ASC 820 Contractual Sale Restrictions: What FASB ASU 2026-03 Means for Fair Value Valuations
Updated: November 2026 | Category: ASC 820 – Fair Value Measurement
The Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2026-03 in September 2026, introducing an important change to how certain investment companies measure the fair value of equity securities subject to contractual sale restrictions.
The amendment creates a targeted exception to existing ASC 820 guidance for qualifying investment companies within the scope of ASC 946.
For private equity funds, venture capital funds, fund controllers, CFOs, and valuation professionals, this development raises important questions about liquidity discounts, investment valuation methodologies, net asset value (NAV), and financial reporting.
Understanding the new guidance requires more than applying a discount to restricted securities. It requires an assessment of the reporting entity, contractual terms, market-participant assumptions, and the applicable fair value framework.
At Synpact Consulting, our Fair Value Measurement Services support businesses, investment professionals, and advisory firms with technical valuation modeling, market-based analysis, and supporting documentation.
The key takeaway: ASU 2026-03 does not apply to every restricted equity investment. Its requirements are limited to qualifying investment companies and securities within the amendment’s scope.
What Is FASB ASU 2026-03?
ASU 2026-03 amends ASC 820, Fair Value Measurement, to address contractual sale restrictions affecting certain equity securities held by investment companies.
A contractual sale restriction may prevent an investor from selling a security for a specified period.
Examples include:
- Lock-up agreements associated with initial public offerings.
- Contractual resale restrictions in private placements.
- Market-standoff agreements.
- Restrictions established through negotiated investment agreements.
These restrictions may influence how market participants price an investment because the holder cannot immediately sell the security.
Under the new guidance, qualifying investment companies must reflect the economic effect of applicable contractual sale restrictions in fair value.
However, the amendment does not prescribe a universal discount percentage.
The appropriate adjustment depends on the specific restriction, security characteristics, available market evidence, and market-participant assumptions.
Why Did FASB Introduce the New Guidance?
The amendment addresses concerns about whether existing fair value guidance appropriately reflects the economic characteristics of restricted equity investments held by investment companies.
Under the previous general framework, contractual sale restrictions were generally excluded from fair value measurements.
This could result in restricted and unrestricted holdings of otherwise identical securities being reported at equivalent values, despite differences in their immediate saleability.
For investment companies, these differences can be significant because investment fair values influence:
- Net asset value.
- Investment performance reporting.
- Financial statement disclosures.
- Investor reporting.
- Certain valuation-based fee calculations.
- Fund governance and valuation oversight.
For investment managers seeking a broader understanding of portfolio valuation and reporting, Synpact’s Private Equity & Fund NAV Valuation Services explain how investment-level fair values contribute to fund-level reporting.
The new guidance aims to reflect the economic effect of qualifying contractual restrictions while maintaining a defined scope.
ASC 820 and ASC 946: Understanding the Scope
Before adjusting an investment valuation, finance teams must determine whether the reporting entity and investment qualify under ASU 2026-03.
What Does ASC 820 Cover?
ASC 820 establishes the framework for measuring fair value when another US GAAP requirement requires or permits fair value measurement.
Fair value generally represents the price received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.
Its core principles include:
- Market-participant assumptions.
- Appropriate valuation methodologies.
- Observable and unobservable inputs.
- Consistent measurement practices.
- Supporting documentation.
- Financial statement disclosures.
For investments involving significant unobservable inputs, our ASC 820 Level 3 Valuation Guide for Private Equity and Venture Capital Funds explains valuation methodologies, market evidence, calibration, and documentation requirements.
What Does ASC 946 Cover?
ASC 946 provides accounting guidance for entities qualifying as investment companies.
Depending on the facts and applicable requirements, these may include certain private equity, venture capital, and other investment funds.
Not every company holding investment securities automatically qualifies as an investment company under ASC 946.
Which Entities Are Affected?
ASU 2026-03 applies to qualifying investment companies holding equity securities that:
- Are measured at fair value.
- Are subject to contractual sale restrictions.
- Meet the amendment’s specific scope requirements.
The exception does not automatically extend to ordinary operating companies, private credit instruments, or employee stock option valuations.
Practical consideration: Accounting classification and investment-specific contractual terms should be reviewed before implementing a restriction-related valuation adjustment.
ASU 2022-03 vs ASU 2026-03: What Changed?
ASU 2022-03 clarified that a contractual restriction prohibiting the sale of an equity security generally is not considered part of the security’s unit of account.
Consequently, such restrictions generally were not reflected in the security’s fair value.
ASU 2026-03 introduces a limited exception for qualifying investment companies.
| Area | ASU 2022-03 | ASU 2026-03 |
|---|---|---|
| General approach | Excludes contractual sale restrictions from fair value | Requires qualifying investment companies to reflect applicable restrictions |
| Scope | General ASC 820 guidance | Limited ASC 946 investment company exception |
| Valuation adjustment | Generally no adjustment solely for the restriction | Market-participant adjustment for qualifying restrictions |
| NAV impact | Restriction generally excluded from measurement | May affect reported investment values and NAV |
| Disclosure | Existing restricted security disclosures | Additional disclosure of restriction-related discounts |
Important: The new amendment does not broadly reverse the earlier guidance for entities outside its specified scope.
How Contractual Sale Restrictions Affect Fair Value
Contractual restrictions can reduce an investor’s ability to realize value through an immediate sale.
Market participants may require compensation for the economic consequences of this reduced liquidity.
Relevant factors can include:
- Remaining restriction period.
- Expected security price volatility.
- Market liquidity.
- Dividend expectations.
- Risk-free interest rates.
- Security-specific characteristics.
- Relevant market transactions.
- Economic risks during the restricted period.
The objective is to estimate the effect of the contractual restriction rather than apply an arbitrary valuation discount.
Why a Fixed Discount Percentage May Be Misleading
Consider two investments.
Investment A is restricted for three months.
Investment B is restricted for two years.
Even when the underlying securities have similar characteristics, the restrictions may have different economic consequences.
A uniform 10% or 20% discount would not necessarily represent the price adjustment market participants would demand.
The valuation methodology should reflect the specific facts.
Valuation Methodologies for Contractually Restricted Equity Securities
ASU 2026-03 does not prescribe a single mandatory technique for determining the discount attributable to a contractual sale restriction.
The selected method should reflect market-participant assumptions and available evidence.
1. Option-Based Valuation Models
Option-based models may help estimate the economic cost of being unable to sell an investment for a defined period.
Depending on the facts, a protective-put framework or other appropriate option-based approach may be considered.
Relevant inputs can include:
- Underlying share price.
- Expected volatility.
- Restriction duration.
- Risk-free interest rate.
- Expected dividends.
Model outputs should be evaluated for consistency with the investment’s economic characteristics.
2. Market-Based Evidence
Valuation professionals may examine observable transactions involving securities with differing liquidity characteristics.
However, differences in transaction prices may reflect factors beyond contractual sale restrictions.
These can include security rights, transaction size, issuer risk, market conditions, and negotiation terms.
The analysis should distinguish the restriction-related effect from other sources of pricing differences.
3. Scenario and Sensitivity Analysis
Sensitivity analysis can help evaluate how the estimated discount responds to changes in:
- Restriction periods.
- Volatility.
- Market liquidity.
- Expected distributions.
- Other significant model assumptions.
This is particularly important when valuation conclusions rely on significant judgment.
Synpact’s article on ASC 820 Calibration and Backtesting for Level 3 Valuations provides additional context on validating valuation assumptions, evaluating model performance, and maintaining consistency with market evidence.
4. Discount for Lack of Marketability
A discount for lack of marketability may be relevant when estimating the economic effect of a contractual restriction.
However, the restriction-specific adjustment should not be confused with all other forms of investment illiquidity.
Valuation professionals should avoid double counting risks already incorporated into other valuation assumptions.
Illustrative Example: Fair Value of Restricted Equity Securities
Consider a hypothetical investment company within ASC 946 holding equity securities subject to a contractual lock-up.
| Item | Illustrative assumption |
|---|---|
| Unrestricted security price | $50 per share |
| Number of shares | 100,000 |
| Unrestricted investment value | $5,000,000 |
| Remaining restriction period | 12 months |
| Hypothetical restriction-related discount | 8% |
Assume an appropriate valuation analysis supports an 8% discount attributable specifically to the contractual restriction.
Unrestricted investment value: $5,000,000
Restriction-related adjustment: $400,000
Adjusted fair value: $4,600,000
The example illustrates how the restriction could reduce the reported fair value of a qualifying investment.
Important: The 8% adjustment is hypothetical. FASB does not prescribe this rate, and it should not be used as a benchmark for actual investments.
A real valuation would require appropriate modeling, supporting market evidence, and consideration of the contractual terms.
Potential Impact on Net Asset Value and Investment Performance
For investment companies, changes in portfolio fair values can affect reported NAV and financial performance.
Net Asset Value
A restriction-related valuation adjustment may reduce the reported value of a qualifying investment.
When aggregated across affected holdings, these adjustments may influence the fund’s overall NAV.
Investment Performance
Changes in fair value may affect recognized investment gains or losses and reported performance measures.
Finance teams should distinguish changes attributable to accounting guidance from changes in underlying investment performance.
Investor Reporting
Investment managers may need to explain valuation methodology changes and related NAV movements to investors.
Management Fees
Where fees are contractually linked to NAV or other valuation-based measures, the effects of fair value adjustments may require additional consideration.
Synpact’s Private Equity & Fund NAV Valuation practice supports investment valuation, NAV reporting, fund-level analysis, and related financial modeling.
New Disclosure Requirements Under ASU 2026-03
The amendment introduces an additional disclosure requirement for affected investment companies.
They must disclose the amount of the discount attributable to contractual sale restrictions included in the fair value measurement of relevant equity securities.
Finance teams should establish procedures to identify and document:
- Investments with qualifying restrictions.
- Applicable contractual terms.
- Restriction duration.
- Selected valuation methodology.
- Market-participant assumptions.
- Restriction-related discounts.
- Supporting valuation evidence.
- Appropriate financial statement presentation.
For investments requiring significant unobservable assumptions, documentation practices should also align with the applicable ASC 820 fair value hierarchy and disclosure requirements.
Our ASC 820 Level 3 Valuation Guide provides additional guidance on supporting valuation assumptions and preparing review-ready workpapers.
Effective Date and Early Adoption
ASU 2026-03 was issued in September 2026.
The amendments are effective for annual reporting periods beginning after December 15, 2027, including interim periods within those annual periods.
For calendar-year investment companies, mandatory adoption generally begins in 2028.
Early adoption is permitted on or after September 9, 2026.
The amendments are applied prospectively to in-scope equity securities at the adoption date.
Any adjustment arising from adoption is recognized in current-period earnings, with the required disclosure.
Investment companies considering early adoption should evaluate the potential effect on reported investment values, earnings, and NAV.
ASC 820 vs IFRS 13: Potential Reporting Differences
The amendment may create differences between US GAAP and IFRS fair value measurements for certain restricted equity securities.
Under IFRS 13, restrictions specific to the holder rather than characteristics of the asset generally are not reflected in the asset’s fair value.
ASU 2026-03 establishes a different treatment for qualifying investment companies under US GAAP.
Investment managers reporting under multiple frameworks should evaluate the applicable requirements independently.
For organizations requiring valuation support across accounting frameworks, Synpact’s Fair Value Measurement Services cover financial reporting valuations, valuation modeling, sensitivity analysis, and supporting documentation.
CFO and Fund Controller Implementation Checklist
Although mandatory adoption generally begins in 2028 for calendar-year investment companies, preparation can begin earlier.
Step 1: Confirm Scope
Determine whether the reporting entity qualifies as an investment company under ASC 946.
Step 2: Identify Restricted Holdings
Prepare an inventory of equity securities subject to contractual sale restrictions.
Step 3: Review Valuation Policies
Evaluate how existing models treat restrictions and identify required changes.
Step 4: Select Appropriate Methodologies
Assess market-based evidence, option-based models, and other relevant techniques.
Step 5: Evaluate NAV and Earnings Effects
Estimate the potential impact on reported investment values, earnings, and NAV.
Step 6: Establish Disclosure Procedures
Develop a consistent process for tracking restriction-related discounts.
Step 7: Strengthen Valuation Documentation
Maintain workpapers supporting contractual terms, methodology selection, assumptions, and final fair value conclusions.
Step 8: Coordinate With Accounting and Audit Teams
Review accounting treatment, adoption decisions, and documentation requirements with the relevant professionals.
For investment teams evaluating recurring portfolio valuations, Synpact’s Private Equity & VC Support Services provide broader support for portfolio monitoring, valuation analysis, financial modeling, and reporting workflows.
Common Valuation Mistakes to Avoid
Applying the New Guidance to Every Restricted Security
ASU 2026-03 creates a limited exception and should not be applied indiscriminately.
Using Unsupported Standard Discounts
Discounts should reflect relevant market-participant assumptions and investment-specific evidence.
Double Counting Liquidity Risks
Valuation adjustments should not duplicate risks already reflected elsewhere in the model.
Ignoring Contractual Terms
The economic significance of a restriction depends on the specific agreement.
Overlooking Adoption-Date Effects
Investment companies should evaluate the potential implications for earnings and NAV.
Maintaining Inadequate Documentation
A valuation conclusion should be supported by clear assumptions, reliable evidence, and traceable calculations.
For a related discussion of valuation documentation and model validation, see ASC 820 Calibration and Backtesting: A Practical Guide.
How Synpact Consulting Supports ASC 820 Fair Value Valuations
Implementing new fair value measurement guidance requires technical analysis, consistent modeling, and transparent documentation.
Synpact Consulting supports CFOs, CPA firms, investment professionals, and valuation advisory practices through its Fair Value Measurement Services.
Relevant capabilities include:
- ASC 820 fair value analysis.
- Private equity and venture capital investment valuation.
- Level 3 valuation modeling.
- Market-based and income-based analysis.
- Restricted equity valuation modeling.
- Discount and sensitivity analysis.
- Valuation model review.
- Financial reporting valuation documentation.
- Portfolio and NAV valuation support.
For organizations managing multiple private investments, our Private Equity & Fund NAV Valuation Services provide additional support for recurring portfolio valuation and reporting requirements.
Where an investment portfolio also contains loans, convertible notes, or other credit instruments, valuation teams may need separate methodologies. Our ASC 820 Private Debt Valuation Guide explains the distinct considerations relevant to those instruments.
The appropriate accounting treatment and adoption decisions should be confirmed with the reporting entity’s accounting advisors.
Frequently Asked Questions
What is ASU 2026-03?
ASU 2026-03 is a FASB amendment addressing the fair value measurement of certain equity securities subject to contractual sale restrictions held by qualifying investment companies.
Does ASU 2026-03 apply to all companies?
No. It creates a limited exception for qualifying investment companies within ASC 946.
What is a contractual sale restriction?
It is a contractual arrangement limiting a holder’s ability to sell an equity security, often for a specified period.
Does the new guidance require a fixed discount?
No. The adjustment should reflect the economic effect of the restriction using appropriate market-participant assumptions.
When does ASU 2026-03 become effective?
It is effective for annual periods beginning after December 15, 2027, including interim periods within those annual periods. Early adoption is permitted on or after September 9, 2026.
Can ASU 2026-03 affect fund NAV?
Yes. Changes in the fair value of qualifying restricted investments may affect reported NAV.
Does the amendment apply to private debt?
The exception specifically addresses qualifying equity securities. It does not automatically extend the same treatment to loans or other credit instruments.
How should the restriction-related discount be calculated?
The methodology should reflect market-participant assumptions, available evidence, and the specific economic characteristics of the restriction.
What new disclosures are required?
Affected investment companies must disclose the amount of the discount attributable to contractual sale restrictions included in the relevant fair value measurements.
How can investment companies prepare?
They can review affected holdings, contractual agreements, valuation policies, modeling methodologies, financial reporting procedures, and supporting documentation.
Final Thoughts: Preparing for the Next Stage of ASC 820 Fair Value Reporting
FASB ASU 2026-03 introduces an important but narrowly scoped change to US fair value accounting.
For qualifying investment companies, contractual sale restrictions may now directly influence the reported fair value of affected equity securities.
The amendment reinforces the importance of investment-specific analysis, market-participant assumptions, appropriate valuation methodologies, and clear supporting documentation.
For CFOs, fund controllers, CPA firms, and valuation professionals, the priority should be understanding the scope of the amendment and preparing a consistent implementation process.
A defensible fair value conclusion is more than a model output. It requires appropriate assumptions, reliable evidence, and transparent documentation.
Need Support With ASC 820 Fair Value Valuations?
Synpact Consulting provides technical valuation analysis, financial modeling, and documentation support for businesses, investment professionals, and advisory firms.
Whether your team is reviewing restricted equity investments, evaluating Level 3 valuation assumptions, or preparing financial reporting workpapers, we can discuss your valuation requirements.
Explore our ASC 820 Fair Value Measurement Services or contact Synpact Consulting for a valuation consultation.
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