Groupon shares fell 5.9 percent to $17.29 in extended trading on March 30 after the announcement. The stock, down 8.1 percent since the IPO in November, had climbed 3.8 percent earlier in the day.

The shares fell as much as 12 percent and were 6.8 percent lower to the equivalent of $17.51 at 9:46 a.m. in Frankfurt.

Groupon said it has been working for several months with a global accounting firm other than Ernst & Young to address the causes of the material weakness. Groupon, which didn't identify the other firm, said it plans to report on the effectiveness of its internal controls by the end of this year.

Charlie Perkins, a spokesman for New York-based Ernst & Young, declined to comment on the earnings restatement.

Groupon said it's taking several steps to address the controls over reporting. These include hiring more finance personnel and expanding the scope of the accounting firm.

“Although we plan to complete this remediation process as quickly as possible, we cannot at this time estimate how long it will take, and our initiatives may not prove to be successful in remediating this material weakness,” Groupon said in the regulatory filing.

'Extremely Unusual'

Restatements and disclosures of material weaknesses are rare this soon after an IPO because the Securities & Exchange Commission requires detailed checks on financial controls before a debut, said Lise Buyer, principal at Class V Group.

“It's extremely unusual, as companies generally go through very thorough audits before filing and so should have their policies and procedures fairly well ironed out,” said Buyer, whose firm is based in Portola Valley, California. Buyer advises startups on public offerings.

Groupon said it failed to account for an increase in higher-priced deals, which are more likely to be refunded by customers. The company started selling discounts on plane tickets in partnership with Expedia Inc. last year and began offering Groupon Reserve, a service for upscale deals such as a five-course meal at Santa Monica, California-based restaurant Whist for $99.

Groupon said the latest changes “are primarily related to an increase to the company's refund reserve accrual,” leading to higher reimbursement rates.

The company says it will refund the purchase price of coupons, known as Groupons, in cases where a customer isn't satisfied. Still, Groupon has a limited period during which it can seek reimbursement from a merchant for a refund, and its customers may try to get refunds in cases where the company can't get reimbursed from partners.

“Our inability to seek reimbursement from our merchant partners for refund claims could have an adverse effect on our liquidity and profitability,” Groupon said in its filing.

The higher refunds boosted operating expenses that in turn widened Groupon's net loss by $22.6 million, or 4 cents a share. The company held to a forecast for first-quarter sales of $510 million to $550 million and income from operations of $15 million to $35 million.

Accountants may have had difficulty tracking changes in refunds because Groupon's business model is relatively new, said Tom Taulli, an IPO consultant in Newport Beach, California.

Groupon pioneered the market for daily deals, which offer discounts on restaurant meals, nail-salon packages and other services. Groupon splits the revenue from the offers with merchants.

“There is very little history on return rates,” Taulli said. “Groupon hasn't been around for a long time and has been expanding so quickly, it's got to be a nightmare for an auditing firm.”

Groupon also stumbled ahead of its IPO when Chairman Eric Lefkofsky said the company is “going to be wildly profitable” in an interview with Bloomberg News. In July, the company updated its IPO filing, asking investors to disregard those comments because they didn't accurately or completely reflect his views.

Bloomberg News