When an investment company owns shares it is contractually barred from selling, should those shares still be valued as if they could be sold tomorrow? America’s top accounting rulemaker says no — and it wants to change the rules accordingly.
The Financial Accounting Standards Board proposed new guidance on July 1 that would require investment funds to apply a discount when valuing shares they are contractually barred from selling. The board is accepting public comments on the proposal through July 17, 2026.
The issue is more common than it might sound. When a company goes public, early investors — including funds that backed the company before its IPO — are typically locked into agreements preventing them from selling their shares for a set period, often 90 to 180 days. Under current accounting rules, those locked-up shares are generally valued the same as freely tradable shares, using the public market price as if the restriction did not exist.
Critics have long argued that approach inflates a fund’s reported value. A share worth $100 on the open market may not be worth $100 to someone who cannot actually sell it for months. During that time, the stock could fall, the market could shift, and the fund would have no way to exit. That risk, critics say, has a real cost — and current rules ignore it.
The consequences are not abstract. For ordinary investors in a fund, the reported value of its holdings determines the price paid to buy in, the amount received when cashing out, and sometimes even the management fees charged. If a fund’s stated value is inflated by locked-up shares carried at full market price, investors who redeem during that period may effectively be overpaid at the expense of those who stay.
FASB acknowledged the problem has grown more pressing as companies wait longer to go public and arrive at public markets with larger valuations, making post-IPO lock-up periods economically weightier than they once were.
The proposed fix is targeted. Only investment funds governed by Topic 946 of U.S. generally accepted accounting principles would be affected. Operating companies and other non-fund entities would continue under the existing framework, where a sale restriction is treated as a characteristic of the holder rather than the asset, and does not reduce fair value.
For funds that do fall under the new rule, the requirement would be mandatory — not optional. FASB considered allowing funds to choose whether to apply a discount but rejected that approach, concluding it would produce inconsistent reporting across the industry. The board also ruled out an alternative that would have required funds to record a separate liability for the restriction rather than adjusting the asset’s value directly.
Funds would also be required to separately disclose the size of the discount applied because of contractual sale restrictions, adding a new layer of transparency on top of existing disclosure requirements.
The proposal would be applied going forward, including to shares already subject to restrictions at the time a fund adopts the new guidance. Any resulting adjustment to valuations would flow through current-period earnings.
The seven-member FASB board approved the proposal unanimously. No effective date has been set yet, with the board indicating it will make that determination after reviewing public feedback. Early adoption would be permitted once a final standard is issued.
The full proposal is formally titled Proposed Accounting Standards Update No. 2026-ED300, Fair Value Measurement (Topic 820): Investment Companies with Equity Securities Subject to Contractual Sale Restrictions.
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