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FASB clarifies fair value guidance for sale restrictions

Defining Issues | July 2022

Final ASU clarifies that contractual sale restrictions are not considered in measuring equity securities at fair value.

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

ASU 2022-03

  • 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

Effective date

Public business entities

All other entities

Annual periods  – Fiscal years beginning after                                                            

December 15, 2023

December 15, 2024

Interim periods – In year of adoption?

Yes

Yes

Early adoption permitted?

Yes, for both interim and annual financial statements that have not yet been issued or made available for issuance.

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.  

Download the document:

FASB issues ASU

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