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FASB proposal could change how investment companies value restricted equity
['Managing Director', 'Adam Smith', 'Asa', 'Abv', "Is A Managing Director At Valuation Research Corporation With Over Years' Experience In The Valuation Industry.", 'Senior Managing Director', 'Francis Mainville', 'Cfa', 'Cpa Abv', 'Is A Senior Managing Director At Valuation Research Corporation Specializing In The Valuation Of Complex Securities.']
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Whether contractual sale restrictions should affect the fair value of equity securities has long been debated.
In their view, contractual sale restrictions have economic substance that should be reflected in fair value.
As the restriction approaches expiration, the DLOM declines, causing the restricted security's fair value to converge with the value of an otherwise identical unrestricted security.
Under the exception, investment companies would be required to consider contractual restrictions when measuring the fair value of equity securities.
Investment companies may need to reassess valuation policies, disclosures and financial reporting timelines if the proposal is finalized.