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Restricted Equity, Evaluating Discounts: Preparing Investment Company Valuations for FASB’s Accounting Standards Update
Madeline Arment | 10 September 2026
Alexander Woodcock, Director & Fund CCO, also contributed to this article.
Regulated funds following ASC 946, which will further be referenced as Regulated Funds, holding equity securities subject to contractual sale restrictions face a reversal of the existing fair value standard: discounts attributable to contractual sale restrictions have moved from a prohibited component of measuring fair value to a requirement.
FASB's new ASU 2026-03 (amending Topic 820) now requires — not merely permits — Regulated Funds to evaluate material contractual sale restrictions when measuring potential discounts in an equity security's fair value. This reverses, in substance, the former treatment ASU 2022-03 imposed on Regulated Funds.
Regulated Funds, including mutual funds, interval funds, BDCs, closed-end and tender-offer funds holding locked-up, pre-IPO, or otherwise restricted equity should take note: what changed, why it matters for Net Asset Value (NAV) and governance, and the early-adopt-or-wait decision ahead all follow below.
The adopted ASU permits early adoption on any date beginning September 9, 2026, but requires all Regulated Funds to implement required changes for annual reporting periods beginning after December 15, 2027, and interim reporting periods within those annual reporting periods.
For readers newer to standard-setting: the Financial Accounting Standards Board (FASB) is the private-sector body that sets U.S. GAAP, with its standards recognized as authoritative by the SEC. When FASB amends existing guidance, it does so through an Accounting Standards Update, or ASU — a document that communicates the change, its effective date, and transition requirements. The ASU itself isn't the authoritative text; rather, it amends the FASB Accounting Standards Codification, which is.
In 2022, ASU 2022-03 amended ASC 820 to clarify that a contractual sale restriction is not part of the unit of account of an equity security and is not permitted to be considered in measuring an equity security’s fair value. For many Regulated Funds, this meant not applying a discount to these securities and potentially overstating the securities value and thus, a Fund’s NAV.
ASU 2026-03 arrives amid an evolving market backdrop. Over the past few years, retail-oriented pooled investment vehicles with alternative investment strategies have taken on a larger role in giving investors access to private and pre-IPO companies while more companies have been staying private longer and going public later, if at all.
As restricted and illiquid positions have become a bigger share of Registered Fund assets, the need has arisen for accounting guidance to ensure an accurate reflection of the true fair value of IPOs and anticipated IPOs for companies such as SpaceX, Anthropic, and OpenAI during their customary post-IPO sale lockup.
After industry advocacy for revision from the Investment Company Institute (ICI), on August 5, 2026, the FASB completed re-deliberations on the related ASC 820 amendments, substantially reflecting ICI’s positions, and directed staff to draft a final ASU. With the release of the official ASU on September 9, 2026, the industry received guidance not as a narrow permit-to-require adjustment, but as a substantive reversal of the 2022-03 outcome for funds to now ensure that the materiality of a contractual restriction is factored into valuation calculations.
Regulated Funds holding a material proportion of restricted positions will feel the most direct impact in fair value and thus NAV. As NAV is a direct function of portfolio value, and because shareholders transact at NAV (most daily), a measurement change of this kind flows straight through to what investors pay to buy in and receive from a redemption.
ASC 946 supplies the guidance Regulated Funds rely on when valuing those investments. The ICI and industry argued that the object of fair value measurement is to price an asset at the price a market participant would actually pay for the asset. A post-IPO lockup on equity security can materially depress that price during the restricted period. A fund that prices such a holding without a discount therefore risks carrying an overstated valuation and thus, an overstated NAV.
The precision FASB appears to be aiming for with this updated guidance comes at the cost of an additional process and data burden for those responsible for overseeing fair value determinations; including methodology, inputs, models, materiality thresholds, and documentation capable of withstanding the inevitable audit and examination.
Under Rule 2a-5, a Regulated Fund’s Valuation Designee (typically its Adviser) is responsible for overall management of valuation policies and procedures, and their implementation. Valuation Designees must now consider the terms and remaining duration of the restriction, volatility and liquidity in the underlying security, size of restrictions relative to trading volume and other market participant factors.
Disclosure and comparability will also shift. Funds that adopt early may look different, for a time, from peers that wait for the required date, and interested stakeholders may experience NAV fluctuations and reporting updates as applicable entities incorporate this update over the next two years. A component of the ASU is for Regulated Funds to disclose discount amounts attributable to the contractual sale restriction applied during the reporting period. As a result, those stakeholders will explicitly see the discount value of the restricted positions.
Additionally, this change carries a governance shift beyond the accounting that all Registered Funds will need to assess: valuation policy updates, board reporting, and consistency across the fund's operative documents all need to move and stay aligned.
While the Valuation Designee will likely take the lead on assessing the impact of this change on their processes, engagement with the various stakeholders will be necessary to ensure a complete assessment and successful adoption of any necessary changes.
Rule 2a-5's board-oversight model of valuation relies on Regulated Fund Boards overseeing the Valuation Designee's policies and processes rather than approving each determination. That structure means the Board's role here can lean on the valuation reporting they already receive; the incremental step is documenting the early-adoption decision itself, whichever way a Fund lands, and noting any material changes in valuation processes.
Looking further ahead, examiners and auditors will likely focus on consistency and documentation: whether valuation policy, prospectus and financial-statement disclosures, and administrator practice all say and do the same thing. Risk will creep in where there are gaps between what's documented and what's actually evidenced as done.
With the option provided by FASB for early adoption each Regulated Fund must evaluate the process, timing, and impact to adopt this valuation change that is appropriate for their operations and shareholders.
In practical terms, the new discount logic should be reflected in valuations for a Fund’s first NAV calculated on its elected adoption date – whether that be now or December 2027. If a Fund decides to adopt early, it must do so for all equity securities with contractual sale restrictions. Early adoption is not available on a security-by-security basis.
The assessment of this decision will differ depending on exposure. A Regulated Fund with a material proportion of restricted positions faces a different question than one with de minimis exposure.
Where the answer isn't obvious, several factors are worth weighing together: timing relative to fiscal year-end and the audit cycle, and whether methodology, vendors, and systems are actually ready; comparability with peers and what investors and the board have come to expect; and the cost and operational lift of adopting early against the runway remaining to the December 2027 required date.
None of these factors points to a uniform answer, and the right call will depend upon where a given Regulated Fund sits on each.
The example stakeholder map above is a practical starting point. Regulated Funds with a material proportion of restricted positions don't need to wait for year-end to determine their version of the map, and begin having those conversations with the valuation committee, the administrator, pricing vendors, and legal/compliance to work through methodology, data, and documentation against the ASU's requirements and the decided effective date.
The early-adopt-or-wait decision belongs in those same discussions. The sooner the stakeholders of an impacted Regulated Fund know which way it's leaning, the sooner work on valuation methodologies and pricing vendor updates can be scoped to the right timeline.
The Regulated Funds that treat this as a runway rather than a deadline will likely be in a much better position when the required date arrives.
A readiness guide to FASB’s September 2026 ASU on equity security contractual sale restrictions for investment companies
Regulated funds following ASC 946, which will further be referenced as Regulated Funds, holding equity securities subject to contractual sale restrictions face a reversal of the existing fair value standard: discounts attributable to contractual sale restrictions have moved from a prohibited component of measuring fair value to a requirement.
FASB's new ASU 2026-03 (amending Topic 820) now requires — not merely permits — Regulated Funds to evaluate material contractual sale restrictions when measuring potential discounts in an equity security's fair value. This reverses, in substance, the former treatment ASU 2022-03 imposed on Regulated Funds.
Regulated Funds, including mutual funds, interval funds, BDCs, closed-end and tender-offer funds holding locked-up, pre-IPO, or otherwise restricted equity should take note: what changed, why it matters for Net Asset Value (NAV) and governance, and the early-adopt-or-wait decision ahead all follow below.
The adopted ASU permits early adoption on any date beginning September 9, 2026, but requires all Regulated Funds to implement required changes for annual reporting periods beginning after December 15, 2027, and interim reporting periods within those annual reporting periods.
What Happened and Why Now
For readers newer to standard-setting: the Financial Accounting Standards Board (FASB) is the private-sector body that sets U.S. GAAP, with its standards recognized as authoritative by the SEC. When FASB amends existing guidance, it does so through an Accounting Standards Update, or ASU — a document that communicates the change, its effective date, and transition requirements. The ASU itself isn't the authoritative text; rather, it amends the FASB Accounting Standards Codification, which is.
In 2022, ASU 2022-03 amended ASC 820 to clarify that a contractual sale restriction is not part of the unit of account of an equity security and is not permitted to be considered in measuring an equity security’s fair value. For many Regulated Funds, this meant not applying a discount to these securities and potentially overstating the securities value and thus, a Fund’s NAV.
ASU 2026-03 arrives amid an evolving market backdrop. Over the past few years, retail-oriented pooled investment vehicles with alternative investment strategies have taken on a larger role in giving investors access to private and pre-IPO companies while more companies have been staying private longer and going public later, if at all.
As restricted and illiquid positions have become a bigger share of Registered Fund assets, the need has arisen for accounting guidance to ensure an accurate reflection of the true fair value of IPOs and anticipated IPOs for companies such as SpaceX, Anthropic, and OpenAI during their customary post-IPO sale lockup.
After industry advocacy for revision from the Investment Company Institute (ICI), on August 5, 2026, the FASB completed re-deliberations on the related ASC 820 amendments, substantially reflecting ICI’s positions, and directed staff to draft a final ASU. With the release of the official ASU on September 9, 2026, the industry received guidance not as a narrow permit-to-require adjustment, but as a substantive reversal of the 2022-03 outcome for funds to now ensure that the materiality of a contractual restriction is factored into valuation calculations.
Why it Matters
Regulated Funds holding a material proportion of restricted positions will feel the most direct impact in fair value and thus NAV. As NAV is a direct function of portfolio value, and because shareholders transact at NAV (most daily), a measurement change of this kind flows straight through to what investors pay to buy in and receive from a redemption.
ASC 946 supplies the guidance Regulated Funds rely on when valuing those investments. The ICI and industry argued that the object of fair value measurement is to price an asset at the price a market participant would actually pay for the asset. A post-IPO lockup on equity security can materially depress that price during the restricted period. A fund that prices such a holding without a discount therefore risks carrying an overstated valuation and thus, an overstated NAV.
The precision FASB appears to be aiming for with this updated guidance comes at the cost of an additional process and data burden for those responsible for overseeing fair value determinations; including methodology, inputs, models, materiality thresholds, and documentation capable of withstanding the inevitable audit and examination.
Under Rule 2a-5, a Regulated Fund’s Valuation Designee (typically its Adviser) is responsible for overall management of valuation policies and procedures, and their implementation. Valuation Designees must now consider the terms and remaining duration of the restriction, volatility and liquidity in the underlying security, size of restrictions relative to trading volume and other market participant factors.
Disclosure and comparability will also shift. Funds that adopt early may look different, for a time, from peers that wait for the required date, and interested stakeholders may experience NAV fluctuations and reporting updates as applicable entities incorporate this update over the next two years. A component of the ASU is for Regulated Funds to disclose discount amounts attributable to the contractual sale restriction applied during the reporting period. As a result, those stakeholders will explicitly see the discount value of the restricted positions.
Additionally, this change carries a governance shift beyond the accounting that all Registered Funds will need to assess: valuation policy updates, board reporting, and consistency across the fund's operative documents all need to move and stay aligned.
Who Needs to be Engaged
While the Valuation Designee will likely take the lead on assessing the impact of this change on their processes, engagement with the various stakeholders will be necessary to ensure a complete assessment and successful adoption of any necessary changes.
Valuation Designee
- Why: Valuation Designee, or its valuation committee, sets the discount methodology and sign-off.
- Key questions: Does the Regulated Fund’s portfolio include securities impacted by this change? Can a discount be supported? How is the sale restriction measured and quantified? What inputs and thresholds are needed, and who approves? How do the processes align with Rule 2a-5?
- Recordkeeping: Approved methodology; minutes; rationale for inputs and materiality threshold.
Board / Audit committee
- Why: Oversees valuation and any policy or NAV impact.
- Key questions: Has this been reported to the Board? Are we proposing early adoption? Are controls adequate? What is the overall impact on the Fund and shareholders?
- Recordkeeping: Board materials and minutes; documented early-adoption decision.
Independent auditors
- Why: Will test methodology, inputs, and disclosures.
- Key questions: What evidence supports the discount? Any restatement or comparability issues? What are the impacts to the Fund’s NAV and how is materiality being measured?
- Recordkeeping: Audit coordination trail; methodology and support provided to auditors.
Pricing vendors / Valuation specialists
- Why: May supply or corroborate restriction discounts.
- Key questions: Can the vendor support a discount? Scope, cost, turnaround, transparency?
- Recordkeeping: Engagement scope; vendor methodology documentation; independence considerations.
Fund administrator / Accounting agent
- Why: Operationalizes the measurement in NAV and financials.
- Key questions: Can accounting and reporting systems/processes apply the discount and new disclosures on time? What new financial reporting disclosures are required?
- Recordkeeping: System change records; disclosure templates; reconciliation evidence.
Portfolio Management
- Why: Source of position-level restriction facts.
- Key questions: Are restriction terms complete and current across holdings?
- Recordkeeping: Restriction inventory tied to holdings; updates on modification or lapse.
Legal / Compliance
- Why: Checks consistency with policy, Rule 2a-5, and disclosures.
- Key questions: Do policy, prospectus, and financial-statement disclosures align? What processes and policies require updates?
- Recordkeeping: Updated valuation policy; alignment check across operative documents.
Governance & Oversight
Rule 2a-5's board-oversight model of valuation relies on Regulated Fund Boards overseeing the Valuation Designee's policies and processes rather than approving each determination. That structure means the Board's role here can lean on the valuation reporting they already receive; the incremental step is documenting the early-adoption decision itself, whichever way a Fund lands, and noting any material changes in valuation processes.
Looking further ahead, examiners and auditors will likely focus on consistency and documentation: whether valuation policy, prospectus and financial-statement disclosures, and administrator practice all say and do the same thing. Risk will creep in where there are gaps between what's documented and what's actually evidenced as done.
A Decision: Early Adopt or Wait?
With the option provided by FASB for early adoption each Regulated Fund must evaluate the process, timing, and impact to adopt this valuation change that is appropriate for their operations and shareholders.
In practical terms, the new discount logic should be reflected in valuations for a Fund’s first NAV calculated on its elected adoption date – whether that be now or December 2027. If a Fund decides to adopt early, it must do so for all equity securities with contractual sale restrictions. Early adoption is not available on a security-by-security basis.
The assessment of this decision will differ depending on exposure. A Regulated Fund with a material proportion of restricted positions faces a different question than one with de minimis exposure.
Where the answer isn't obvious, several factors are worth weighing together: timing relative to fiscal year-end and the audit cycle, and whether methodology, vendors, and systems are actually ready; comparability with peers and what investors and the board have come to expect; and the cost and operational lift of adopting early against the runway remaining to the December 2027 required date.
None of these factors points to a uniform answer, and the right call will depend upon where a given Regulated Fund sits on each.
Next Steps
The example stakeholder map above is a practical starting point. Regulated Funds with a material proportion of restricted positions don't need to wait for year-end to determine their version of the map, and begin having those conversations with the valuation committee, the administrator, pricing vendors, and legal/compliance to work through methodology, data, and documentation against the ASU's requirements and the decided effective date.
The early-adopt-or-wait decision belongs in those same discussions. The sooner the stakeholders of an impacted Regulated Fund know which way it's leaning, the sooner work on valuation methodologies and pricing vendor updates can be scoped to the right timeline.
The Regulated Funds that treat this as a runway rather than a deadline will likely be in a much better position when the required date arrives.