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Groupon Inc - Research Paper Example

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is all about its internal controls. This is a weakness that the company has not addressed sufficiently in particular with regards to its often generous refund policy.1 This weakness had been identified by the companys external…
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Groupon Inc
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Download file to see previous pages It has resulted into numerous restatements of financial statements. Any material weakness means internal controls were ineffective and not able to detect misstatements or irregularities.
This weakness was cited by the accounting firm as the cause of its revised earnings and revenues. An audit exception like that cited by Ernst & Young regarding the refund policy of the Groupon company is the cause of the inaccuracies in its financial statements. It is considered as a “material weakness” because the weakness is big enough or serious enough to impact the overall accuracy of the audited financial statements prepared by Ernst & Young. This particular ruling is contained under Auditing Standard No. 5 which states the requirements to be met by a firm to assess its managements effectiveness in instituting internal controls with regards to the financial reporting integrated with an audit of its financial statements.2 The crucial issue therefore causing the material weakness is the inability of Groupon to accurately predict the approximate amount of refunds it will give to customers who did not avail of promos based on varying coupon prices. It is a serious issue that impacts earning per share resulting in the stock price sliding 7% in a day.
A monetary unit sampling (MUS) is a very useful method used by auditors to determine if a particular financial account is fairly stated.3 In the case of Groupon, the auditors must have a feeling its refund account is not stated accurately enough. The executives at Groupon admitted its difficulty with regards to estimating accurately the amount of refunds it will have to pay out due to the refund behavior of customers which started to shift or change around the year 2011 as a result of the company introducing higher-priced deals. This change in its mix of product deals means a requirement for increases in its reserve fund to deal with the higher-priced deals being unavailed and returned by some ...Download file to see next pagesRead More
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