LUCKIN COFFEE, INC Description of Company Luckin Coffee Inc. engages in the retail sale of freshly brewed drinks, and pre-made food and beverage items in the People's Republic of China. It offers freshly brewed drinks, including freshly brewed coffee and non-coffee drinks; and food and beverage items, such as light meals. The company operates pick-up stores, relax stores, and delivery kitchens under the Luckin brand, as well as Luckin mobile app, Weixin mini-program, and other third- party platforms that cover the customer purchase process. As of March 31, 2019, it operated 2,370 stores, including 2,163 pick-up stores, 109 relax stores, and 98 delivery kitchens in 28 cities in the People's Republic of China. The company was founded in 2017 and is based in Xiamen, the People's Republic of China. The latest news is this company fabricated over $300 million of sales (fake sales)-the company just went public (IPO) and was recently selling for $40 per share before this news surfaced. Now the stock is selling for under $5 per share. The auditors of the company are EY (China) - they have done the audit for three years prior to going public. Assignment: After reading chapter 7 on the revenue and collection cycle prepare a list of procedures the auditors should have done to determine if the sales recorded were valid. You can look at the audit program for sales and A/R) in Appendix B (p. 334-335) and use some of these ideas for your audit of sales. But I want you to be creative in your approach and come up with some interesting things you could do to determine if sales were in fact, valid, recorded in the correct period etc. You can go online and research the company - you might find things like they used coupons heavily to drive business, had a pre-paid plan where customers could purchase many coffee's in advance (like a gift card) - their big competitor is Starbucks. So have fun....... Here is one creative idea - how many disposable cups did the company purchase each year? Assuming you deduct the difference in inventory how many cups did they sell? Did this come close to what they said they sold? (A broad reasonableness test) Remember: Beginning Inventory + Puchases Equal -- Items available for sale Less: Ending Inventory equals = Items used (using the cost of aonds sold model) LUCKIN COFFEE, INC Description of Company Luckin Coffee Inc. engages in the retail sale of freshly brewed drinks, and pre-made food and beverage items in the People's Republic of China. It offers freshly brewed drinks, including freshly brewed coffee and non-coffee drinks; and food and beverage items, such as light meals. The company operates pick-up stores, relax stores, and delivery kitchens under the Luckin brand, as well as Luckin mobile app, Weixin mini-program, and other third- party platforms that cover the customer purchase process. As of March 31, 2019, it operated 2,370 stores, including 2,163 pick-up stores, 109 relax stores, and 98 delivery kitchens in 28 cities in the People's Republic of China. The company was founded in 2017 and is based in Xiamen, the People's Republic of China. The latest news is this company fabricated over $300 million of sales (fake sales)-the company just went public (IPO) and was recently selling for $40 per share before this news surfaced. Now the stock is selling for under $5 per share. The auditors of the company are EY (China) - they have done the audit for three years prior to going public. Assignment: After reading chapter 7 on the revenue and collection cycle prepare a list of procedures the auditors should have done to determine if the sales recorded were valid. You can look at the audit program for sales and A/R) in Appendix B (p. 334-335) and use some of these ideas for your audit of sales. But I want you to be creative in your approach and come up with some interesting things you could do to determine if sales were in fact, valid, recorded in the correct period etc. You can go online and research the company - you might find things like they used coupons heavily to drive business, had a pre-paid plan where customers could purchase many coffee's in advance (like a gift card) - their big competitor is Starbucks. So have fun....... Here is one creative idea - how many disposable cups did the company purchase each year? Assuming you deduct the difference in inventory how many cups did they sell? Did this come close to what they said they sold? (A broad reasonableness test) Remember: Beginning Inventory + Puchases Equal -- Items available for sale Less: Ending Inventory equals = Items used (using the cost of aonds sold model)
