Company: CPSS
Filing Date: 2025-03-12
Form Type: 10-K
Source: 0001683168-25-001548
Chunk: 1722

Company: CONSUMER PORTFOLIO SERVICES, INC.
Filing Date: 2025-03-12
Form: 10-K
Item: Item 9C
Chunk 1722
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 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 finance receivables. These significant assumptions were based on the factors that market
participants use in pricing similar receivables and are based on the best information available in the circumstances.

We identified the valuation of finance
receivables carried at fair value as a critical audit matter as this estimate requires subjective auditor judgment. Our principal considerations
in making this determination are (i) there was significant judgment and estimation by the Company in determining the assumptions to estimate
fair value, which in turn led to a high degree of auditor judgment, subjectivity, and effort in performing procedures related to the fair
value of these finance receivables, and (ii) the audit effort involved professionals with specialized skill and knowledge to assist in
evaluating the audit evidence obtained from these procedures.

Testing the design and operating effectiveness
of controls over the application of the assumptions used to support the estimate of loans at fair value included addressing:

    ·
    The
completeness and accuracy of data

    ·
    Third-party
model review

    ·
    Review
of management’s judgments and significant assumptions over inputs

Substantively testing management's process, including
evaluating management’s judgments and assumptions, for developing the estimate of loans at fair value included:

    ·
    Using
an auditor employed valuation specialist to assist in testing the Company’s estimate of fair value of the finance receivables. Testing
included evaluation of certain management significant assumptions and, evaluating the appropriateness of the methodology including a recalculation
of the model.

    ·
    Testing
the completeness and accuracy of the underlying data used