FASB proposes changes in investment company reporting

The Financial Accounting Standards Board posted a proposed accounting standards update Wednesday that would amend the requirements for how investment companies measure the fair value of an equity security that's subject to a contractual sale restriction. 

Under Topic 820, Fair Value Measurement, in the FASB Accounting Standards Codification, an entity doesn't need to consider a contractual restriction on selling an equity security when it's measuring that security at fair value. As a result, an entity holding a restricted equity security and an entity holding an unrestricted equity security issued by the same investee usually would measure fair value using the market price of the unrestricted security.

However, some stakeholders told FASB the current guidance can produce fair value measurements that don't reflect how market participants would value equity securities with contractual sale restrictions, especially for investment companies. They said the guidance can overstate net asset value, distort performance reporting and management fees, and lead to different outcomes for purchasing, redeeming and remaining shareholders.

For investment companies, the proposed amendments would require them to consider a contractual sale restriction when measuring the fair value of an equity security. Investment companies also would need to disclose the amount of the discount attributable to contractual sale restrictions.

FASB contends the proposal would make investment company financial reporting more useful by aligning the fair value measurement of restricted equity securities with the value market participants would place on those shares. It's asking stakeholders to review and provide comments on the proposed update by July 17, 2026.