In August 2018, FASB issued final guidance on Fair Value Measurement, also known as Topic 820, which is intended to simplify the determination and disclosure of the value of assets and liabilities.
Some stakeholders noted that Topic 820 contains conflicting guidance on what the unit of account is when measuring the fair value of an equity security. “This has resulted in diversity in practice on whether the effects of a contractual restriction that prohibits the sale of an equity security should be considered in measuring that equity security’s fair value,” FASB noted in the proposal.
“Some stakeholders apply a discount to the price of an identical equity security that is not subject to a contractual sale restriction, whereas other stakeholders consider the application of a discount to be inappropriate under the principles of Topic 820,” FASB said in a statement on the proposed clarification.
To address this, the amendments in the proposed Accounting Standard Update would clarify that a contractual restriction on the sale of an equity security is not considered part of the unit of account of the equity security and, therefore, is not considered in measuring fair value.
The proposal would take effect, if adopted, after a comment period ends on November 14. 