Groupon's accounting practices under SEC scrutiny | Hacker News Reader

Groupon's accounting practices under SEC scrutiny

itworld.com

86 pointsSuraj-Sun11 comments

They reported all the normal numbers too, right? (Straight revenue, earnings calculated the normal way, etc.)

I don't really see why it should be illegal for them to include some extra numbers, regardless of how meaningless they are, as long as they fully explain how they calculated them. If investors don't buy Groupon's claim that their marketing costs will go away once they win the market, they can just look at the standard numbers.

Then again, I don't know much about S-1's and how much freedom one generally has to put more than the very essential information in them.

S-1's require an almost pessimistic outlook for the company. It is not the place for padding your image or trying to make yourself look good. The SEC is pretty strict about that.

"I don't really see why it should be illegal for them to include some extra numbers,"

For "extra numbers", substitute "lies with statistics", and it'll become clear. This application isn't the place to give the company a free-form field to put its propaganda in.

Considering the glut of posts from a couple weeks back about Groupon, along with the tone of every single one of them, the only thing I'm surprised about is the SEC apparently actually taking it seriously.

Ironically, GAAP numbers are easier to game than what Groupon is reporting. For example, if Groupon were to slash their marketing budget in order to meet their earnings estimates, you'd see better net income but a minimal change in CSOI.

It's just strange for this to be so controversial.

Yes, but such manipulation is much easier to spot given everyone's familiarity with GAAP.

If everybody is so familiar with GAAP, the SEC's case is much weaker. They're arguing that investors will be too unsophisticated to differentiate between this new, weird accounting measure and the usual standards.

"if Groupon were to slash their marketing budget in order to meet their earnings estimates, you'd see better net income"

Accounting is supposed to be about measuring things that are more tangible to act as a reality check against projections and optimism. It's supposed to be about where the company is at now and where it's been in the past -- not just for potential investors, but for current investors who might want to compare against their previous projections. Predicting the future is left as an exercise for the reader.

Marketing expenditures, particularly for new companies in new markets, are based on projections. If Groupon is trying to attract investors based on its current profits, then slashing the marketing budget might be a reasonable course of action. But I doubt it is; they are trying to attract investors based on its potential for profits in the future, and part of that growth story involves spending a lot on marketing. With that in mind, slashing their marketing budget (or for that matter, pretty much any other part of their budget) would not make any sense, and would likely turn off investors (even if unsophisticated).

Story sourced from CNBC, submitted here:

http://news.ycombinator.com/item?id=2813186

How is it possible to lose money with cooked books?

If I couldn't plausibly be profitable, I still might want to convince people I'm losing less money than I actually am.

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