Worse, Joel has invented something he calls “EarningsPower Accounting,” has applied for a patent, and claims that the FASB has infringed upon his patent.  Accordingly, he did what any blue-blood would do—he sued the FASB.

The complaint was filed in U.S. District Court in San Jose on May 5, 2010.  This complaint is entertaining because it proves that legal discourse is cheap.  Supply exceeds demand.

In paragraph 10 of the complaint, Mr. Jameson states that the Securities and Exchange Act of 1934 gives the SEC authority to set accounting standards, but the SEC has delegated that function to the FASB.  Narancic & Katzman, attorneys for Jameson, should have told their client about section 108 of the Sarbanes-Oxley Act, which permits the SEC to delegate standards-setting to another appropriate body.  In a policy statement, the SEC did in fact re-affirm its decision to rely on the FASB, as it stated in Accounting Series Release No. 150.

Which reminds me: how many lawyers does it take to change a light bulb?  Answer: as many as the client can afford.

Joel Jameson goes on to assert (paragraph 13) that FASB “is far removed from industry participants and accounting practitioners, resulting in low-quality standards that are often divorced from reality.”  Complete, utter nonsense, although it may be evidence that Silicon Valley is still miffed that it has to expense employee stock options.  This argument shows that the only thing more dangerous than an economist is a Silicon Valley economist.

He next attacks fair value accounting and repeats old mantras about the volatility of income numbers (paragraph 18).  He errs because fair value accounting does not induce volatility; instead, it reports the volatility that previously had been suppressed.

Jameson then provides a hint about his “invention,” which consists of “an equation derived from the present value equation of finance and credit/debit posting procedures to calculate instantaneous end-of-period asset and liability incomes and windfalls.”  This sounds a lot like present value accounting and this has been around a long time.  Perhaps Mr. Jameson should take a trip to Stanford and talk with Bill Beaver about Chapter 3 of Beaver’s “Financial Reporting.”

Mr. Jameson prefers to allow managers the ability to claim that assets will generate so much cash flows in the future and then discount those cash flows.  He seems unperturbed about the distinct possibility that managers might exaggerate those future cash flows and minimize the discount rate.  Further, he must not care whether these projections are auditable.  Perhaps it is better if they aren’t.  After all, society surely can reduce accounting scandals by preventing anybody from discovering them.

The complaint describes FASB’s alleged wrongful conduct in paragraphs 21-26, but it is much ado about nothing.  The FASB stole nothing of value.

Let’s conclude with this observation.  How many Silicon Valley entrepreneurs does it take to change a light bulb?  None; they just have to turn on the light switch.