High profile IPO candidate Groupon Inc. is attracting regulator scrutiny over its accounting practices.  While it's too early to tell what impact this may have on investor appetite for the multi-billion-dollar offering due out in the fall, this much is certain:  any investment bank that plans on underwriting the IPO should expect to do some serious due diligence.

Accounting Concerns.   The SEC has asked Groupon to answer questions regarding an unusual accounting metric the company invented to market itself to investors. The measure paints a rosier portrait of performance by excluding marketing and other expenses.  It's part of an effort by the SEC to press more scrutiny on non-traditional metrics following the bursting of the dot-com bubble.

In regulatory filings, Groupon referred to the new metric as "adjusted consolidated segment operating income" or "adjusted CSOI."  Analysts say that the measure draws investors away from Groupon's marketing costs, on which the company is bleeding money.  Basically, Groupon is asking investors to look at their profits before expenses.

Hocus Pocus:  Reversing the adjustments - i.e., adding back in marketing costs - turns a Q1 of 2011 profit of $81.6 million *in adjusted CSOI), into a $98 million loss. 

Groupon filed an amendment on July 14 to its initial SEC filing, saying that adjusted CSOI should not be used as a measure of available cash for growth investment nor as a valuation metric. 

For further details, go to:   [WS Journal, 7/28/11]