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- On June 30, 2022, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2022-03, “Fair Value Measurement (Topic 820): Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions,” which clarifies how the fair value of equity securities subject to contractual sale restrictions is determined. Prior to its issuance, there was diversity in practice as to whether the effects of a contractual restriction that prohibits the sale of an equity security should be considered in measuring the security’s fair value.
- ASU 2022-03 clarifies that a contractual sale restriction should not be considered in measuring fair value. It also requires entities with investments in equity securities subject to contractual sale restrictions to disclose certain qualitative and quantitative information about such securities.
- ASU 2022-03 takes effect for public companies for fiscal years beginning after Dec. 15, 2023. All other entities have an extra year to adopt; early adoption is permitted.
- For entities other than investment companies as defined under Topic 946, “Financial Services – Investment Companies,” the ASU applies prospectively, with any adjustments resulting from adoption recognized in earnings on the date of adoption.
- In contrast, an entity that qualifies as an investment company under Topic 946 will apply the amendments in ASU 2022-03 only to an investment in an equity security in which the contractual arrangement that restricts its sale is executed or modified on or after the adoption date.