In the run-up to its IPO, Groupon caught the eye of the SEC for an Internet-bubble throwback called adjusted consolidated segment operating income, or adjusted CSOI. After dropping the metric, they had to report a quarterly loss. In the short term, it didn't seem to hurt them: in the biggest tech IPO since Google, their stock shot up to a high of $29.50.

Now it's down again, to 59 percent of its initial offering price—not the lowest since its IPO, but close. And the SEC is sniffing around again (an "informal inquiry") and yet again it's an accounting issue:

Groupon said the revision, which reduced fourth-quarter earnings and revenue, was caused by the need for higher reserves for refunds on deals with higher prices that have higher price tags, such as Lasik surgery and laser hair removal.

But as with all accounting, it's more complicated than that. Felix Salmon explains:

The way that Groupon does its accounting, it adds up its share of the gross revenues… and books it as revenue immediately, minus the quantity of refunds it expects to have to issue after applying a model which tries to predict such things.

[snip]

So in 2011, out of $3.985 billion in total revenues, Groupon reserved $67.452 million for refunds. Now note these are the revised figures, which were released after Groupon realized that its initial estimates for refunds were too low.

But do the math, and it turns out that $67.452 million is just 1.69% of $3.985 billion — the anticipated refund rate actually fell from 2010 to 2011. This does not make much sense, since by all accounts — including Groupon’s — it should by rights have gone up, quite substantially.

It "should" have gone up, in theory, because Groupon moved into more expensive things, like laser hair removal, and things that are more likely to require a refund, like travel deals (Salmon gives a lengthy hypothetical of how their new deals make accounting for refunds profoundly complex). And this is probably what's piqued the SEC's interest:

[C]ompanies are allowed to set aside reserves against potential refunds based on reasonable estimates. But Schilit argued that Groupon couldn’t “reasonably” estimate the refunds because it is so young and follows a relatively new business model. Lacking that historical perspective, the company shouldn’t have recognized any revenue until after the end of their refund period.

Not that Groupon is remotely alone in its accounting problems:

Since 2004, there have been 563 financial restatements among 1,827 companies that had recently gone public. That works out to nearly 31%, which accounting experts say is high and symptomatic of the companies’ youth.

And Groupon's rise from nothing to immense public offering has been much more complicated than most, as the Grumpy Old Accountants note:

It is absolutely ludicrous to think that Groupon is anywhere close to having an effective set of internal controls over financial reporting having done 17 acquisitions in a little over a year.  When a company expands to 45 countries, grows merchants from 212 to 78,466, and expands its employee base from 37 to 9,625 in only two years, there is little doubt that internal controls are not working somewhere.  Any M&A expert will agree.

Following up on the latest Groupon news, the GOAs, Anthony Catanach and J. Edward Ketz, advise caution not only with Groupon but companies like it:

So, what should all this mean for investors and market regulators?  Well, first of all, the Groupon’s earnings revision which was prompted by an increased reserve requirement for customer refunds, highlights the subjectivity and uncertainty associated with any accounting assumptions (or judgments) made by relatively “new” companies, operating in “new” industries, with inexperienced management: yes, internet companies!

And this is where Groupon's adventures in choose-your-own-accounting takes on broader significance, as Andrew Ross Sorkin argues. The new, bipartisan JOBS Act would create an investment category for "small" companies with revenues under one billion dollars (about half a billion less than Groupon brought in last year) that would loosen financial-disclosure requirements as an attempt of Congress to get cool: "It also promotes 'crowdfunding,' a mechanism by which entrepreneurs can raise up to $1 million online from individual investors with minimal financial disclosure."