- Inspection year
- 2019
- Report date
- 28-Jul-2021
- PCAOB release
- 104-2021-147a
- Audits reviewed
- 1
- Audits w/ Part I.A deficiencies
- 1
- Part I.A deficiency rate
- 100%
- Part I.A deficiencies
- 6
- Part I.B deficiencies
- 1
- Report
- View PDF ↗
Deficiencies (6)
Grouped by issuer and in the same order as the PCAOB report, so each item ties back directly to the source.
Issuer A6 deficiencies
| # | Area | Deficiency | Standard | Flags |
|---|---|---|---|---|
| 1 | Mortgage Secured Notes Payable and Related Accounts | The issuer originated and serviced commercial mortgage loans and funded these mortgage loans by securitizing them directly in the capital markets through the issuance of MSNs which were secured by these same mortgages. The firm did not identify or appropriately address departures from GAAP related to the omission of certain disclosures pertaining to mortgages owned and MSNs as required by FASB ASC Topic 310 Receivables and FASB ASC Topic 942 Financial Services — Depository and Lending related to accounting policies credit quality information and terms and conditions of the MSN agreements. (AS 2810.30 and 31) Financial statement audit only | AS 2810.30; AS 2810.31 | |
| 2 | Mortgage Secured Notes Payable and Related Accounts | The issuer originated and serviced commercial mortgage loans and funded these mortgage loans by securitizing them directly in the capital markets through the issuance of MSNs which were secured by these same mortgages. The issuer recorded the mortgages owned and MSNs on its balance sheet as if the transactions had been accounted for as secured borrowings but recognized direct origination fees immediately upon loan funding and recorded a MSR as if the transactions had been accounted for as sales. The firm did not identify and evaluate the effect on the issuer's financial statements of a GAAP departure related to the issuer's accounting treatment of these transactions. Specifically the firm did not evaluate whether the issuer's securitization of its mortgages owned through the issuance of MSNs met the conditions to be accounted for as a sale or as a secured borrowing in conformity with FASB ASC Topic 860 Transfers and Servicing. (AS 2810.30) Financial statement audit only | AS 2810.30 | |
| 3 | Mortgage Secured Notes Payable and Related Accounts | The issuer originated and serviced commercial mortgage loans and funded these mortgage loans by securitizing them directly in the capital markets through the issuance of MSNs which were secured by these same mortgages. The issuer recorded the mortgages owned and MSNs on its balance sheet as if the transactions had been accounted for as secured borrowings but recognized direct origination fees immediately upon loan funding and recorded a MSR as if the transactions had been accounted for as sales. The firm did not evaluate whether the issuer's presentation of interest income earned net of interest expense incurred in its income statement was appropriate. (AS 2810.30 and .31) Financial statement audit only | AS 2810.30; AS 2810.31 | |
| 4 | Servicing Fee Income | During the year under audit the issuer entered into an agreement to sell its servicing fee income to an affiliated entity ('the buyer') for an 18-month period beginning after the end of the year under audit. The issuer's chief executive officer executed the agreement on behalf of (1) the buyer as the trustee of the affiliated entity (2) the issuer as seller and (3) himself as guarantor of the servicing fee income. The firm did not evaluate the business purpose (or lack thereof) of this transaction including whether it may have been entered into to engage in fraudulent financial reporting or conceal misappropriation of assets. (AS 2401.66 .66A and .67) Financial statement audit only | AS 2401.66; AS 2401.67; AS 2401.66A | |
| 5 | Servicing Fee Income | During the year under audit the issuer entered into an agreement to sell its servicing fee income to an affiliated entity ('the buyer') for an 18-month period beginning after the end of the year under audit. The issuer's chief executive officer executed the agreement on behalf of (1) the buyer as the trustee of the affiliated entity (2) the issuer as seller and (3) himself as guarantor of the servicing fee income. The firm did not evaluate whether the issuer's accounting for and disclosure of the transaction as a sale was appropriate. (AS 2410.11 and .17; AS 2810.30 and .31) Financial statement audit only | AS 2410.11; AS 2410.17; AS 2810.30; AS 2810.31 | |
| 6 | Servicing Fee Income | The firm did not identify and evaluate the significance to the issuer's financial statements of a GAAP departure related to the issuer's recognition of the gross proceeds from this transaction as revenue which was not in conformity with FASB ASC Topic 860. (AS 2810.30) Financial statement audit only | AS 2810.30 |