Thank you, Chair White. Good morning, Chairman Doty, and other representatives from the Public Company Accounting Oversight Board (PCAOB or Board).

A few weeks ago, I visited the Board and appreciated our discussion of the evolving role of economic analysis at the Commission and the Board. Thank you, Chairman Doty, for suggesting the visit. Thank you, Samantha Ross, for making the arrangements. And, thank you, to all of the PCAOB members and staff, for asking great questions and engaging in a thoughtful discussion of such an important topic.

As I mentioned at last year’s budget approval, one significant question for me is what should be the “right size” for the Board’s budget and I expressed my concerns about the projected spending increases in the future.[1] After all, the ultimate payers of the accounting support fee are not companies, but rather their shareholders and customers. Thus, I was pleased to receive the final 2015 budget for the Board and to see a reduction in the accounting support fee. This is the first reduction in the accounting support fee in nearly a decade.

The statements from the Board members at the November meeting to approve the budget were most heartening. Lew Ferguson mentioned “close to being fully resourced for its mission.”[2] Jeanette Franzel spoke about the need to operate under a “relatively stable size and structure.”[3] Jay Hanson hoped that the Board is nearing an “appropriate ‘steady state’ budget.”[4] Steve Harris observed how carefully the Board has assessed its growth with “an eye towards reaching a steady-state level.”[5] So, after a number of years of rapid growth, I am glad that we are in agreement on the need to reach an appropriate, permanently-sized budget for the Board.

One strength of having five members on the Board is the diversity of viewpoint, opinion, and experience that each person brings. Indeed, Section 101 of the Sarbanes-Oxley Act places a strict limitation that “[t]wo members, and only 2 members, of the Board” (emphasis added) shall be, or have been, certified public accountants. As a non-governmental entity,[6] the Board is not subject to the Government in the Sunshine Act.[7] Thus, unlike the Commission, the Board has the flexibility to develop a policy that facilitates the open communication and information sharing among Board members in private, while still maintaining public transparency and accountability into its decision-making process.

I look forward, over the coming year, to observing the further development and integration of economists, including those in the Center for Economic Analysis, into all facets of the Board’s operations. For example, the creation of the Inspections Fellowship Program within the Center will allow experienced staff from the Division of Registration and Inspections to spend a two-year term collaborating and sharing their technical expertise with the economists. Within the Board, there are important analytical resources elsewhere, such as the work by Greg Jonas and Andres Vinelli in the Office of Research and Analysis.

As the Board’s staff guidance observes, economic analysis “can play a crucial role in defining critical policy questions and in developing and evaluating different approaches to addressing identified problems.”[8] Thus, “economists should be fully integrated into, and be members of, project teams.”[9]

The establishment of the Center for Economic Analysis, with its founding director Luigi Zingales, has significantly raised the profile of the Board in its efforts to recruit top economists as research fellows. During my visit with the Board, I was impressed by the quality of the current fellows and the high number of fellowship applicants received for the 2015-16 academic year, in only the second year of the Center’s existence. I was also impressed by the success of the Center’s inaugural Conference on Auditing and Capital Markets, organized in conjunction with the Journal of Accounting Research.[10]

Before moving on to my questions, I would like to express my thanks to our staff in the Office of Chief Accountant and the Office of Financial Management for their efforts in reviewing and making recommendations on the Board’s 2015 budget request.