The Financial Accounting Standards Board (FASB) has opened a public consultation on a proposed Accounting Standards Update aimed at changing how investment companies measure the fair value of equity securities that carry contractual sale restrictions.
Comments on the proposal are due by 17 July 2026.
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The draft update would amend current financial reporting requirements for investment companies by requiring them to take contractual sale restrictions into account when valuing an equity security at fair value.
Under existing guidance in FASB Accounting Standards Codification Topic 820, Fair Value Measurement, entities do not consider a contractual restriction on the sale of an equity security when determining fair value.
In practice, this means a holder of a restricted equity security and a holder of an unrestricted equity security issued by the same investee would generally use the market price of the unrestricted security.
The board said stakeholders had raised concerns that the current rules can result in fair value measurements that do not reflect how market participants would price equity securities subject to contractual sale restrictions, particularly for investment companies.
They also said the existing approach can overstate net asset value, affect performance reporting and management fees, and lead to differing outcomes for shareholders who are purchasing, redeeming or remaining invested.
If adopted, the amendments would also require investment companies to disclose the amount of any discount tied to contractual sale restrictions.
The FASB said the proposed revisions are intended to make investment company financial reporting more useful by aligning the fair value of restricted equity securities with the value market participants would assign to those shares.
