Improve Audit Quality CPAs: Learning from Taking Muddy Waters Research Short Sell Luckin Coffee

Stakeholders who conspired to commit fraud, make false statements, and engage in other unethical behavior substantially negatively impacted the credibility of financial information. In recent times, short sellers have emerged as active participants in the capital market, playing a crucial role in identifying problematic companies. Certified Public Accountants (CPAs) are instrumental in ensuring the accuracy of financial reporting. While most current research focuses on enhancing CPA’s independence, professional ethics, vocational competence, and corporate internal management, there is a dearth of studies on improving external management and related laws and regulations. This study delves into the intersection of short selling and audit by examining Muddy Waters’ short sale of Luckin Coffee, a case that garnered significant attention in China in 2020. The investigation suggests that to enhance CPAs’ audit quality, relevant departments should refine laws and regulations, bolster listed company management, and safeguard CPAs’ independence. CPAs should augment their professional skills and integrate them into audit work. Accounting firms should devise and enhance internal management. To a certain extent, this study broadens the research perspective of CPAs’ audit work, offers some details that merit further attention for the improvement of audit quality, and aids in clarifying CPAs’ situation and refining relevant policies.