FASB clarifies fair value guidance for sale restrictions

ASU 2022-03 amends ASC 820 (fair value measurement) to clarify that contractual sale restrictions are not considered in measuring the fair value of equity securities, therefore changing practice for certain entities. The ASU also indicates that a contractual sale restriction is not a separate unit of account, and requires new disclosures for all entities with equity securities subject to a contractual sale restriction.

Applicability

• All entities with investments in equity securities measured at fair value that are subject to a contractual sale restriction 

Relevant dates

• June 30, 2022 – FASB issues ASU 2022-03
• March 23, 2022 – FASB generally affirmed the proposed amendments, agreed to incremental disclosures, discussed transition and effective dates, and directed the FASB staff to draft a final ASU – Tentative decisions
  
• November 14, 2021 – Comments due
  
• September 15, 2021 – FASB issued proposed ASU

Key impacts

The amendments to ASC 820:

• Clarify that contractual sale restrictions are not considered in measuring an equity security at fair value.
  
• Indicate that an entity cannot recognize a contractual sale restriction as a separate unit of account (i.e. as a contra-asset or separate liability).
  
• Require new disclosures for all entities with equity securities subject to a contractual sale restriction.
  
• Provide different transition requirements for investment companies compared to all other entities.  

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