FRAUD AND FORENSIC AUDIT

CASE STUDY

Nama Mahasiswa: Diva Zhafirah Gunawan

NIM: 023001800008
Kelas: KU-A
Nama Dosen: Dr. Muhammad Nuryatno, Ak., M.M.

LUCKIN COFFEE AND iQIYI

Luckin Coffee—the China-based equivalent of Starbucks in the United States—and China-
based video streaming company iQIYI are two different companies in two separate
industries, but the scams that each allegedly operated share the same detrimental impact on
the U.S. accounting and auditing profession. Thus, both equally make our list of 2020 ethics
and compliance fails.
Luckin and iQIYI represent just a glimpse into a much broader problem in which China-
based firms listed on U.S. stock exchanges con U.S. investors out of billions of dollars—the
focus of a 2017 documentary, “The China Hustle.” This problem is exacerbated by the fact
the Public Company Accounting Oversight Board “continues to be prevented from
inspecting the audit work and practices of PCAOB-registered audit firms in China on a
comparable basis to other non-U.S. jurisdictions.”
For its part, Luckin is said to have fabricated most of its 2019 sales. An anonymous
report shared by short-seller firm Muddy Waters sums up Luckin’s scheme in this way:
“Luckin knows exactly what investors are looking for, how to position itself as a growth
stock with a fantastic story, and what key metrics to manipulate to maximize investor
confidence.”
A separate report by investor activist firm Wolfpack Research (with assistance from Muddy
Waters) highlighted similar allegations of overstated revenues at iQIYI. According to the
report, iQIYI was “committing fraud well before its IPO in 2018 and has continued to do so
ever since. Like so many other China-based companies who IPO with inflated numbers, IQ is
unable to legitimately grow their business enough to true up their financial statements.”
In May, Luckin fired Co-Founder and CEO Jenny Zhiya Qian and Chief Operating Officer
Jian Liu after more evidence emerged regarding the fabricated transactions. The U.S.
Securities and Exchange Commission has launched investigations into both companies.

Sumber: https://www.complianceweek.com/opinion/top-ethics-and-compliance-failures-of-
2020/29797.article