Luckin Coffee scandal sparks demand from Chinese tech firms for auditors to check online metrics data

Chinese technology companies are increasingly hiring auditors and consultants to ensure accurate reporting of their operational metrics – information crucial to investors but out of the scope of traditional financial reporting audits – to boost market confidence and strengthen accountability.

Internet companies listed in China and abroad, as well as those seeking an initial public offering, are asking auditors and consultants to validate common metrics data, from the number of daily active users to gross merchandise value, auditors say.

Investors of fast-growing, cash-burning tech firms often rely on these key yardsticks of online traffic and transactions to form judgments about their investments more than conventional financial data like profits and revenue. But these statistics are currently not part of the standard financial statement audit required by regulators, and are thus at higher risk of manipulation and fabrication.

“It’s an untapped space,” said Wilson Chow, global TMT [telecom, media and technology] industry leader at professional services firm PwC. “I see a growing trend of [companies and regulators] paying more attention to these metrics.”

“Because of the recent incident, companies have stepped up their efforts and raised more awareness of adopting formal data reporting practises to global investors. They really want to give more trust and transparency to investors and to protect their brand name,” he said.

Executives at Luckin, best known for its online ordering, steep discounts and cheap delivery, were found to have inflated turnover between the second quarter and the fourth quarter of 2019.