Financial Accounting Fraud: "Luckin Coffee" Short-Revenue Scandal

Trang Pham

Master's thesis

Abstract:

In an increasingly modernized world, sustainability of society and the development of worldwide economies are strongly affected by the actions and incentives of business entities. However, fraud is an inevitable part of businesses, especially in entrepreneurial companies. Accounting scandals persisted, affecting directly the groups of interest in particular and the economy in general. This thesis focuses on building a theoretical framework about accounting fraud, the determinants and their consequences, and then building a template for fraud research. This thesis also analyses a specific case study of Luckin coffee- a shocking start-up scandal of 2020. When Luckin Coffee became a public company in May 2019, it is seen as a unicorn start-up with the expectation of changing coffee drinking culture in China in particular and the world in general through great discounts and giveaway drinks. This company has forged its sales figures to 310 million USD to serve the IPO and attract investors. After its successful IPO, the short-revenue fraud of Luckin Coffee was defected, leading to a plunge in stock value by 80%. Luckin coffee's scandal served as a wake-up call to investors and impacted economic parties' perception of accounting fraud. Besides an prominent example of Luckin Coffee, this thesis also investigates other frauds of world-leading unicorns to illustrate accounting frauds in start-ups and raises some solutions to address this issue.

Abstract:

In an increasingly modernized world, sustainability of society and the development of worldwide economies are strongly affected by the actions and incentives of business entities. However, fraud is an inevitable part of businesses, especially in entrepreneurial companies. Accounting scandals persisted, affecting directly the groups of interest in particular and the economy in general. This thesis focuses on building a theoretical framework about accounting fraud, the determinants and their consequences, and then building a template for fraud research. This thesis also analyses a specific case study of Luckin coffee- a shocking start-up scandal of 2020. When Luckin Coffee became a public company in May 2019, it is seen as a unicorn start-up with the expectation of changing coffee drinking culture in China in particular and the world in general through great discounts and giveaway drinks. This company has forged its sales figures to 310 million USD to serve the IPO and attract investors. After its successful IPO, the short-revenue fraud of Luckin Coffee was defected, leading to a plunge in stock value by 80%. Luckin coffee's scandal served as a wake-up call to investors and impacted economic parties' perception of accounting fraud. Besides an prominent example of Luckin Coffee, this thesis also investigates other frauds of world-leading unicorns to illustrate accounting frauds in start-ups and raises some solutions to address this issue.

Keywords

accounting fraud, financial statement fraud, creative accounting

Keywords

financial statement fraud, creative accounting, accounting fraud

Language used: English

Date on which the thesis was submitted / produced: 28. 11. 2020

Thesis defence

• Date of defence: 8. 6. 2021
• Supervisor: David Procházka
• Reader: Vladimír Králíček

Vysoká škola ekonomická v Praze

Master programme:
Finance and Accounting