The IMA Financial Reporting Committee (FRC or Committee) issued a comment letter in response to Proposed Accounting Standards Update (ASU) No. 2021-005, Fair Value Measurement (Topic 820): Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions (Proposal).

The Financial Accounting Standards Board (FASB or Board) observes that there is diversity in practice in the accounting for the effects of contractual restrictions on the resale of equity securities. The objective of the Proposal is to introduce new guidance on how to reflect these contractual restrictions. 

The FRC believes that the Proposal, including the definition of a “restricted security,” needs additional clarity. The Committee’s comment letter describes its general consensus that contractual restrictions should be reflected in the accounting for equity securities. However, some members raise concerns about the complexity of a recognition approach and instead favor qualitative and quantitative disclosures regarding the effects of such contractual restrictions.