Open Meeting Remarks

Remarks as prepared for delivery 

Thank you, Mr. Chairman. I want to strongly associate myself with the agenda you have laid out for the Board. I look forward to our further developing that agenda, with stakeholder input, into a concrete plan of action. I am honored to be a part of its implementation.

Rather than repeat elements of that agenda, or lay out additional items, I wanted to take this opportunity at my first public board meeting, to introduce myself to the Board’s various external stakeholders.

I strongly believe that the Board should conduct itself in a principled and consistent manner. Of course, to act principled, you must have principles to begin with. So, I thought I would share a few of my guiding principles, as well as some experiences that have shaped and reinforced those principles.

My foremost guiding principle is humility. The Board exercises supervisory powers delegated to it from Congress. We possess the ability to bar individuals and firms from the audit industry. We should use those powers when warranted, but we should always approach the exercise of those authorities with caution and humility.

We must also be humble in terms of our knowledge and understanding. There is certainly a lot I don’t know, and even a few things I think I know, that are probably wrong. We should endeavor, as an organization, to constantly seek input from external stakeholders. I want to encourage all interested parties to engage with me and other members of the Board. We should also regularly subject our own views to scrutiny.

One thing, I am certain of, however, is that our authorities come to us from Congress. Regardless of whatever my personal policy preferences may be, I will be guided, first and foremost, by the authorities and directives placed upon us by Congress. Quite simply, what does the plain language of the statute say? That’s my compass.

I had the privilege of serving as staff on the Senate Banking Committee during the passage of the Sarbanes-Oxley Act, which created the PCAOB. I, of course, learned a lot working for Senators Phil Gramm and Richard Shelby. I also learned a lot from Senator Paul Sarbanes, especially on what it means to be an independent, arms-length financial regulator. It was also a great privilege to work regularly during my Senate service with Senator Sarbanes’ then chief of staff, Steve Harris. And of course, my former Banking Committee colleague Bill Duhnke and my former White House colleague Rebecca Jurata.

For me the PCAOB isn’t an abstraction. It is an organization built by many people whom I have had the privilege to call a friend. So, if any of those friends are listening, I recognize that I, and my fellow board members, are custodians of the countless hours and efforts of those who came before us. I take that responsibility seriously.

I have spent much of my career focused upon prudential regulation, designed to ensure safety and soundness. I believe one of the tragedies of recent decades has been the decline of market discipline among regulated financial institutions. I would prefer that market discipline play a greater role in our financial markets. Such a role is enhanced to the degree that market participants can rely on accurate, relevant and timely financial information. That is why the role of auditors is critical. And it is the important job of the PCAOB to make sure that auditors are adequately performing that their role.

While I am somewhat new to the regulation of financial auditing, financial auditing has played an important role in the prudential issues that have been the focus of my career. I would argue that my choice to pursue my doctorate was influenced by the economic aftermath of the savings and loan crisis, an event characterized by widespread audit failures.

Much of my career has been spent trying to improve our mortgage finance system. As a reminder, Fannie Mae and Freddie Mac required two of the largest accounting restatements in history. Their errors in financial reporting contributed to the disruptions of the 2008 financial crisis. When I arrived in the aftermath to be Fannie and Freddie’s regulator, I established a standalone accounting policy office at the Federal Housing Finance Agency, with a direct line of communication to the agency head --- the accuracy of their financial reporting is just that important.

And yet we continue to see the consequences of flawed financial reporting including with respect to the 2023 bank failures. To the extent that audit deficiencies contributed to those institutions’ collapse, it vividly illustrates that audit failures still can, and do, have significant consequences, not just for investors, but also for financial stability.

As demonstrated by my remarks, I bring the lens of an economist to the Board. I look forward to my continuous education in auditing issues, but I hope to regularly remind the Board that our decisions have broad economic implications.

Of course, being trained as an economist, I will regularly observe that all our policy choices will have both benefits and costs. There will be no free lunches. That said, I don’t want to be the reason we don’t wrap up this meeting by lunch.

I thank the staff for all the work that went into today’s Board meeting. I want to especially thank Rebecca Mealey and John Cook, on my staff, who have made my short time here, so far, a pleasure. I also want to thank Steve Kroll, who recently left the board staff. Steve and I worked together on the Senate Banking Committee during the passage of Sarbanes-Oxley. While we haven’t always agreed on policy, Steve is a great friend and public servant, and in many ways is the legislative father of the PCAOB. I deeply appreciate his willingness to assist my transition onto the Board and wish him an enjoyable retirement. And lastly, I thank the Chair and my fellow Board members for their indulgence and patience. It is a real pleasure to be here.