The Financial Accounting Standards Board proposed an
Fair value measurement proved to be a thorny issue during the 2008-2009 financial crisis, and FASB had to make rapid changes to its standards in response to rapid declines in value of various securities.
Some of the board's stakeholders have pointed out that Topic 820 contains some conflicting guidance on what the unit of account is when measuring the fair value of an equity security. That has led to differences in practice on whether the effects of a contractual restriction that bars the sale of an equity security should be considered when measuring its fair value.
“Some stakeholders apply a discount to the price of an identical equity security that is not subject to a contractual sale restriction, whereas other stakeholders consider the application of a discount to be inappropriate under the principles of Topic 820,” the board said.
To deal with this concern, the amendments in FASB’s proposed update would clarify that a contractual restriction on the sale of an equity security is not considered part of the unit of account of the equity security and thus is not considered in measuring fair value.
FASB is asking for comments on the proposal by Nov. 14, 2021.