Company: CPSS
Filing Date: 2025-03-12
Form Type: 10-K
Source: 0001683168-25-001548
Chunk: 1290

Company: CONSUMER PORTFOLIO SERVICES, INC.
Filing Date: 2025-03-12
Form: 10-K
Item: Item 7A
Chunk 1290
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 in accordance with generally accepted accounting principles. A company’s
internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that,
in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable
assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management
and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition,
use, or disposition of the company’s assets that could have a material effect on the financial statements.

 F-2 

Because of its inherent limitations,
internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness
to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.

Critical Audit Matter

The critical audit matter communicated
below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated
to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved
our especially challenging, subjective, or complex judgments. The communication of the critical audit matter does not alter in any way
our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing
a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Accounting for Loans at Fair Value

As described in Notes 1 and 12 to
the consolidated financial statements, the Company carries all finance receivables acquired after 2017 at fair value on a recurring basis.
The Company had $3.3 billion in finance receivables that are carried at fair value, all of which are classified as level 3 fair values
as they contain one or more inputs which are unobservable and significant to the fair value measurement. With assistance from an outside
valuation expert, the Company used a level 3 fair value methodology for the fair value of finance receivables. The significant assumptions
used by the Company to calculate the fair value of these financial receivables include the magnitude and timing of net charge-offs and
the rate of amortization of the portfolio of