Comments: restricted equities

Grant Thornton recently submitted a comment letter in response to the FASB’s proposed ASU on determining the fair value of equity securities subject to contractual restrictions.

In our letter, we support the proposed amendments, which are designed to clarify that contractual restrictions should not be considered when estimating the fair value of an entity’s investments in equity securities subject to contractual sale restrictions, because such restrictions are entity-specific.

The amendments in the proposed ASU would address the diversity in practice that has developed around whether certain contractual sale restrictions should be considered in the valuation of the equity securities. This diversity in practice stems in large part from a conflict between an example that appears in ASC 820, which suggests contractual restrictions should be considered, and the subsequent measurement guidance in ASC 820, which suggests that contractual restrictions should not be considered. What’s more, in 2019, the AICPA released a valuation practice aid focusing on the example in ASC 820, which concluded that entities should consider contractual restrictions when estimating the fair value of equity securities.

To read our comments in full, download the comment letter here.