The company, which has been criticized for its unorthodox financial reporting in the run-up to a highly publicized 2011 IPO, said in its annual report filed on Friday that it has a "material weakness" in internal controls over its financial statement.

Shares in the company, the leader in the fast-growing Internet daily-deals space populated by rivals such as Amazon.com Inc (AMZN.O) and LivingSocial, fell more than 6 percent in after-hours trading.

As a private company, Groupon was one of the fastest-growing businesses in history and in November pulled off one of the largest Internet IPOs of the past decade, valuing the company at well over $10 billion.

However, it was criticized by some analysts and investors for aggressive accounting in the run-up to the IPO. Groupon changed the way it reported results under pressure from regulators.

"When you're a public company, there's a certain level of expectations for financial controls," said Herman Leung, an analyst at Susquehanna Financial Group.

"It's probably because it's such a fast growing business that it doesn't have all the systems in place. Maybe they don't have enough financial personnel."

The largest daily deals company said its previously reported net loss for the fourth quarter of 2011 increased by $22.6 million, while revenue was revised lower by $14.3 million.

The company's shares fell to $17.25 in after hours trading, down 6.1 percent from a close of $18.38 on the Nasdaq.

The net loss for the fourth quarter was revised to $65.4 million, or 12 cents per share, on revenue of $492.2 million, the company said in a filing with the U.S. Securities and Exchange Commission on Friday.

In February, the company posted a net loss of $42.7 million, or 8 cents per share, on revenue of $506.5 million for the fourth quarter.

Groupon said it is working with a global accounting firm to prepare a report by the end of 2012 on the effectiveness of its internal controls - something that is required in the wake of an IPO.

"The Company continues to implement process improvement initiatives and augment its staffing, and is expanding the accounting firm's engagement scope to address the underlying causes of the material weakness," Groupon added.

BIGGER DEALS = MORE REFUNDS

Groupon said its revision was mainly caused by an increase in the number of higher-priced deals the company ran in the fourth quarter.

The company found that larger deals increased the number and size of refunds customers requested.

Groupon used to account for customer refunds based on historical patterns. But now it will rely on forecasts of the rate and size of future refunds.

Groupon stuck to a previous forecast for first-quarter 2012 revenue of $510 million to $550 million and income from operations of $15 million to $35 million.

"We remain confident in the fundamentals of our business," Groupon Chief Financial Officer Jason Child said.

(Reporting by Edwin Chan; editing by Andre Grenon and Bob Burgdorfer)

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