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STANDARDS TRACKER |
STANDARDS TRACKER
FASB ASU: investment companies must factor contractual sale restrictions into fair value
FASB finalized an ASU on Sept. 9, 2026 requiring investment companies to discount restricted equity securities in fair value measurement and disclose the
FASB issued a final accounting standards update on September 9, 2026 that changes how investment companies measure the fair value of equity securities subject to contractual sale restrictions. The CPA Practice Advisor reports that the update provides an exception to Topic 820, Fair Value Measurement, for entities within the scope of Topic 946, Financial Services - Investment Companies, requiring those entities to consider the restriction when measuring fair value.
BY THE NUMBERS
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See below EFFECTIVE |
1 SOURCE TRACKED |
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Sep 10 LAST UPDATED |
FASB ISSUER |
Under current U.S. GAAP, a contractual restriction on the sale of an equity security is not considered when measuring the fair value of that security, per the CPA Practice Advisor. That means an entity holding restricted shares and one holding unrestricted shares in the same investee both use the market price of the unrestricted security as the starting point - a result stakeholders said does not reflect economic reality.
Stakeholders told FASB that applying the current guidance can overstate the net asset value reported by investment companies, distort performance reporting and management fees, and create different outcomes for purchasing, redeeming, and remaining shareholders, according to the CPA Practice Advisor. The new ASU is intended to close that gap by requiring the discount to be both measured and disclosed.
The amendments also require investment companies covered by the update to disclose the portion of any discount that relates to the contractual restriction on sale, per the CPA Practice Advisor. The ASU applies prospectively; the effective date was not stated in September 9, 2026 sources.
WHAT TO DO IN THE CLOSE
| Confirm whether your entity is an investment company within the scope of ASC Topic 946; this ASU applies only to those entities. | |
| Identify all equity securities in the portfolio that are subject to contractual sale restrictions and document the restriction terms. | |
| Develop a methodology for measuring the fair value discount attributable to each contractual sale restriction. | |
| Update disclosure templates to include the amount of the discount attributable to contractual sale restrictions, as the ASU requires. | |
| Monitor FASB for the final effective date announcement; plan for prospective adoption and earnings-period recognition of any adjustment. |
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QUESTIONS THIS ANSWERS
Does this ASU affect all entities that hold restricted equity securities?
No. The CPA Practice Advisor states the amendments apply only to investment companies within the scope of Topic 946, Financial Services - Investment Companies. Other entities holding restricted equity securities are not covered by this exception.
What disclosure is required under the new ASU?
Per the CPA Practice Advisor, investment companies covered by the amendments must disclose the portion of any discount that relates to the contractual restriction on sale of the equity security.
How does the ASU change net asset value reporting?
Stakeholders told FASB that current guidance can overstate net asset value. The ASU requires the restriction to be factored in, which is expected to reduce reported NAV for affected securities, per the CPA Practice Advisor.
SOURCES
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Previously: FASB proposed ASU: codification improvements and stablecoin cash equivalents
A living page: it is re-read and updated as coverage arrives; last updated Thursday September 10. Facts come from the linked sources; confirm against the issuer's own text before relying on it.
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