Securitization Forecasting System

Captive Finance Company (CFC): Securitization Forecasting System

Brief Overview

CFC established securitizations as a one of its forms of financing. Once the securitizations were placed on the books, CFC needed a way to project the securitizations financial impact on the company. From an accounting standpoint securitizations are complex transactions that involve pulling forward the lifetime projected profits from an income producing asset. Once the securitization profits are booked into the financials, the company needs to account for the actual and accrue them against the securitization entries.  In addition, the liquidation of the securitizations needs to be forecasted to determine its impact on future accounting balances. The company had several billion dollars invested in these assets.

 

Situation

An analyst at CFC had designed a system to project the liquidations of securitizations and forecast projected securitizations but the system was not proving to be accurate.

 

Why Goff Associates, Inc. (GAI)?

GAI has superior analytical skills and ability to design efficient systems for forecasting.

 

Results

GAI began analyzing the complex series of accounting transactions that occur with the liquidation of these assets. After fully understanding how the transactions work, GAI began working on a system to track the liquidation of these assets and a forecast system that would project the securitizations to their ultimate liquidation. The existing forecasting system attempted to liquidate the securitizations in aggregate. As a result, the subtleties of the individual transactions were lost. By separating the individual securitizations, GAI was able to improve the accuracy of forecast system. In addition, GAI identified a problem in the accounting for the existing securitizations. It seems that when the accounting department was instructed to book the individual components of the liquidation of the assets against their original estimates, they were not instructed to stop when the accounts were fully amortized. This was a problem because once the accounts were fully amortized, all future amounts needed to be taken to profits.

 

GAI not only improved the company’s ability to forecast the impact of securitizations but stopped accounting errors from growing to the point that they were significant.

 

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