Which component is typically included in a credit policy?

Which component is typically included in a credit policy?

• A. Approval authority and limits.
• B. Depreciation schedules.
• C. Lease term length.
• D. Inventory valuation methods.

Answer: (A)

Defining who can approve credit and the maximum exposure each approver can authorize is central to a credit policy. It sets the decision-making hierarchy, ensures consistent underwriting, and controls risk by preventing authorization of exposures beyond a person’s authority. Clear approval authority and limits support governance, help with faster routine decisions, and provide a framework for escalating larger or riskier transactions. Depreciation schedules belong to accounting or tax policy and don’t directly govern credit risk or underwriting decisions. Lease term length relates more to product structuring and terms policy, not the governance of credit decisions. Inventory valuation methods pertain to collateral appraisal and asset policy rather than the credit approval framework.

Defining who can approve credit and the maximum exposure each approver can authorize is central to a credit policy. It sets the decision-making hierarchy, ensures consistent underwriting, and controls risk by preventing authorization of exposures beyond a person’s authority. Clear approval authority and limits support governance, help with faster routine decisions, and provide a framework for escalating larger or riskier transactions.

Depreciation schedules belong to accounting or tax policy and don’t directly govern credit risk or underwriting decisions. Lease term length relates more to product structuring and terms policy, not the governance of credit decisions. Inventory valuation methods pertain to collateral appraisal and asset policy rather than the credit approval framework.