You are a senior manager at Schaller & Co.  The audit partner you frequently work with has asked you to read the above article and prepare a memorandum on the Luckin Coffee fraud.  He intends to use your memo as the basis for making a presentation at a professional meeting.  He has indicated that the quality of the memo will be an important aspect of your annual evaluation.  He has asked that the memo not exceed 1,000 words and cover the following:

A. Describe the red flags, or risk factors, that should have been noted by an auditor in identifying and assessing the risks of material misstatement of Luckin’s financial statements.  Risk factors or red flags are information obtained when performing risk assessment procedures during audit planning to assess the risks of material misstatement.  You will receive credit for accurate description of the risks of material misstatement that would have been apparent during audit planning.  You will be penalized for including things that are not risk factors.  Do not just talk about the facts discussed in the article.  Risk factors include circumstances that auditing standards identify as fraud risks.

B.  Identify the types of revenues, revenue transactions (sometimes called revenue streams), and assertions of Luckin Coffee that gave rise to risks of material misstatements and the related general ledger accounts.

C.  Describe specific audit procedures using Tableau or another ADA, including particular files or types of data used, that could have been used as risk assessment procedures or substantive procedures to detect the fraud or identify a high risk of fraud.  Do not just talk about ADA.  You will be penalized for including procedures that are not ADA.

The memo is a professional document and not a research project, creative writing exercise, essay, or term paper.  You should approach it the way you would in practice in the circumstances described above and prepare a concise, technically accurate, and professional document with no spelling or grammar errors.  Departure from these instructions will reduce your score.  Exceeding the MAXIMUM of  1000 words will be severely penalized.  No late submissions will be accepted.

Please note the following or your score could be zero:

The document must be a Word doc and not some other form such as doc.x or anything else.  Failure to submit in the correct file type will be penalized as will all the matters below.

WARNING:  Using a “solution” to the Luckin Coffee assignment you can find on Chegg or Course Hero is not only cheating, but is not going to be responsive to the specific requirements of this assignment and likely to result in a failing grade.

You must use headings.  If you do not know how to use headings properly do remedial work.  The three topics above should each be under a major heading. 

Under each major heading you must clearly identify what you regard as meeting the requirement.  For example, under the heading risk factors or red flags you must clearly delineate each individual item you regard as a risk factor.  If you merely discuss the facts and hope that the description includes a risk factor you will receive no credit.  You should use technical terms to properly describe risk factors.  A reader (me) should not have to read closely to try to figure out what you believe is a red flag.  Fictitious transactions are not red flags.  Red flags are risks of material misstatement known before the presence of the fraud was recognized.

If you merely talk about something you will receive no credit.  For example, if you just talk about what ADA is that is no credit; the audit partner who asked you to prepare the memo knows what ADAs are.  For this item as well as the other two you must provide a specific detailed description.

The assignment is not a research assignment, but you must know what the correct accounting is for the matters at issue such as revenue.  If you do not then you will need to do research.

Remember do not just talk about the facts of the Luckin Coffee case.  Focus and follow the directions.