Part of Groupon's problem is that it did not actually book 1.6billion in revenue under generally accepted accounting principles (GAAP). It booked 1.6billion under Groupon's magical accounting practices (MAP).
Under GAAP, money which is contractually owed to a third party at the time of collection is not booked as revenue. Under Groupon's accounting practices, it is. This allows them to inflate revenue while downstating their liabilities. This is why the SEC is investigating them for fraud.
Sorry, my point was that Google's revenue numbers were not prepared according to GAAP.
The "Gross Billings" numbers include the total amount of deals "sold", including the merchants' portions. The smaller "revenues" number front-loads income that should be recorded over time i.e., by including items that should be recorded in reserves or liabilities until such items are resolved.
For example, Groupon treats as revenue all of Groupon's theoretical portion of a sale, including any amounts that it knows will have to refund and amounts that it estimates that it will have to refund. However, such items are not revenue, either b/c Groupon knows it will be refunding such items (and thus has no claim to the money), or because it expects that it may have to. Such items are supposed to be tracked in a separate account. The separate account is balanced out by a reserve account (a liability) which is removed from the books when the risk of refund has passed.
That's not really what you said previously. You wrote "money which is contractually owed to a third party at the time of collection is not booked as revenue. Under Groupon's accounting practices, it is" and made no mention of refunds. Further, Groupon actually does reduce revenues by the reserves held to cover refunds (hence the recent revenue reduction to account for higher than expected refunding).
Further, the SEC hasn't actually kicked off a formal investigation and if it does, it will be for financial control and accounting deficiencies, not fraud.
My answers are contextual; the refunds weren't relevant to the other post I made. In Groupon's case, it does both: it includes money contractually owed to a third party in its revenue, and it fails to reduce revenues by the reserves to cover refunds. Simply having a reserves liability is not sufficient; under GAAP it is supposed to segregate out the portion of revenues potentially subject to refunds which Groupon does not do.
Also, as to the SEC investigation, it could potentially be for both, as fraud would relate to the numbers in the 10-K filing and other filings with the SEC, in addition to financial and accounting deficiencies. SEC investigations are not criminal investigations--the SEC does not have to lay out "charges" prior to beginning its investigation.
> it includes money contractually owed to a third party in its revenue, and it fails to reduce revenues by the reserves to cover refunds
This is simply false. Not only does it net out reserves from revenue, it even nets them out from gross billings:
"Gross billings. This metric represents the gross amounts collected from customers for Groupons sold, excluding any applicable taxes and net of estimated refunds. We consider this metric to be an important indicator of our growth and business performance as it is a proxy for the dollar volume of transactions through our marketplace, net of tax and reserves."
All I said was that the SEC had not begun a formal investigation, which is fact. And I stand by my contention that "fraud" is probably the wrong description.
Right. What Groupon did is as if PayPal recorded the entire amount of each transaction as revenue, rather than just PayPal's fee slice. It's kind of technically true since Groupon/PayPal does take possession of the money, but it's not revenue in any meaningful sense.
Under GAAP, money which is contractually owed to a third party at the time of collection is not booked as revenue. Under Groupon's accounting practices, it is. This allows them to inflate revenue while downstating their liabilities. This is why the SEC is investigating them for fraud.