Question 1A press release titled “Luckin Coffee Agrees to Pay $180 Million Penalty to Settle AccountingFraud Charges” by the U.S. Securities and Exchange Commission in the SEC website on 16December 2020, reported that China-based company Luckin Coffee Inc. defrauded investorsby materially misstating the company’s revenue, expenses, and net operating loss in an effortto falsely appear to achieve rapid growth and increased profitability and to meet the company’searnings estimates.Below is an excerpt from the press release (2020-319):“The SEC’s complaint alleges that, from at least April 2019 through January 2020, Luckinintentionally fabricated more than $300 million in retail sales by using related parties to createfalse sales transactions through three separate purchasing schemes. According to the complaint,certain Luckin employees attempted to conceal the fraud by inflating the company’s expensesby more than $190 million, creating a fake operations database, and altering accounting andbank records to reflect the false sales.The complaint further alleges that the company intentionally and materially overstated itsreported revenue and expenses and materially understated its net loss in its publicly disclosedfinancial statements in 2019. For example, Luckin allegedly materially overstated its reportedrevenue by approximately 28% for the period ending June 30, 2019, and by 45% for the periodending Sept. 30, 2019, in its publicly disclosed financial statements. The complaint alleges thatduring the period of the fraud, Luckin raised more than $864 million from debt and equityinvestors. After Luckin’s misconduct was discovered in the course of the annual external auditof the company’s financial statements, Luckin reported the matter to and cooperated with SECstaff, initiated an internal investigation, terminated certain personnel, and added internalaccounting controls.“Public issuers who access our markets, regardless of where they are located, must not providefalse or misleading information to investors,” said Stephanie Avakian, Director of the SEC’sDivision of Enforcement. “While there are challenges in our ability to effectively hold foreignissuers and their officers and directors accountable to the same extent as U.S. issuers andpersons, we will continue to use all our available resources to protect investors when foreignissuers violate the federal securities laws.”Source: https://www.sec.gov/news/press-release/2020-319Required:(a) Discuss what is earnings management and the motivations for it in the case of LuckinCoffee Inc

Question 1A press release titled “Luckin Coffee Agrees to Pay $180 Million Penalty to Settle AccountingFraud Charges” by the U.S. Securities and Exchange Commission in the SEC website on 16December 2020, reported that China-based company Luckin Coffee Inc. defrauded investorsby materially misstating the company’s revenue, expenses, and net operating loss in an effortto falsely appear to achieve rapid growth and increased profitability and to meet the company’searnings estimates.Below is an excerpt from the press release (2020-319):“The SEC’s complaint alleges that, from at least April 2019 through January 2020, Luckinintentionally fabricated more than$300 million in retail sales by using related parties to createfalse sales transactions through three separate purchasing schemes. According to the complaint,certain Luckin employees attempted to conceal the fraud by inflating the company’s expensesby more than $190 million, creating a fake operations database, and altering accounting andbank records to reflect the false sales.The complaint further alleges that the company intentionally and materially overstated itsreported revenue and expenses and materially understated its net loss in its publicly disclosedfinancial statements in 2019. For example, Luckin allegedly materially overstated its reportedrevenue by approximately 28$864 million from debt and equityinvestors. After Luckin’s misconduct was discovered in the course of the annual external auditof the company’s financial statements, Luckin reported the matter to and cooperated with SECstaff, initiated an internal investigation, terminated certain personnel, and added internalaccounting controls.“Public issuers who access our markets, regardless of where they are located, must not providefalse or misleading information to investors,” said Stephanie Avakian, Director of the SEC’sDivision of Enforcement. “While there are challenges in our ability to effectively hold foreignissuers and their officers and directors accountable to the same extent as U.S. issuers andpersons, we will continue to use all our available resources to protect investors when foreignissuers violate the federal securities laws.”Source: https://www.sec.gov/news/press-release/2020-319Required:(a) Discuss what is earnings management and the motivations for it in the case of LuckinCoffee Inc