When evaluating Budget's financial statements, what did the auditors assess regarding the reasonableness of the estimated residual values of risk vehicles?
Budget Franchise · 2025 FDDAnswer from 2025 FDD Document
Our audit procedures to assess the reasonableness of the estimated residual values and vehicle depreciation expense related to United States risk vehicles included the following, among others:
- We evaluated the appropriateness and consistency of the Company's methods, significant assumptions and judgments to calculate the estimated residual values of risk vehicles and the expected dates of disposition.
- We tested the effectiveness of controls over vehicle depreciation expense related to risk vehicles and management's review of the significant assumptions and judgments to calculate the estimated residual values of risk vehicles, including those over the Company's monitoring of residual values and used vehicle market conditions.
- We assessed the reasonableness of the estimated residual values of risk vehicles by performing the following procedures on a selection of risk vehicles:
- We tested the underlying historical data that served as the basis for the Company's calculation of the estimated residual values to evaluate the reasonableness of the inputs.
- We tested the mathematical accuracy of the Company's calculation of the estimated residual values and vehicle depreciation expense rates.
- We tested significant assumptions and judgments used in the Company's calculation by developing an independent expectation of residual values and compared them to the estimated residual values calculated by the Company. Our independent expectation was calculated using our professional judgment by reference to third-party data, information produced by the Company, subsequent vehicle sales, and inquiries of management.
- We searched for contradictory evidence associated with the significant assumptions and judgments made by management based on our knowledge of the industry and review of third-party industry data.
- We developed an independent expectation of depreciation expense based on, but not limited to, the vehicles' age and results of our residual value testing and compared it to the amount recorded by the Company as depreciation expense.
Source: Item 21 — FINANCIAL STATEMENTS (FDD page 79)
What This Means (2025 FDD)
According to Budget's 2025 Franchise Disclosure Document, the auditors' assessment of the reasonableness of estimated residual values and vehicle depreciation expense related to United States risk vehicles involved several procedures. These procedures included evaluating the appropriateness and consistency of Budget's methods, significant assumptions, and judgments used to calculate the estimated residual values of risk vehicles and their expected disposition dates.
Furthermore, the auditors tested the effectiveness of controls over vehicle depreciation expense related to risk vehicles and management's review of the significant assumptions and judgments used to calculate the estimated residual values of risk vehicles. This included monitoring residual values and used vehicle market conditions. The auditors also assessed the reasonableness of the estimated residual values of risk vehicles by performing procedures on a selection of risk vehicles.
To test the underlying historical data, the auditors evaluated the reasonableness of the inputs used in Budget's calculation of estimated residual values. They also tested the mathematical accuracy of Budget's calculation of the estimated residual values and vehicle depreciation expense rates. Additionally, the auditors tested significant assumptions and judgments by developing an independent expectation of residual values, comparing them to Budget's estimates, and searching for contradictory evidence based on their industry knowledge and third-party data. Finally, they developed an independent expectation of depreciation expense based on factors like vehicle age and residual value testing results, comparing it to the amount recorded by Budget as depreciation expense.