because they cannot afford to have the SEC hold up an IPO that could value the company at twenty billion dollars. The IPO also stands to raise up to $750 million in cash for the company. While it is not unusual for companies to use nonstandard financial measurements it appears to me that Groupon was not being ethical in the use of CSOI. Groupon was attempting to “pull a bait and switch” by taking the attention off of expenses, which need...