What is Counselor Realty's procedure for adjusting loss rates based on current conditions?
Counselor_Realty Franchise · 2025 FDDAnswer from 2025 FDD Document
The Company recognizes an allowance for credit losses for trade and other receivables to present the net amount expected to be collected as of the balance sheet date. Such allowance is based on the credit losses expected to arise over the life of the asset which includes consideration of past events and historical loss experience, current events and also future events based on our expectation as of the balance sheet date. Receivables are written off when the Company determines that such receivables are deemed uncollectible. The Company pools its receivables based on similar risk characteristics in estimating its expected credit losses. In situations where a receivable does not share the same risk characteristics with other receivables, the Company measures those receivables individually. The Company also continuously evaluates such pooling decisions and adjusts as needed from period to period as risk characteristics change.
The Company utilizes the aging method in determining its lifetime expected credit losses on its receivables. This method is used for calculating an estimate of losses based primarily on the Company's historical loss experience. In determining its loss rates, the Company evaluates information related to its historical losses, adjusted for current conditions and further adjusted for the period of time that can be reasonably forecasted. Qualitative and quantitative adjustments related to current conditions and the reasonable and supportable forecast period consider all the following: past due receivables, the customer creditworthiness, changes in the terms of receivables, effect of other external forces such as competition and legal and regulatory requirements on the level of estimated credit losses in the existing receivables. For receivables that are not expected to be collected within the normal business cycle, the Company considers current and forecasted direction of the economic and business environment. Such forecasted information includes: GDP growth, unemployment rates and interest rates, amongst others.
Source: Item 21 — FINANCIAL STATEMENTS (FDD page 32)
What This Means (2025 FDD)
According to Counselor Realty's 2025 Franchise Disclosure Document, the company adjusts its allowance for credit losses based on several factors. Counselor Realty considers past events, historical loss experience, current events, and future expectations to determine the net amount expected to be collected. The company pools its receivables based on similar risk characteristics and evaluates these pooling decisions periodically, adjusting as needed when risk characteristics change. For receivables with different risk characteristics, they are measured individually.
Counselor Realty uses the aging method to estimate lifetime expected credit losses, primarily relying on historical loss experience. However, these historical losses are adjusted for current conditions and reasonably forecasted periods. These adjustments involve both qualitative and quantitative assessments, considering factors such as past due receivables, customer creditworthiness, changes in receivable terms, and external forces like competition and legal/regulatory requirements.
For receivables not expected to be collected within the normal business cycle, Counselor Realty considers the current and forecasted direction of the economic and business environment. This includes factors like GDP growth, unemployment rates, and interest rates. This comprehensive approach allows Counselor Realty to adapt its loss rate estimates to reflect the most current and anticipated economic conditions, ensuring a more accurate representation of potential credit losses.