Luckin Coffee's performance falsified and shorted Luckin Coffee reported that Luckin Coffee's share price plummeted.

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Qianjie-Luckin Coffee fraud incident

These days, a Luckin Coffee short report issued by Muddy Waters set off an uproar in the capital market, and the company that once tried to kill Starbucks fell off the altar in an instant. See it rise a tall building, see it feast guests, see its building collapse. In the WeChat group, seeing that many friends have used the coupons, it seems that they are none of their own business and can feel at ease to eat melons.

As an auditor, this is not right. As the so-called layman watches the hustle and bustle, the expert watches the way, we can't just watch the lively. You know, behind this short report is a bet of trillions of dollars. You can imagine the rigour of its logic and the abundance of evidence.

After eating melons, we also have to learn. It would be great if we could learn the logic and expression of this article and use our future audit notes and management recommendations. Many children say that if they don't know how to write audit instructions, just look at how they write them.

The logic of the short report is clear. First, briefly state the opinions and evidence, and then expand them one by one. This is probably the expression habit of foreigners, give the conclusion first, then give the evidence. Unlike some articles, I still don't know what it wants to express after reading it for a long time, so it's like writing a love letter.

The first part of the short report proved Luckin Coffee's fraud, and the second part proved that Luckin Coffee's business model could not be profitable at all. If it is only proved to be fake, it can still come out to apologize and win sympathy, and the stock will not fall so badly. Proving that its business model cannot be profitable is tantamount to telling investors that your stock is worthless and that the stock price has fallen to the bottom.

The editor's admiration for this short report is like a surging river.

First, sales fraud

Rising Coffee has more than 4000 stores in 53 cities. Muddy Waters sampled 92 full-time and 1418 part-time workers and recorded valid data for 981 working days in 620 stores in 38 cities. Another 851 working days were invalidated, and they filmed the business of the store for a day. As long as the video was missing for more than 10 minutes, the video for that day was invalidated. Such evidence is quite convincing.

They counted the sales orders for the 981 working days in the stores and calculated an average of 230 sales orders per day.

Some orders may have more than one item. They have collected more than 25000 small tickets and calculated that each order has an average of 1.14 items.

Then the average daily sales volume = 230 × 1.140263 (pieces)

After calculating the average sales, it is necessary to compare it with the sales on the account. The inflated sales can be calculated by using the average sales volume-the sales volume on the book. How to count the sales on this account?

If the order is continuous, as long as they buy one when they open the door and another when they close the door, as soon as the two numbers are reduced, they can get an one-day sales volume.

In their survey, found that there is a jump order phenomenon, such as jumping from 271 to 273, there is no 272 in the middle, this 272, is a false increase of orders, but also room for fraud. Why choose a jump order instead of placing more consecutive orders? Because those investigation agencies are staring at you every day, making out false receipts, and when the investigation agencies get it, they are actually faking it. The advantage of the jump order is that it has not been issued in the first place, and the investigation organization will not get a false order!

I remember that when I went to the bank for numbering, the document number was divided into several types, such as A0025, B001, C004 and so on.

If Luckin Coffee also ranked in several different types of order, the investigation agency would not be able to calculate store sales by buying one when opening the door and one when closing.

From the report of muddy water company, we can learn that when doing the audit of large chain stores, we can adopt the method of sampling, and the sample should cover enough areas to infer the population from the sample, which is a statistical category. It is necessary to design the audit procedure according to the specific situation of the enterprise, because it is understood that all the sales of the store are taken from online and offline, and the statistics of the average daily order documents issued are 100% complete. Considering that there may be more than one item per document, they calculate the average number of goods per order by collecting more than 20,000 small notes.

Using the sample to infer the overall, for the annual report audit of chain stores, this is a quite beautiful case.

II. New ways of counterfeiting

They found that Lucky falsely increased advertising spending (expenses) by $336 million and revenue by $397 million.

As we all know, assets = liabilities + owners' equity

If you want to increase profits, you must increase your assets. However, it falsely increases expenses and then falsely increases income, the difference between the two numbers is not big, and the final net profit does not increase much.

There is a lot of knowledge in this. Revenue is at the store level, while advertising spending is at the group level. To see whether a store is profitable, it mainly depends on the income of the store-rent-staff wages, utilities, and so on. If the income is falsely increased, then the store can turn a loss into a profit, and the store is profitable! The advertising fee is at the group level, and the cost at the group level does not affect the net profit at the store level. This sends a false message to investors: even if there is a loss at the group level, after advertising is in place, with the reduction of advertising fees, will not the overall profit be achieved? As long as the store is profitable, there is hope! Then the stock price goes up.

The traditional way of counterfeiting is to increase assets and profits at the same time. Because to increase the assets, the assets are often tangible, and the audit can easily pick them out. For example, if you put in fixed assets, the audit will supervise the stock; if you release the exchange, the audit will send a letter; if you put a bank deposit, the audit will write a letter.

Coffee industry, are light assets industry, false increase of so many assets, it is easy to analyze. Therefore, it can only make the report look good by falsely increasing the fees at the group level and increasing the profits at the store level.

This is a new way of counterfeiting, falsely increasing the costs at the group level and the profits at the store level, although the overall level does not increase profits, but the data at the store level will be very good-looking! Today's chain enterprises and Internet enterprises all burn money at the beginning, but it is normal to lose money in the past few years. As long as we do a good job in the market and sales data, the stock will rise, and then the founders and investment institutions will cash out, leaving leeks behind.

A new way of financial fraud has emerged! Do not pursue the final net profit, as long as the market! NASDAQ, loss-making enterprises can also be on!

Third, falsely increase "income from other products"

The share of "other product revenue" increased from 6% to 22%, a false increase of nearly 400%. The income from selling coffee is the main product income, while those from selling nuts, cups and so on belong to other products. There are two procedures to prove the false growth of enterprises, one is inspection, the other is analysis.

Of the more than 20,000 small tickets they collected, "other products" accounted for only 6.2%, while the statement accounted for 22%, which is obviously a false increase, because more than 20,000 small tickets are representative enough to represent the overall average. They also analyzed the VAT rate. The VAT of other products is 13%, and the tax rate of coffee is 6%, then the average tax rate = the proportion of coffee income × coffee tax rate + the proportion of income of other products × the tax rate of other products

Instead, 22% × 13% "6% × 78%" 7.54% and the average tax rate disclosed in the report is 6.5%, which is contradictory. There are only two reasons, one is tax evasion, the other is fraud, no matter which it is, it is dead.

Uh... Companies may argue that that 6.5% was posted by interns and misposted the data. In any case, it is not uncommon for temporary workers and interns to carry the pot. However, of the more than 20,000 small tickets, "other products" account for only 6.2%. It cannot be denied that Muddy Waters specializes in selecting small tickets with less "other income" when sampling. This is called ten thousand arrows at the same time, when multiple evidence points to the same result at the same time, it is difficult for enterprises to deny it.

Some audit children do not know the use of calculating the average tax rate, read this case, should know it! The analysis program is based on the mutual verification of logically related indicators, that is, the so-called check. If you can't hook it up, there's probably something wrong. In this case, there is a relationship between sales income and output tax.

Being good at analyzing the relationship between all kinds of data is one of the necessary skills for excellent audit children. If an enterprise makes a fake, it has to do a full set of all the data, which takes a lot of manpower and financial resources. For example, if a manufacturing enterprise wants to falsely increase its income, you have to keep turning the water meter and electricity meter 24 hours a day, and you have to make up a series of indicators such as freight, fictitious taxes, and so on. If you are not careful, you will miss it, and once it is omitted, it is likely to be detected. Why do those senior partners know there is a fake as soon as they look at the company's statements? Because they know too much about the industry, they know the relationship between all kinds of data like the back of their hand, and you can tell which data is wrong at a glance.

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