Answer following 6 questions one by one:
1. Compare and contrast the business model of Groupon with the business models of Amazon and Wal-Mart. Referring to the risk factors in the MD&A sections of their 10-Ks, compare significant risks and opportunities across these companies. How do these business risks translate to risks in financial reporting?
2. In the months leading up to Grouponâ€™s IPO, the SEC posed a number of questions regarding Grouponâ€™s choice of accounting principles for revenue recognition. Specifically, the SEC referred to the requirements in FASBâ€™s ASC 605-45-45.
a. Compare the amount of revenue reported in the original and amended S-1s. What caused the difference?
b. Which of the two amounts do you think Groupon preferred? Why did they prefer it?
c. With reference to ASC 605-45-45, which of Grouponâ€™s arguments were weak, and why?
3. Groupon had recognized revenue for the sale of high-ticket items in late 2011. Purchasers of the Groupons have a right of return, as specified in the â€˜â€˜Groupon Promise,â€™â€™ prominently featured on its website.
a. Assess the U.S. GAAP requirement for recognition of revenue when right of return exists, in the context of Grouponâ€™s business model.
b. Do you agree with Grouponâ€™s accounting? Why or why not?
4. Grouponâ€™s restatement of 2011 fourth-quarter financials resulted in a reduction of $14.3 million of revenues and a decrease of $30 million of operating income. However, its operating cash flow was unaffected. Explain how this is possible.
5. In your opinion, do the problems with Grouponâ€™s choice of accounting methods and use of non-GAAP metric reflect a lack of management experience or a lack of management integrity?
6. In its initial S-1 filing, Groupon presented a non-GAAP performance metric called ACSOI. It was subsequently removed after the SEC objected.
a. Why did the SEC question the inclusion of ACSOI in Grouponâ€™s financial statements?
b. Non-GAAP metrics are common in some industries. These include: Value-at-Risk in the financial sector, same-store-sales in retail, revenue-passenger-miles for airlines, and order-backlog in the semiconductor industry. Explain two of these metrics and assess their value to financial statement users.