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May 9, 2010

FASB sued over accounting methodology

Silicon Economics Inc (SEI), a US research, development and technology company, is suing the US Financial Accounting Standards Board (FASB) for allegedly misappropriating technology SEI recommended in a comment letter.

SEI develops and obtains patents on accounting methods that improve existing accounting practices.

The lawsuit, which was filed in the Northern District of California, San Jose Division Court last week, alleges the FASB made antitrust violations, “wilfully attempting to misappropriate patented technology belonging to the company”.

FASB rival

The allegations concern the accounting method EarningsPower Accounting (EPA).

The patented method was developed by the SEI and the company claims it improves the accuracy, validity and usefulness of financial statements.

SEI said it develops technology to rival the FASB due to a lack of innovation from the standard setter.

“FASB’s standards-setting is far removed from industry participants and accounting practitioners, resulting in low-quality standards that are often divorced from reality,” the complaint alleged.

“The lack of FASB’s innovation has given rise to discontent and the attempt by other market participants to introduce competing financial accounting standards.”

SEI recommended the merits of EPA to the FASB in response to the standard setter’s request for public comment on its 2006 draft, Conceptual Framework for Financial Reporting: Objective of Financial Reporting and Qualitative Characteristics of Decision Useful Financial Reporting Information.

Ownership dispute

SEI said the FASB claimed its website terms and conditions give it ownership of SEI technology. However, SEI argues these terms were not part of FASB’s invitation for public comment or otherwise disclosed to SEI.

“FASB’s anti-competitive act harms our company and the public, particularly in light of the current economic situation in our country,” SEI founder and president Joel Jameson said.

SEI is seeking:

  • A preliminary and permanent injunction enjoining FASB from claiming or exercising any rights with respect to the SEI invention or SEI patent;
  • A declaration that FASB has no ownership, license or any other interests in the SEI invention;
  • Compensatory and general damages, and that such damages be trebled;
  • Punitive and exemplary damages; and,
  • Court costs.

Perry Narancic, counsel for SEI, said the company will “defend its intellectual property vigorously”.

The FASB has not yet responded to The Accountant’s request for comment.


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