What procedures were performed on a selection of Budget's risk vehicles to assess the reasonableness of the estimated residual values?
Budget Franchise · 2025 FDDAnswer from 2025 FDD Document
- 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, several procedures were performed to assess the reasonableness of the estimated residual values of a selection of risk vehicles. These procedures included testing the underlying historical data used as the basis for calculating the estimated residual values to evaluate the reasonableness of the inputs. The mathematical accuracy of the company's calculation of the estimated residual values and vehicle depreciation expense rates was also tested.
Significant assumptions and judgments used in the company's calculation were tested by developing an independent expectation of residual values and comparing them to the estimated residual values calculated by Budget. This independent expectation was calculated using professional judgment with reference to third-party data, information produced by the company, subsequent vehicle sales, and inquiries of management. Auditors also searched for contradictory evidence associated with the significant assumptions and judgments made by management based on their knowledge of the industry and review of third-party industry data.
Finally, an independent expectation of depreciation expense was developed based on factors such as the vehicles' age and the results of residual value testing, and this was compared to the amount recorded by Budget as depreciation expense. These procedures were part of a broader audit effort to assess the reasonableness of estimated residual values and vehicle depreciation expense related to United States risk vehicles, considering the volume of risk vehicles and the estimation uncertainty involved.