Cash and Equivalents
Under U.S. GAAP, cash equivalents generally have an original maturity of no more than this period.
What is 3 months or less?
ASC 820 establishes this three-level framework for measuring fair value.
What is the fair value hierarchy? (Level 1, 2, 3)
The entities that require PCAOB audits.
What types audits are publicly traded companies (issuers), registered investment companies, and SEC-registered broker-dealers responsible for?
An employee steals customer cash before recording the receipt in the accounting system. This fraud scheme is known as this.
What is skimming?
Sunderland and Trompeter (2017) identify these auditors as essential participants in multinational group engagements.
Who are component auditors?
Cash that cannot be freely used because of contractual or legal limitations is classified as this.
What is restricted cash
Under ASC 820, actively traded securities with unadjusted quoted prices in active markets for identical assets fall into this level.
What is Level 1?
An auditor receives a bank confirmation directly from the financial institution. This primarily provides evidence for this assertion about the recorded cash balance.
What is existence?
A cashier collects cash, records sales, and prepares deposits without independent review. This fundamental internal control is missing.
What is segregation of duties?
Nolder and Riley (2014) examine how national culture can influence auditors' risk assessments, conflict decisions, and this professional mindset.
What is professional skepticism?
A U.S. company holds €100,000 in a euro-denominated bank account. This exchange rate is used to translate the balance at year-end.
What is the year-end spot exchange rate? (USD/EUR)
Under ASC 321, changes in the fair value of most equity securities are recognized in this financial statement component.
What is net income (earnings)?
An auditor examines outstanding checks and deposits in transit to determine whether the bank balance agrees with the general ledger. This procedure is called this.
What is testing the bank reconciliation?
An employee conceals stolen customer payments by applying subsequent customers' payments to earlier outstanding balances. This scheme is called this.
What is lapping?
Popova and Wright (2019) examine how moving confirmation work offshore changes this form of learning for novice auditors.
What is experiential learning?
A company reports $500,000 in its general ledger and $470,000 on its bank statement, with $40,000 in outstanding checks and $10,000 in deposits in transit. This is the adjusted bank balance.
What is $440,000? ($470,000 + $10,000 − $40,000.)
A debt security purchased for $98,000 with a $100,000 face value has a $2,000 difference, which is generally amortized as this.
What is a bond discount?
An auditor tests transfers between two bank accounts near year-end to identify whether the same funds were counted twice. This is the procedure.
What is a bank transfer test (or interbank transfer schedule)?
A company records an interbank transfer as a deposit in the receiving account before year-end but delays recording the withdrawal until the following year. This scheme is called this.
What is kiting?
Fedyk et al. (2022) associate AI investment with improvements in audit quality, including a reduction in the likelihood of this reporting outcome.
What are financial statement restatements?
A company purchases a six-month Treasury bill with 45 days remaining until maturity. Under the original-maturity test, it is generally classified as this rather than a cash equivalent.
What is a short-term investment?
A debt security classified as available-for-sale increases in fair value by $20,000. Assuming no credit-loss adjustment, the unrealized gain is generally reported here, before tax effects.
What is other comprehensive income (OCI), accumulated in AOCI?
An investment is valued using significant unobservable inputs. Under PCAOB AS 2501, the auditor must evaluate this critical aspect of management's valuation.
What are significant assumptions and the valuation methodology?
A company reports a substantial cash balance at a foreign bank, but auditors rely on client-provided confirmation documents. This evidence-reliability failure was central to the collapse of this German payments company.
What is Wirecard?
Law and Shen (2025) and Sugahara and Kano (2026) emphasize that even when AI handles routine tasks and offers advice, auditors must retain this essential human responsibility.
What is independent professional judgment?