Chinese Companies' Challenges in the US Failing to Follow Financial Disclosure Regulations

Engagement Assignment #4
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Engagement Assignment #4
The US Securities and Exchange Commission (SEC) expect that publicly listed companies provide detailed disclosure about operating results and financial status. Under ASX rules on disclosures, “once an entity becomes aware of any information concerning it that a reasonable person would expect to have a material effect on the price or value of the entity’s securities, the entity must immediately tell ASX that information.” Disclosure requirements in the US, like in Australia, often focus on materiality, and reporting entities respect the disclosure rules and regulations while presenting accurate and fair financial statements.
Wang and Campbell (2020) reported that the Chinese coffeehouse chain. Luckin Coffee Inc. was touted as a solid competitor for Starbucks Corp, but the company failed to disclose the financial situation fully. The article further highlights the challenges associated with Chinese companies in the US failing to follow financial disclosure regulations as expected. The company had fabricated some of the transactions to overstate the profits and hide losses from investors. The SEC complaint about failure to follow disclosure requirements highlights concerns about companies failing to provide full disclosure, which misleads investors.
Luckin provided fraudulent transactions and violated disclosure obligations by misrepresenting the revenue, expenses, and net loss. Proving fraud at the company was challenging, but there were doubts given the rapid rise in sales within a short period of time without the company’s providing evidence on the ground. Marketing efforts and only releasing wh...