Company: CPSS
Filing Date: 2025-03-12
Form Type: 10-K
Source: 0001683168-25-001548
Chunk: 1088

Company: CONSUMER PORTFOLIO SERVICES, INC.
Filing Date: 2025-03-12
Form: 10-K
Item: Item 6
Chunk 1088
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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 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,