FASB Proposed ASU: What Investment Companies Need to Know About Fair Value and Contractual Sale Restrictions

Mission shape

Preparing for Your First Investment Fund Audit: A Practical Guide


What Is Changing Under the Proposed ASU?

Under the current ASC 820 framework, a contractual restriction on the sale of an equity security generally is not considered part of the security’s unit of account. As a result, the restriction does not reduce the fair value measurement of the equity security.

This approach was clarified by ASU 2022-03, which established that contractual sale restrictions are attributable to the holder rather than the equity security itself.

The FASB is now proposing a different approach specifically for investment companies. Under the proposed ASU, an investment company would be required to:

·         Consider contractual sale restrictions when measuring the fair value of affected equity securities.

·         Recognize the impact of the restriction when determining fair value.

·         Disclose the amount of the discount attributable to contractual sale restrictions.

The proposal is intended to better align reported fair value with how market participants may value an investment that cannot be freely sold.


EXECUTIVE SUMMARY

The Financial Accounting Standards Board (FASB) issued a proposed Accounting Standards Update (ASU) on July 1, 2026, that could significantly affect how certain investment companies measure the fair value of equity securities subject to contractual sale restrictions.

The proposed guidance would create an industry-specific exception within ASC 820 for investment companies within the scope of ASC 946, requiring these investment companies to consider contractual sale restrictions when determining fair value. It would also require disclosure of the discount attributable to those restrictions.

For hedge funds, private equity funds, venture capital funds, and other investment companies, understanding these developments is important for accurate valuation, financial reporting, and audit readiness.

Why Does This Matter for Investment Funds?
The proposed change could have implications for investment fund accounting, NAV calculations, financial reporting, and investment company audits.
For example, an investment company holding pre-IPO shares subject to a lock-up period may need to consider the economic impact of that restriction when determining fair value. This could affect reported investment values and, consequently, the fund’s NAV and financial results.
Fund managers should therefore monitor these developments and evaluate how their existing valuation processes, documentation, and disclosures may be affected if the proposal is finalized.
Early consideration can also help managers identify potential changes to valuation methodologies, internal controls, financial statement disclosures, and audit support.

How Akram Team Can Help

At Akram | Assurance, Advisory & Tax, we understand the specialized accounting, audit, and tax requirements of the alternative investment industry. Our team provides tailored fund accounting, assurance, advisory, and tax services for hedge funds, private equity and venture capital funds, digital asset funds, real estate funds, family offices, and other alternative investment vehicles.

As FASB standards and guidance continue to evolve, having specialized advisers can help investment managers assess accounting implications, strengthen valuation processes, and maintain audit readiness.

Learn more about Akram’s specialized services for alternative investment funds, View Akram Services