Company: RITM-PC
Filing Date: 2025-02-18
Form Type: 10-K
Source: 0001556593-25-000007
Chunk: 220

Company: Rithm Capital Corp.
Filing Date: 2025-02-18
Form: 10-K
Item: Item 8
Chunk 220
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al. Additionally, selecting and applying audit procedures to address the estimation uncertainty involves auditor subjectivity and industry-specific knowledge of MSRs including the current market conditions considered by a market participant.How We Addressed the Matter in Our AuditWe obtained an understanding, evaluated and tested the design and operating effectiveness of the Company’s internal controls addressing the valuation of MSRs. For example, we tested controls over management’s review of significant assumptions, including discount rates and prepayment speeds, against available market information. Additionally, we tested controls over management’s review of internally developed fair values in comparison to independent fair value ranges that management obtained from independent valuation firms to evaluate the reasonableness of the fair values developed by the Company. We also tested management’s controls over the completeness and accuracy of objective inputs used in the valuations.In order to test the valuation of MSRs as of December 31, 2024 and the acquired MSRs as of May 1, 2024, our audit procedures included involving an internal valuation specialist to evaluate the reasonableness of significant assumptions, identify potential sources of contrary information, and independently develop a range of fair values for the MSRs based on consideration of available market information and comparing management’s estimates to our ranges. We also tested the accuracy and completeness of model objective inputs and evaluated the competence and objectivity of management’s independent valuation firms. We evaluated the Company’s fair value disclosures included in Note 19 for consistency with US GAAP.Consolidation of Variable Interest EntitiesDescription of the MatterAs described in Note 20 to the consolidated financial statements, the Company enters into transactions with special purpose entities (“SPE”). Management first evaluates whether it holds a variable interest in the SPE. Where the Company holds a variable interest, management evaluates whether the entity in which the Company has a variable interest is a variable interest entity (“VIE”), and if so, whether the Company is required to consolidate the entity. A VIE is consolidated by its primary beneficiary, which is the party that has both the power to direct the activities that most significantly impact the economic performance of the VIE and a variable interest that absorbs losses or receives benefits from the VIE that could potentially be significant to the VIE.Auditing the Company’s determination of the primary beneficiary of VIEs was especially challenging because of the significant judgment involved in assessing whether the Company has power to direct the activities that most significantly impact the VIE’s economic performance based on the purpose and design of the entity and the obligation to absorb losses or the right to receive benefits that could potentially be significant to