Historically, there has been diversity in practice on how an equity security’s contractual restriction impacts its fair value measurement. On June 30, 2022, FASB issued Accounting Standards Update (ASU) 2022-03, Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions, which clarifies that a contractual restriction on the sale of an equity security is not considered part of the security’s unit of account and should not be considered in measuring fair value. Entities also are now prohibited from recognizing and measuring the contractual sales restriction as a separate unit of account, e.g., as a liability or contra-asset. This article provides details on the ASU, which also adds new disclosures for these restricted investments.

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