Keywords: Accounting Scam, Analytical Procedures, Audit Procedures, Confirmation Procedure, Material Misstatements.


The research investigates alleged material misstatements in the financials of Luckin Coffee, a Chinese company listed in NASDAQ. The research is exploratory and based on publicly available information. The financial data has been obtained from their quarterly and annual reports submitted to Securities and Exchange Commission. The research shows the alleged corruption by inflating sales and profits by C-suite executives of the company. Nevertheless, before doing so, what failures in corporate governance led to this crisis? The admission of such material misstatements resulted in a massive loss to the investors and shaken the investment community’s trust once again. The research tried to determine what kind of audit procedures should have been implemented to earlier detection of fraud? What should have been done to protect stakeholders? What extra measures should the U.S. stock exchange take into consideration before listing foreign companies? What kind of ethical standards must be taught to the students/future executives to avoid such material misstatements? How can accounting bodies address such material misstatements? How can audit procedures be improved? This research will facilitate the policymakers, accounting and auditing regulators, board and various other stakeholders to deter, detect and mitigate such financial material misstatements and offers recommendations.

JEL Classification Codes: M41, M42, M48, M148.

Author Biography

Gagan Kukreja, AU

Associate Professor, Department of Accounting, Finance and Banking, College of Business and Finance, Ahlia University, Bahrain,


Aiden Research. (2020, February 6). Luckin Coffee: Muddy Waters' Short Thesis Will Fall Short. Seeking Alpha. Retrieved from

Chan, C. (2018, September 7). Tencent signs partnership deal with coffee startup Luckin in challenge to Alibaba-Starbucks tie-up. South China Morning Post. Retrieved from

COFFEBI. (2019, November 2). China, 7 reasons why coffee consumption is growing. COFFEBI. Retrieved from

Fantozzi, J. (2020, June 29). Luckin Coffee drops stock market delisting appeal following fraud scandal. Nationa Restaurant News. Retrieved from

Ferreira, J., & Ferreira, C. (2018). Challenges and opportunities of new retail horizons in emerging markets: The case of rising coffee culture in China. Science Direct, 783-796.

Fineman, J., & Yang, Y. (2020, February 1). Citron, Muddy Waters Clash on Twitter Over Chinese Coffee Chain. Twitter. Retrieved from

Fruhlinger, J. (2019, November 11). It's official: Luckin' Coffee now has as many Chinese locations as Starbucks. Thinknum. Retrieved from

Fruhlinger, J. (2020, April 8). Luckin Coffee now reports 6,500 locations in China, 2,000 more than Starbucks. Thinknum. Retrieved from

Global Coffee Report. (2019, April). Retrieved from Global Coffee Report:

International Finance News. (2018, July 11). Mobile Finance. Retrieved from

Javalgi & Grossman. (2016). Aspirations and entrepreneurial motivations of middle-class consumers in emerging markets: The case of India. Elsevier, 657-667.

Luckin Coffee Inc. (2020, March 27). Luckin Coffee Announces Appointments of Two Independent Directors. GlobeNewswire. Retrieved from

Markoch, C. (2020, March 3). It’s LK Stock’s Business Model That’s the Problem. Investorplace. Retrieved from Investorplace:

Newdesk, B., & Writer, B. S. (2020, February 3). Luckin Coffee Issues Response To Short Report By Muddy Waters; Says ' The methodology of the Report is flawed, the evidence is unsubstantiated, and the allegations are unsupported speculations and malicious interpretations of events'. Benzinga. Retrieved from

Pisani, B. (2020, April 3). Luckin Coffee is a painful reminder of ‘the extreme fraud risk’ of some China-based companies. CNBC. Retrieved from

Smith, K. H. (2019, May 17). Luckin Coffee and the New Retail Era. The startup. Retrieved from

Wang, J. (2020, May 13). Fall From Grace: Luckin Coffee’s Former Billionaire CEO Fired Amid Fraud Scandal. Forbes. Retrieved from

Wang, Y. (2020, April 3). Chinese Regulators Target Luckin Coffee After Admission Of Fabricated Sales. Forbes. Retrieved from

Winck, B. (2020, June 4). MarketWatch. Retrieved from

Writers, K. (2018, February 26). Krasia. Retrieved from

Xinghua, C. (2018, September 9). Observer. Retrieved from

Yoon, E. (2018, July 20). China’s Luckin Coffee takes on Starbucks. CNBC. Retrieved from
How to Cite
Kukreja, G. (2021). THE SPILLOVER OF THE COFFEE: MATERIAL MISSTATEMENTS AT (UN) LUCKIN COFFEE INC. Indian Journal of Finance and Banking, 5(2), 106-114.
Research Paper/Theoretical Paper/Review Paper/Short Communication Paper