I’m working on a accounting question and need an explanation and answer to help me learn.
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When Luckin Coffee (NASDAQ: LK) (“Luckin” or the “Company”) went public in May 2019, it
was a business attempting to instill the culture of drinking coffee into Chinese consumers
through cut-throat discounts and free giveaway coffee. Right after its IPO on NASDAQ, the
Company had evolved into a fraud by fabricating financial and operating numbers starting in the
3rd quarter of 2019. It delivered a set of results that showcased a dramatic growth in its revenues
and sent its stock price up over 160% in a little over 2 months. Not surprisingly, it wasted no
time to successfully raise another $1.1 billion in January 2020. Luckin’s management knew what
investors were looking for, how to position itself as a growth stock with a fantastic story, and
what key metrics to manipulate to maximize investor confidence.
Based on what you have read so far and any research you have done, how could this accounting
fraud have been avoided? Were there any red flags you spotted in their reported numbers? Use
APA style for any intext citations that you used. (300-400 words)
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