Apparently, As An Accounting Firm Specializing In The Virtual

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Apparently, as an accounting firm specializing in the virtual goods and technology industry who provided audit services to Zynga and Facebook, Ernst & Young did not conduct an appropriate audit for Groupon. Although Groupon is an e-commerce marketplace offering activities, travel, goods and services from local merchants to millions of subscribers, its business model is different from Facebook who sells advertisements, or Amazon who sells products on its own. Groupon makes money by charging a marketing fee advertising and promoting their offers. In most cases, that fee is a percentage of the revenue generated by selling on Groupon. Therefore, Ernst & Young should have made efforts to obtain an understanding of the client and its…show more content…
Furthermore, according to GAAS, AU-C 300.06-07, Ernst & Young should have planned and performed further audit procedures whose nature, timing, and extent are based on, and are responsive to, responsive to the assessed risks of material misstatement. While designing the further audit procedures, Ernst & Young should have obtained audit evidence to determine whether the controls are operating effectively. If the auditors assess higher control risk, the more persuasive audit evidence is required.
Investors suspect the executives were aware of the material weakness in its internal control, but stayed silence until after the company went public. Accounting experts attribute to no representation about whether Groupon’s controls were effective is required in a company’s IPO prospectus. But the disclosure is required for a public company. And it explains why Groupon made the announcement in its first quarterly report after it went public. Therefore, as Groupon’s auditor, Ernst & Young, has no obligation to express an opinion on the company’s internal controls in its audit reports.
Even if the auditor is not required to express an opinion on the internal control, the auditor should have communicated with the Audit Committee any material weakness discovered during an audit. According to AU-C

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