Those who remember the Enron(s) raised their voices in opposition to the JOBS act which loosened the reporting requirements for small companies. Well the Folks at Group-On got caught in an accounting whoopsie by their auditors at Ernst&Young. Yes the whole Sarbanes-Oxley process is apparently still working but maybe we really shouldn't be lowering the bar just yet.
http://www.guardian.co.uk/...
Groupon issues profit warning as disgruntled customers demand refunds
Groupon, the internet company that offers discount vouchers on everything from fish pedicures and cheese-tasting to botox and pole-dancing classes, has been forced to issue a retrospective profit warning after it failed to anticipate how many disgruntled customers would demand a refund.
The four-year-old company, until recently widely described as the next internet darling, admitted its latest results should have included $22.6m (£14.1m) more of quarterly losses than the $42.7m it reported in February.
The company, which was last year told to cut its reported revenue in half after the US Securities and Exchange Commission (SEC) questioned its accounting practices, was forced to warn investors that there is still a "material weakness" in its financial reporting.
Groupon, which made its 31-year-old founder, Andrew Mason, a multimillionaire when it floated on New York's Nasdaq exchange last year, admitted it "did not maintain financial close process and procedures that were adequately designed, documented and executed to support the accurate and timely reporting of our financial results". The company also made a "number of manual post-close adjustments" to its financial results after they were filed with the regulator.
http://www.businessweek.com/...
Will the JOBS Act Mean More Surprises Like Groupon's?
Should Groupon’s revelation Friday that its financial statements may not be reliable make boosters of the JOBS Act think twice? The bill, passed overwhelmingly by Congress last month and awaiting President Obama’s signature, is intended to make it easier for fast-growing startups to raise money. One way it does this is by rolling back certain disclosures and investor protections for newly public companies that have less than $1 billion in revenue.
Groupon (GRPN), which has been dogged by questions over its accounting since it filed to go public last year, announced Friday that larger refunds caused its revenue, operating income, and net income to be lower than originally reported, sending its share price down 12 percent today. The daily deals company also reported that “we concluded there is a material weakness in internal control over financial reporting,” meaning that “there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected and corrected on a timely basis.” Groupon said it is working with an unnamed accounting firm to prepare a report on its internal controls for next year.
Groupon, with $1.6 billion in revenue in its most recent fiscal year, is too large to qualify for the exemptions that the JOBS Act would afford so-called “emerging growth companies” with under $1 billion in sales. Next year Groupon will have to have an auditor evaluate its internal controls, a requirement of the Sarbanes-Oxley Act put in place a decade ago after the accounting scandals of the Enron era. Still, the JOBS Act would let many newly public companies delay complying with that requirement, known as Section 404 (b), for up to five years. (It also gives those companies relief from other disclosures.) If President Obama signs the law, as expected, how much should investors worry that such companies’ financial controls are inadequate or that their stated results may not be trustworthy?
Oh in case you didn't hear about the pending Facebook IPO
http://www.businessweek.com/...
Facebook appears to have avoided a hurdle that has stymied other recent IPOs. The social network updated its registration documents to go public on Tuesday night, offering greater insight into how it determines the location of mobile users and warning that a patent dispute with Yahoo! (YHOO), which sued Facebook on March 12, could have a material impact on its business. It also has extra detail about the voting agreements that give Mark Zuckerberg control over a majority of voting rights, disclosing which early shareholders have given him the power to decide specific actions, such as issuing stock. The company did not signal plans to end the arrangement.
In a further sign that Facebook is pushing ahead to public trading, Bloomberg News today is reporting that the company has ordered a halt this week of its shares on secondary markets to help the company assess its shareholder base.
The Facebook IPO path, at least so far, has been smooth compared with the major hiccups a second amended registration has caused for other companies planning to go public. Pressure from the Securities and Exchange Commission forced Zynga (ZNGA) to alter how it recognizes revenue from such goods as virtual tractors on its popular Farmville game. The daily deal site Groupon (GRPN) retreated from a controversial accounting method in its second amended filing after resistance from the SEC. Regulators also have forced corporate governance changes, as they did earlier this year when the Carlyle Group abandoned provisions that banned shareholders from filing class actions. The Carlyle IPO is pending.
The process of updating registration documents is part of the complex IPO procedure, when companies tussle with the SEC over the disclosures in registration documents. After a company files the initial registration document, known as the S-1, the SEC examines the documents and responds with a first “comment letter” containing its queries. That inquiry tends to have “open-ended” questions, says Martin Wellington, a Davis Polk attorney who worked on the IPO for the streaming radio service Pandora Media (P). ”The second comment letter is where you figure out whether you really have an issue or not.”