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October 2011 » Accounting for Servicing Assets
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Kang Cheng, PhD, CPA
A list of the top financial reporting challenges faced by financial executives compiled by Financial Executives International (FEI) shows servicing asset valuation ranked as the number five challenge (Ellen M. Heffes, “FEI CEO's 2007 Top 10 Financial Reporting Challenges,” Financial Executive, January 2007, vol. 23, no. 1, pp. 14-15). While the top four challenges (internal control, tax uncertainty, XBRL, and fair value accounting) are commonly known and often addressed, servicing asset valuation is relatively unknown and, therefore, deserves more attention. If servicing asset valuation poses such a challenge to financial executives, then what about to average financial statement users, who have even less expertise in the financial servicing industry? How do financial statement users properly interpret servicing assets reported on the statements to gain the requisite knowledge about a reporting entity's servicing practice? This article addresses the accounting issues of servicing asset valuation and the proper interpretation of servicing assets and net servicing fee income reported on the financial statements. It approaches these issues from financial executives' as well as the statement users' viewpoints.
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