Which category is NOT typically targeted by improper asset valuation schemes?

• A. Inventory valuation
• B. Accounts receivable
• C. Cash equivalents
• D. Fixed assets

Answer: (C)

Improper asset valuation schemes rely on manipulating the estimates and judgments that determine an asset’s reported value, so the most vulnerable categories are those with subjective or discretionary valuations. Inventory, for example, can be inflated by overstating quantities, overstating unit costs, or delaying obsolescence write-downs. Accounts receivable can be boosted by recording fictitious sales or by underestimating the allowance for doubtful accounts. Fixed assets can be overstated through improper capitalization of costs or by manipulating depreciation and impairment assumptions. Cash equivalents, by contrast, are essentially cash or near-cash instruments valued at or near par with little room for subjective valuation, and they’re readily realizable. Because there isn’t much room to inflate their value through estimates, they’re not typically targeted.