PRA GROUP INC
For the period ended Dec 31, 2024. Filed Feb 27, 2025.
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FY2024 · Filed Feb 27, 2025
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Reports of Independent Registered Public Accounting Firms
Report of Independent Registered Public Accounting Firm
To the Stockholders and the Board of Directors of PRA Group, Inc.:
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of PRA Group, Inc. (the Company) as of December 31, 2024 and 2023, the related consolidated income statements, statements of comprehensive income, statements of changes in equity and statements of cash flows for each of the three years in the period ended December 31, 2024, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2024 and 2023, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2024, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2024, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), and our report dated February 27, 2025 expressed an unqualified opinion thereon.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
| Estimate of expected future recoveries on purchased credit deteriorated assets | |
| Description of the Matter | As of December 31, 2024, the balance of the Company’s Finance Receivables, net was $4.1 billion, and the changes in expected future recoveries for the year ended December 31, 2024 was $84.7 million as disclosed in Note 2. As more fully described in Note 1 and Note 2 to the consolidated financial statements, the Company accounts for Finance Receivables, net, under the guidance of ASC Topic 326 “Financial Instruments – Credit Losses” in the Consolidated Balance Sheets by calculating an estimate of remaining collections (ERC) for each pool of receivables and applying a discounted cash flow methodology. Subsequent changes (favorable and unfavorable) in the expected cash flows are recognized within Changes in expected recoveries in the Consolidated Income Statements by recording the present value of those changes in ERC at the effective interest rates of the respective pools. Management’s estimate of ERC is based on relevant information about past events, current conditions, and reasonable and supportable forecasts that affect the timing and amount of expected cash flows. Development of the Company’s forecasts rely on both quantitative and qualitative factors. Qualitative factors can include both external and internal information and consider management’s view on available facts and circumstances at each reporting period. |
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| Auditing the qualitative factors used by management in their forecast of ERC required complex auditor judgment due to the subjectivity in assumptions related to changes in recent collection trends, the projected impact of operational activities, and the influence that external factors will have on the amount and timing of ERC. | |
| How We Addressed the Matter in Our Audit | We obtained an understanding, evaluated the design, and tested the operating effectiveness of internal controls over management’s process to develop their estimates of ERC, including, management review controls over key subjective assumptions and judgments used in management’s estimate. Our test of controls included testing the completeness and accuracy of objective data relied upon by management when estimating ERC and the observation of certain key governance meetings where subjective assumptions were subject to challenge by senior management. With the assistance of our internal specialists, we evaluated whether management’s methods for estimating expected recoveries were in compliance with U.S. generally accepted accounting principles. We tested management’s measurement of ERC by reconciling collections data used in the estimation process to source, reperforming calculations, evaluating the reasonableness of qualitative adjustments and considerations for the estimated impact of operational activities, comparing the current estimate to prior periods and historical trends, and reviewing external evidence, including economic, peer, and industry data, among other procedures. |
| Goodwill Impairment Assessment | |
| Description of the Matter | At December 31, 2024, the Company’s Goodwill was $396.4 million, consisting primarily of $369.5 million within the Debt Buying and Collection (“DBC”) reporting unit. As discussed in Note 1 and Note 4 of the consolidated financial statements, goodwill is tested for impairment at least annually. The Company performed a quantitative impairment assessment of goodwill for the DBC reporting unit, and estimated the fair value by applying the income approach. Under the income approach, fair value is estimated based on the present value of estimated future cash flows and a residual terminal value. The Company also used the market approach, which considered relevant transaction data from comparable publicly traded companies, to assess the reasonableness of the results of the income approach. The Company completed its annual goodwill impairment assessment as of October 1, 2024 and concluded that goodwill was not impaired. |
| Auditing management’s annual goodwill impairment assessment required a high degree of auditor judgment due to the subjectivity in assumptions that were used by management to estimate the fair value of the DBC reporting unit under the income approach. In particular, the estimate of the fair value of the reporting unit was sensitive to projected changes in operating expenses and estimated remaining collections, the discount rate, and the terminal multiple. |
| How We Addressed the Matter in Our Audit | We obtained an understanding, evaluated the design and tested the operating effectiveness of internal controls over management’s process to assess goodwill for impairment, including management review controls over significant assumptions and the information provided by management’s specialists. Our tests of controls included testing the completeness, accuracy and relevance of underlying data utilized by management in the impairment assessment. With the assistance of our internal valuation specialists, we tested management’s quantitative impairment assessment, including performing procedures to evaluate management’s methodology, test the mathematical accuracy of the discounted cash flow calculation, and evaluate the reasonableness of the discount rate and terminal multiple by comparing the assumptions to an independently developed range of observable market data points. For the key assumptions used by management to forecast financial results, including projected changes in operating expenses and estimated remaining collections, our procedures included, among others, comparing projections to historical results, agreeing internal and external inputs to source documents, and testing the mathematical accuracy of calculations underlying the assumptions. Additionally, after reconciling the fair value of the reporting unit to the market capitalization of the Company, we evaluated the reasonableness of management’s control premium by comparing the control premium to recent transactions in the industry. |
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/s/ Ernst & Young LLP
We have served as the Company’s auditor since 2021.
Richmond, Virginia
February 27, 2025
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