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August 09, 2012

Facebook Admits Error in Accounting, Attributes to Algorithm

By Ashok Bindra, TMCnet Contributor

The Business Insider is reporting that Facebook has admitted that its first ever 10-Q filing with the SEC was erroneous. The social networking giant acknowledged that one of the algorithms it uses to calculate the average revenue per user in its largest market, the U.S. and Canada, was wrong, wrote reporter Jim Edwards.

Since then, as per this report, Facebook (News - Alert) has made the revision and restated the 10-Q revenue breakdown with adjustments to some of the numbers and columns. The reporting of revenues, most of which comes from ads, is by geography, wrote Edwards.

The report presented Facebooks explanation for this problem. The company said, in June 2012, “We discovered an error in the algorithm we used to estimate the geographic location of our users that affected our attribution of certain user locations for the first quarter of 2012.” Accordingly, the social networking giant has made adjustments based on the reclassification of users more correctly by geographic region.

Furthermore, Facebook said that even though this issue did not affect its overall worldwide MAU and DAU numbers, it did affect the attribution of users across different geographic regions.

“We estimate that the number of MAUs as of March 31, 2012 for the United States and Canada region was overstated as a result of the error by approximately three percent and this overstatement was offset by understatements in other regions,” according to Facebook.

The two charts affected by the change were presented in the Business Insider report. The company apologized for the poor image quality. The restated sections of the chart were highlighted in red.

The Q2 2012 chart correctly shows revenue per user in North America is $2.90, while the old Q1 chart incorrectly displays revenue per user as $2.86. Overall, it is not a big error and it does not impact Facebook's top or bottom lines,

The reporter concluded, “But it is interesting to know that Facebook's accounting isn't completely perfect.”

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Edited by Jamie Epstein
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