Editor’s Note (September 2026): Following publication of this article, FASB issued ASU 2026-03. For details on the final guidance, disclosure requirements, transition provisions, and early-adoption considerations, see our latest update, “FASB ASU 2026-03 Changes Fair Value Accounting for Restricted Equity Securities.”

August 18, 2026

Estimated reading time: 5 minutes

The article in brief:

• FASB approved drafting of a final standard that would make a targeted change to how investment companies value equity securities subject to contractual sale restrictions.
• Changes will be effective for annual reporting periods beginning after December 15, 2027, and early adoption will be permitted on any date on or after the issuance of a final standard.
• FASB added a separate project to explore expanding the scope to all entities.

On August 5, 2026, the FASB reviewed feedback to its July proposed accounting standards update (ASU), Fair Value Measurement (Topic 820): Investment Companies with Equity Securities Subject to Contractual Sale Restrictions, which was issued to address concerns that existing accounting guidance does not reflect how market participants value equity securities subject to contractual sale restrictions.

For background on the original proposal and the valuation concerns that prompted FASB’s reconsideration of ASU 2022-03, see VRC’s earlier article, “FASB Proposal Could Change How Investment Companies Value Restricted Equity Securities.”

Background on ASU 2022-03 and Contractual Sale Restrictions

Contractual sale restrictions commonly arise in lock-up agreements related to privately held securities that are later offered in an initial public offering (IPO). Under these contractual arrangements, insiders and other shareholders agree not to sell their shares for a specified period after the IPO, restricting their ability to immediately access the public market.

In 2022, the FASB issued guidance to reduce diversity in practice in the fair value measurement of equity securities subject to contractual sale restrictions. ASU No. 2022-03 stipulated that contractual sale restrictions were a characteristic of the holder, rather than the security itself. In practice, fair value would be measured without applying a discount for lack of marketability (DLOM) related to a contractual sale restriction, even when market participants would have considered the restriction in pricing the security.

Pre-IPO AI Valuations & ASU 2022-03: Navigating Fair Value and Contractual Sale Restrictions

The surge in artificial intelligence (AI) and related infrastructure investment has brought renewed attention to the valuation of high-profile private-company holdings as they prepare to enter public markets, including SpaceX’s record IPO in June 2026.  Investors anticipate that several other late-stage VC-backed companies will IPO over the next several months, some with valuations that could approach $1 trillion.

Stakeholders told FASB that current guidance under ASU No. 2022-03 can produce fair value measurements that do not reflect how market participants would value equity securities subject to contractual sale restrictions. For investment companies, ignoring the sales restrictions can affect net asset value (NAV), performance reporting, management fees, and the allocation of value among the purchasing, redeeming, and remaining shareholders.

This issue is not limited to investment companies. Similar valuation issues may arise for corporations that invest directly in start-ups or through corporate venture capital (CVC) arms. PitchBook research indicates CVC investors participated in 82.6% of aggregate U.S. VC deal value during the first half of 2026,¹ highlighting the broader relevance of the issue when large private companies decide to go public and are subject to contractual sale restrictions.

FASB Approves Investment Company Exception under ASC 820, Fair Value Measurement

FASB accelerated efforts to address these concerns, issuing a proposed ASU with a 15-day comment period. VRC submitted a comment letter, joining accounting firms, preparers, and trade groups in providing feedback.

Respondents generally supported the proposed updates, and FASB affirmed the key provisions of its proposal.

• Changes would only apply to investment companies defined under Accounting Standards Codification (ASC) Topic 946, Financial Services – Investment Companies.
• Investment companies would be required to consider contractual restrictions when measuring the fair value of equity securities.
• Annual and interim financial statement disclosures would be required for the discount attributable to contractual sale restrictions. Investment companies should consider the existing disclosure objectives under ASC 820 when determining the level of disaggregation for these disclosures.

One change from the proposal is that FASB will allow additional implementation time for adoption. The changes will be effective for annual reporting periods beginning after December 15, 2027, and interim periods therein.

Early adoption will be permitted on any date on or after the issuance of the final accounting standard update. The changes must be applied prospectively to all equity securities as of the adoption date, with any adoption adjustments recognized immediately in earnings.

Several respondents suggested expanding the scope to all entities, not just investment companies, as well as to additional asset classes. As a result, FASB added a project to its technical agenda to explore whether the guidance should apply to all entities. FASB will need to conduct additional research into other asset classes before initiating a formal project on that issue.

Exception for Investment Companies vs. ASU 2022-03

FASB’s standard setting will create a narrow exception under ASC 820 that applies only to investment companies; the provisions of ASU 2022-03 will continue to apply to all other entities. In general, ASC 820 requires that security-specific restrictions are considered in fair value estimates, while holder-specific restrictions are not. For example, unregistered private investment in public equity (PIPE) securities cannot trade on the same market as registered shares of the same entity. That restriction is deemed a characteristic of the security and, as such, should be considered in fair value estimates until the shares are registered on an exchange. In such cases, a DLOM may be appropriate when estimating fair value. In other situations, such as pre-IPO lock-provisions, non-investment companies will continue to ignore those restrictions in their fair value measurements.

What This Means for Investment Companies

It is likely that the final standard will be issued in the third quarter of 2026. Investment companies should evaluate whether early adoption is appropriate, including the potential impact on 2026 financial statements.

Investment companies may need to reassess valuation policies, disclosures, and financial reporting timelines in anticipation of a final standard before year end. Funds should consider whether their current valuation processes can quantify and support DLOMs related to contractual sale restrictions, particularly if they choose to adopt early. As indicated in VRC’s comment letter, methodologies for estimating the impact of such contractual restrictions on market participants are generally well established. However, newer funds may need to familiarize themselves with the generally accepted techniques for estimating DLOMs (e.g., option pricing models).

VRC’s Portfolio Valuation practice group has extensive experience valuing complex securities, including credit and debt instruments, derivatives, equity, and structured products. If you have questions on how this change could impact your valuations, please contact the author or any VRC professional.

1 PitchBook Data, Inc., & National Venture Capital Association. (2026). Q2 2026 PitchBook-NVCA venture monitor.