Cash America 2014 Annual Report Download - page 55

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CRITICAL ACCOUNTING POLICIES
Management’s Discussion and Analysis of Financial Condition and Results of Operations is based on the
Company’s consolidated financial statements, which have been prepared in accordance with GAAP. The preparation
of these financial statements requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities, and disclosure of contingent assets and liabilities, at the dates of the consolidated
financial statements and the reported amounts of revenue and expenses during the reporting periods. On an on-going
basis, management evaluates its estimates and judgments, including those related to revenue recognition on pawn
loan fees and service charges, allowance for losses on merchandise held for disposition and consumer loans,
goodwill, long-lived and intangible assets, income taxes, contingencies and litigation. Management bases its
estimates on historical experience, empirical data and on various other assumptions that are believed to be
reasonable under the circumstances, the results of which form the basis for making judgments about the carrying
values of assets and liabilities. Actual results may differ from these estimates. The development and selection of the
critical accounting policies and the related disclosures below have been reviewed with the Audit Committee of the
Board of Directors of the Company.
Management believes the following critical accounting policies affect its more significant judgments and
estimates used in the preparation of its consolidated financial statements.
Pawn Loan Fees and Service Charges
Pawn Loans and Pawn Loan Fees and Service Charges Receivable
Pawn loans are short-term loans made on the pledge of tangible personal property. The maximum pawn
loan amount is generally assessed as a percentage of the personal property’s estimated disposition value. The typical
loan term is 30 to 90 days and, in many cases, an additional grace period (typically 10 to 60 days) may be available
to the borrower. A pawn loan is considered delinquent if the customer does not repay or, where allowed by law,
renew or extend the loan on or prior to its contractual maturity date plus any applicable grace period. Pawn loan fees
and service charges do not accrue on delinquent pawn loans. When a pawn loan is considered delinquent, any
accrued pawn loan fees and service charges are reversed and no additional pawn loan fees and service charges are
accrued. Pawn loans written during each calendar month are aggregated and tracked for performance. This
empirical data allows the Company to analyze the characteristics of its outstanding pawn loan portfolio and assess
the collectability of the principal balance in addition to pawn loan fees and service charges.
Revenue Recognition—Pawn Lending
Pawn loan fees and service charges revenue is accrued ratably over the term of the loan for the portion of
those pawn loans estimated to be collectible. If the future actual performance of the loan portfolio differs
significantly (positively or negatively) from estimates, revenue for the next reporting period would be likewise
affected.
At the end of 2014 and based on the revenue recognition method described above, the Company had
accrued $53.6 million of pawn loan fees and service charges receivable. Assuming the 2014 accrual of pawn loan
fees and service charges revenue was overestimated or underestimated by 10%, pawn loan fees and service charges
revenue would decrease or increase by approximately $5.4 million in 2014 and net income attributable to the
Company would decrease or increase by approximately $3.4 million, net of taxes.