How does Engel & Volkers determine the allowance for doubtful accounts related to accounts receivable?
Engel_Volkers Franchise · 2025 FDDAnswer from 2025 FDD Document
Accounts receivable are stated at the amount the Company expects to collect. The Company maintains allowances for doubtful accounts and changes in the allowance are included in selling, general and administrative expenses in the consolidated statements of comprehensive income (loss). The Company assesses collectibility by reviewing accounts receivable on a collective basis where similar risk characteristics exist. In determining the amount of the allowance for doubtful accounts, management considers historical collectibility and makes judgments about the creditworthiness of the pool of customers based on credit evaluations. Current market conditions and reasonable and supportable forecasts of future economic conditions adjust the historical losses to determine the appropriate allowance for doubtful accounts. Uncollectible accounts are written off when all collection efforts have been exhausted.
The Company assesses the outstanding balances in notes receivable by evaluating each of the party's ability to pay by reviewing their interest payment and financial history annually, historical losses recorded and reassessing any insolvency risk that is identified. If a failure to pay is anticipated due to these conditions, the Company assesses the terms of the notes and estimates an expected credit loss.
Source: Item 21 — FINANCIAL STATEMENTS (FDD page 88)
What This Means (2025 FDD)
According to Engel & Volkers' 2025 Franchise Disclosure Document, the company states accounts receivable at the amount it expects to collect. To determine the allowance for doubtful accounts, Engel & Volkers reviews accounts receivable on a collective basis, grouping them by similar risk characteristics. This approach allows them to assess collectibility more efficiently. Changes in the allowance are reported as selling, general, and administrative expenses.
Engel & Volkers' management considers historical collectibility data and makes informed judgments about the creditworthiness of their customer pool. These judgments are based on credit evaluations, which likely involve analyzing the financial stability and payment history of customers. Current market conditions and forecasts of future economic conditions are also factored in to adjust historical losses and determine the appropriate allowance for doubtful accounts. This forward-looking approach ensures that the allowance reflects the most up-to-date information available.
Engel & Volkers writes off uncollectible accounts when all collection efforts have been exhausted. This practice ensures that the company's financial statements accurately reflect the value of its assets. By maintaining an allowance for doubtful accounts, Engel & Volkers aims to provide a realistic view of its financial position and protect against potential losses from uncollectible receivables. This is a standard accounting practice that helps investors and stakeholders make informed decisions about the company's financial health.
For notes receivable, Engel & Volkers assesses the outstanding balances by evaluating each party's ability to pay, reviewing their interest payment and financial history annually, historical losses recorded, and reassessing any insolvency risk that is identified. If a failure to pay is anticipated due to these conditions, Engel & Volkers assesses the terms of the notes and estimates an expected credit loss.