FASB Amends Fair Value Measurement Guidance for Investment Companies With Equity Securities Subject to Contractual Sale Restrictions
Overview
On September 9, 2026, the FASB issued ASU 2026-03,1 which amends ASC 8202 to require investment companies within the scope of ASC 946 to consider
the effect of a contractual sale restriction when measuring an equity security’s
fair value.
Background
ASC 820 provides the framework for measuring fair value and generally requires an
entity to consider the characteristics of an asset or liability that market
participants would take into account in pricing the asset or liability.
In June 2022, the FASB issued ASU 2022-03,3 which was intended to reduce diversity in practice by clarifying that an
entity would not consider a contractual restriction on the sale of an equity
security when measuring the security’s fair value, since such a restriction is a
characteristic of the reporting entity holding the security, rather than of the
security itself. The ASU further notes that such a restriction would not be
considered a separate unit of account.
In April 2026, the Board received an agenda request in which stakeholders raised
concerns that measuring fair value without regard to contractual sale
restrictions does not reflect how market participants would value equity
securities subject to those restrictions. Stakeholders noted that this concern
applied to investment companies in particular, since excluding the effect of
such restrictions could result in an overstatement of net asset value; skew
performance reporting and management fees; and lead to inconsistent outcomes
among purchasing, redeeming, and remaining shareholders. The Board added this
project to its technical agenda in March 2026 and issued a proposed ASU related
to this topic in July 2026.
Main Provisions of ASU 2026-03
Scope
The ASU applies to investment companies within the scope of ASC 946 that hold
equity securities that are measured at fair value and are subject to
contractual sale restrictions. However, restrictions on the sale of equity
securities that arise in connection with a separate arrangement and are
reflected in the economics of that arrangement, such as a borrowing
arrangement under which the equity securities have been pledged as
collateral, are not subject to the ASU’s requirements. Because the
amendments represent a narrow exception to the fair value measurement
guidance in ASC 820 and apply only to investment companies within the scope
of ASC 946, they do not change the fair value measurement requirements for
other entities. Further, the amendments apply only to equity securities and
not to other classes of assets that an investment company may hold.
Fair Value Measurement
Under the ASU, an investment company must consider the contractual
restriction that prohibits the sale of an equity security in measuring the
fair value of this equity security on the measurement date. The effect of
the restriction is incorporated by applying a discount to the equity
security’s fair value. The discount reflects the amount that market
participants would demand as a result of the risk associated with being
unable to sell the equity security during the specified restriction period.
The investment company would apply this guidance regardless of whether the
contractual sale restriction is a characteristic of (1) the reporting entity
holding the equity security or (2) the security itself.
Connecting the Dots
Entities other than investment companies continue to treat the
contractual sale restriction as a characteristic of the reporting
entity holding the equity security rather than a characteristic of
the security itself. Accordingly, such entities would not consider
the restriction in measuring fair value and would measure the fair
value on the basis of “an otherwise identical unrestricted equity
security of the same issuer.”
Disclosure
In addition to complying with the existing disclosure requirements in ASC
820-10-50-6B for equity securities subject to contractual sale restrictions,
an investment company within the scope of ASC 946 must disclose “the amount
of the discount attributable to contractual sale restrictions included in
the fair value measurement.”
Entities with multiple investments in equity securities subject to
contractual sale restrictions should consider the existing guidance in ASC
820-10-50-1D in determining the appropriate level of aggregation or
disaggregation for the required disclosures.
Effective Date and Transition
Effective Date
The ASU is effective for annual reporting periods beginning after December
15, 2027, including interim reporting periods within those annual reporting
periods. Early adoption is permitted in an interim or annual reporting
period on any date on or after the issuance date of the ASU.
Transition
The amendments are effective prospectively for all equity securities,
including equity securities subject to “contractual sale restrictions [that
are] in effect on the date of adoption.” Any adjustment that is made as a
result of adoption is recognized as an adjustment to current-period earnings
on the date the investment company first applies the amendments. The amount
of this adjustment is disclosed in the period in which the investment
company first applies the amendments.
Contacts
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Jonathan Howard
Audit & Assurance
Partner
Deloitte &
Touche LLP
+1 203 761
3235
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Andrew Pidgeon
Audit & Assurance
Partner
Deloitte &
Touche LLP
+1 415 783
6426
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Joanne Luu
Audit & Assurance
Senior Manager
Deloitte & Touche LLP
+1 415 264 7177
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Shiridi Prasad Chowdhary
Audit & Assurance
Manager
Deloitte & Touche LLP
+1 615 718 1850
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Footnotes
1
FASB Accounting Standards Update (ASU) No. 2026-03, Fair Value
Measurement (Topic 820): Investment Companies With Equity Securities
Subject to Contractual Sale Restrictions.
2
For titles of FASB Accounting Standards Codification (ASC)
references, see Deloitte’s “Titles of
Topics and Subtopics in the FASB Accounting Standards
Codification.”
3
FASB Accounting Standards Update No. 2022-03, Fair Value Measurement
(Topic 820): Fair Value Measurement of Equity Securities Subject to
Contractual Sale Restrictions.