answer this question.

PCAOB 1666 K Street NW Washington, DC 20006 Office: (202) 207-9100 Public Company Accounting Oversight Board Fax: (202) 862-8430 www.pcaobus.org ORDER INSTITUTING DISCIPLINARY PROCEEDINGS, MAKING FINDINGS, AND IMPOSING SANCTIONS PCAOB Release No. 105-2019-001 In the Matter of Richard H. Huff, Jr., CPA, February 26, 2019 Respondent. By this Order, the Public Company Accounting Oversight Board (the "Board" or "PCAOB") is: (1) censuring Richard H. Huff, Jr. ("Huff" or "Respondent"); (2) suspending Huff from being an associated person of a registered public accounting firm for the period of one year from the date of this Order; (3) limiting his activities in connection with any "audit," as that term is defined in Section 110(1) of the Sarbanes-Oxley Act of 2002, as amended (the "Act"), for one year following the termination of the suspension, by prohibiting Huff from serving in certain capacities in any audit as described in Section V herein; and (4) requiring Huff to complete ten hours of additional professional education as described in Section IV herein. The Board is imposing these sanctions on the basis of its findings that Huff violated PCAOB rules and auditing standards in connection with the integrated audit of Issuer A's December 31, 2013 financial statements and internal control over financial reporting ("ICFR"). The Board deems it necessary and appropriate, for the protection of investors and to further the public interest in the preparation of informative, accurate, and independent audit reports, that disciplinary proceedings be, and hereby are, instituted pursuant to Section 105(c) of the Act and PCAOB Rule 5200(a)(1) against Respondent. II. In anticipation of institution of these proceedings, and pursuant to PCAOB Rule 5205, Respondent has submitted an Offer of Settlement ("Offer") that the Board has determined to accept. Solely for purposes of these proceedings and any other proceedings brought by or on behalf of the Board, or to which the Board is a party, and without admitting or denying the findings herein, except as to the Board's jurisdiction over Respondent and the subject matter of these proceedings, which are admitted,PCAOB Release No. 105-2019-001 February 26, 2019 ORDER Page 3 Respondent consents to entry of this Order Instituting Disciplinary Proceedings, Making Findings and Imposing Sanctions ("Order") as set forth below. III. On the basis of Respondent's Offer, the Board finds that:? A. Respondent 1. Richard H. Huff, Jr., age 57, of Blue Bell, Pennsylvania, is a certified public accountant licensed by the Pennsylvania State Board of Accountancy (license no. CA022709L) and the Maryland Board of Public Accountancy (license no. 37117). Huff originally joined Grant Thornton LLP ("Grant Thornton" or "GT") in 1987. Huff was the engagement partner on Grant Thornton's integrated audits of the December 31, 2012 and 2013 financial statements and ICFR of Issuer A. Huff, as engagement partner, authorized the issuance of Grant Thornton's March 3, 2014 audit report containing an unqualified opinion on Issuer A's December 31, 2013 financial statements and ICFR. At all relevant times, Huff was an audit partner in the Philadelphia office of Grant Thornton and an associated person of a registered public accounting firm as that term is defined by Section 2(a)(9) of the Act and PCAOB Rule 1001(p)(i). Huff retired from the Firm effective July 31, 2016, and is currently employed at another registered public accounting firm. B. Relevant Entities 2. Grant Thornton LLP is a limited liability partnership organized under the laws of the state of Illinois, and headquartered in Chicago, Illinois. Grant Thornton registered with the Board on September 24, 2003, pursuant to Section 102 of the Act and PCAOB rules. Grant Thornton has served as Issuer A's independent auditor since Issuer A's inception in 2005. 3. Issuer A is a Maryland corporation with headquarters in New York, New York. Issuer A is a diversified real estate finance company that is organized and The findings herein are made pursuant to Respondent's Offer and are not binding on any other persons or entities in this or any other proceeding. 2 The Board finds that Respondent's conduct described in this Order meets the conditions set out in Section 105(c)(5) of the Act, 15 U.S.C. $ 7215(c)(5), which provides that certain sanctions may be imposed in the event of: (1) intentional or knowing conduct, including reckless conduct, that results in a violation of the applicable statutory, regulatory, or professional standard; or (2) repeated instances of negligent conduct, each resulting in a violation of the applicable statutory, regulatory, or professional standard.PCAOB Release No. 105-2019-001 February 26, 2019 ORDER Page 4 conducts its operations to qualify as a REIT. Issuer A's investment strategy focuses on commercial real estate, commercial real estate- related assets and, to a lesser extent, commercial finance assets. At all relevant times, Issuer A's common stock was registered under Section 12(b) of the Securities Exchange Act of 1934 and was traded on the NYSE. At all relevant times, Issuer A was an "issuer" as the term is defined in Section 2(a)(7) of the Act and PCAOB Rule 1001(i)(iii). C. Summary 4. This matter concerns Huff's violations of PCAOB rules and auditing standards in connection with the integrated audit of Issuer A's December 31, 2013 financial statements and ICFR ("2013 audit"). Specifically, Huff, among other things, failed to exercise due professional care, including appropriate professional skepticism, and failed to obtain sufficient appropriate audit evidence concerning Issuer A's reported net loans and its allowance for loan losses ("ALL"), as well as its ALL-related internal controls. Huff further failed to appropriately evaluate the reasonableness of Issuer A's ALL-a known significant risk and significant accounting estimate. As a result of his failure to perform the audit in conformity with PCAOB standards, Huff lacked an appropriate basis to authorize the issuance of Grant Thornton's unqualified opinion on Issuer A's 2013 financial statements and ICFR. 5 . Despite knowing that Issuer A's ALL presented significant risks to Issuer A's financial statements and ICFR, Huff failed to obtain sufficient appropriate audit evidence to evaluate the reasonableness of Issuer A's ALL. Although Huff knew that Issuer A had numerous material impaired loans for which it recorded zero specific reserves, he failed, among other things, to sufficiently evaluate whether the engagement team obtained sufficient appropriate evidence to corroborate that specific reserves were not required on those loans. Further, Huff failed to ensure that the engagement team tested an appropriate sample of material impaired loans, instead relying on a flawed sample that improperly eliminated material loans from selection. With respect to the loans tested that Huff did review, he failed to, among other things, (a) consider the impact of senior loans when assessing the collectability of Issuer A's subordinated loans; (b) perform any procedures to assess collateral valuation even though Issuer A relied on the borrower's ability to refinance to support full repayment of its loans; and (c) sufficiently test management's assertions that the borrower's operations were a source of repayment even where he should have been aware of contrary audit evidence indicating that those operations were insufficient to service both principal and interest repayment. 6. Huff's failures extended to, among other things, testing the design and operating effectiveness of certain of Issuer A's ALL-related controls, including, among others, controls related to measurement of impairment, identification of troubled debt restructurings ("TDRs"), loan reviews, loan file maintenance, monitoring of collateral, risk ratings, and disclosures.PCAOB Release No. 105-2019-001 February 26, 2019 ORDER Page 5 7. Significantly, Huff violated PCAOB standards despite being on notice that his prior audit work, including audit procedures performed over the ALL on the 2012 Issuer A audit, was deficient. D. Background 8. As of December 31, 2013, Issuer A reported total assets of $2.2 billion, including $1.4 billion in loans. Commercial real estate ("CRE") loans comprised $826 million or 59% of Issuer A's loan portfolio. Issuer A maintained an ALL to cover probable losses that existed in the loan portfolio. Issuer A's ALL for bank and CRE loans comprised two components: specific reserves based on estimated losses on individually reviewed impaired loans and a general loss reserve for non-impaired loans. GT's work papers also indicated that Issuer A relied on its loan review process, at least in part, to identify impaired loans, calculate specific reserves, and assess the sufficiency of its ALL. 9 . Issuer A's impaired loans totaled $204 million or 9 percent of Issuer A's reported total assets at December 31, 2013. Impaired CRE loans comprised $194 million or 95% of total impaired loans. Issuer A reported an ALL of $13.8 million as of December 31, 2013, of which Issuer A allocated $4.6 million in specific reserves for impaired CRE loans. 10. GT placed Huff on a partner performance plan to address audit quality issues that arose before the 2013 audit. That plan mandated that Huff take certain steps to improve his performance, in mid-2013. Shortly after the performance plan took effect, the Firm selected the 2012 Issuer A audit, for which Huff served as engagement partner, for an Audit Practice Review ("2013 APR"), an internal review during which another GT team reviewed the audit work papers to determine whether the engagement team complied with GT's policies and professional standards. The APR team identified numerous deficiencies in the audit and ultimately concluded that the 2012 Issuer A audit was noncompliant with Firm policies and PCAOB standards. The results of the 2013 APR were communicated to Huff and the engagement team in August 2013, prior to the commencement of fieldwork for the 2013 Issuer A audit. 3 See Grant Thornton LLP, PCAOB Rel. No. 105-2017-054 (Dec. 19, 2017).PCAOB Release No. 105-2019-001 February 26, 2019 ORDER Page 6 E. Applicable PCAOB Rules and Auditing Standards 11. PCAOB rules require that a registered public accounting firm and its associated persons comply with the Board's auditing and related professional practice standards." An auditor may express an unqualified opinion on an issuer's financial statements only when the auditor has formed such an opinion on the basis of an audit performed in accordance with PCAOB standards. Among other things, PCAOB standards require an auditor to exercise due professional care, exercise professional skepticism, and plan and perform audit procedures to obtain sufficient appropriate audit evidence to provide a reasonable basis for the auditor's opinion. 12. When planning and performing audit procedures to evaluate accounting estimates, PCAOB standards require the auditor to "consider, with an attitude of professional skepticism, both the subjective and objective factors" on which management's estimate is based." When management's estimate involves fair value measurements, the auditor must comply with PCAOB auditing standards concerning the auditing of fair value measurements and disclosures." Under those standards, when a fair value measurement, such as an appraisal, is dated other than at the relevant financial reporting date, the auditor is required to obtain "evidence that management has taken into account the effect of events, transactions, and changes in circumstances occurring between the date of the fair value measurement and the reporting date."1 All references to PCAOB rules and standards are to the versions of those rules and standards in effect at the time of the relevant audit or review. As of December 31, 2016, the PCAOB reorganized its auditing standards using a topical structure and a single, integrated numbering system. See Reorganization of PCAOB Auditing Standards and Related Amendments to PCAOB Standards and Rules, PCAOB Release No. 2015-002 (Mar. 31, 2015); see also PCAOB Auditing Standards Reorganized and Pre-Reorganized Numbering (January 2017). See PCAOB Rule 3100, Compliance with Auditing and Related Professional Practice Standards; PCAOB Rule 3200T, Interim Auditing Standards. See AU $ 508.07, Reports on Auditing Financial Statements. See AU $ 150.02, Generally Accepted Auditing Standards; AU $ 230.01, Due Professional Care in the Performance of Work; Auditing Standard No. 13, The Auditor's Responses to the Risks of Material Misstatement ("AS No. 13"), 1 7; Auditing Standard No. 15, Audit Evidence ("AS No. 15"), 4. See AU $ 342.04, Auditing Accounting Estimates. See AU $ 328, Auditing Fair Value Measurements and Disclosures. 10 See AU $ 328.25.10 Go to the PCAOB website (www.pcaobus.org) and find settled disciplinary orders. Review the cases and the penalties indicated for various published cases. Required: What did Richard Huff do to get in trouble, and what was his sanction from the PCAOB? 10 points Skipped Book Print References