FASB Fair Value Measurement Update

Summary

SIFMA ¹ and SIFMA AMG provided comments to the Financial Accounting Standards Board's Proposed Accounting Standards Update Fair Value Measurement (Topic 820): Investment Companies with Equity Securities Subject to Contractual Sale Restrictions.

Excerpt

We appreciate the Board's efforts to address concerns raised by stakeholders on the current guidance regarding contractual sale restrictions and the resulting impact on investment company net asset value ("NAV"), and support the requirement for an investment company to incorporate the effect of a contractual sale restriction in the fair value measurement of an equity security by recognizing the discount that a market participant would apply. We urge the Board to issue a final Accounting Standard Update ("ASU") as expeditiously as possible.

The impact of a contractual sale restriction guidance is most acute and time sensitive for investment companies. However, there is no conceptual basis to have different valuation guidance for equity securities held by investment companies versus other entities. Market participants value the effect of a contractual sale restriction as a characteristic of the security and by reference to transactions in the principal market adjusted for the lock-up period and volatility. Their valuation approach does not vary by entity type, and the accounting requirements should be consistent as well. However, if an expansion of scope to all entities would delay the relief for investment companies, we encourage the Board to finalize the ASU with its current scope, and to address the issue for the other entity types in a subsequent project.