ASU 2026-03: contractual sale restrictions now cut fund NAV

Under ASU 2026-03, investment companies within Topic 946 must reflect contractual sale restrictions, such as an IPO lock-up, as a discount in the fair value of the equity securities they hold, while every other entity keeps measuring the same shares at the unadjusted quoted price. The same listed share can therefore carry two different values on two balance sheets.

The Financial Accounting Standards Board issued the update in September 2026. It reverses part of ASU 2022-03 for funds and business development companies (BDCs) only, and adds one new disclosure: the size of the discount. Below we explain the rule in our own words, cite the paragraphs, and look at what Wells Fargo, Hercules Capital, Nvidia and Northern Trust report in their filings now.

What Topic 820 says today about contractual sale restrictions

Since ASU 2022-03, Topic 820 treats a contractual restriction on selling an equity security (a lock-up, a market standoff agreement, a side agreement among certain shareholders) as a characteristic of the holder, not of the share. It is ignored when measuring fair value, cannot be recognized separately, and a Level 1 quoted price is used without adjustment. A legal restriction that travels with the security itself, such as unregistered private placement shares (820-10-55-52), can still be discounted.

ASU 2022-03 also introduced disclosures for equity securities subject to contractual sale restrictions (820-10-50-6B): the fair value of the restricted securities, the nature and remaining duration of the restrictions, and the circumstances that could cause them to lapse.

What ASU 2026-03 changes, and for whom

The update splits the guidance by type of holder.

The discount must reflect "the amount that market participants would demand because of the restriction" (820-10-35-36BBB), not the holder's own view. Paragraph 820-10-35-41 now lists 36BBB as an exception to the Level 1 rule, and example 820-10-55-52B applies it to a fund. Disclosure item (d) in 820-10-50-6B adds, for investment companies only, the amount of the discount included in fair value.

Timing (820-10-65-14): effective for annual periods beginning after 15 December 2027 and interim periods within them, with early adoption allowed on any date on or after 9 September 2026. Adoption is prospective for all equity securities, and any adjustment on first application goes through current-period earnings, not opening retained earnings.

Fair value lock-up discount: illustrative example

Illustrative example, not reported company data. The table compares how two holders measure the same locked-up stake after ASU 2026-03.

Source: Illustrative example, not reported company data; Clarifo calculation applying FASB ASU 2026-03, paragraphs 820-10-35-36BB, 35-36BBB and 50-6B.¹

If the fund has 10,000,000 shares of its own outstanding, the discount lowers reported net asset value (NAV) by $0.16 per share until the lock-up runs off, and the discount unwinds through earnings as the expiry date approaches. The non-investment holder reports the full $20,000,000, and the lock-up shows up only in the disclosure of fair value, nature, remaining duration and lapse circumstances.

What companies disclose today: four filings

The table sets out how four US filers describe restricted or publicly held equity stakes in their latest relevant filing.

Source: Wells Fargo 10-Q for Q2 2026 (Notes 4 and 11); Hercules Capital 10-K for FY2025 (Items 1 and 1A, pp. 28 and 32); Nvidia 10-Q for Q1 FY2027 (Item 3, p. 30); Northern Trust 10-Q for Q3 2024 (recent accounting pronouncements note); via Clarifo filing search as of 29 October 2026; USD.²³⁴⁵

Wells Fargo is the clearest current example of the ASU 2022-03 disclosure. Its equity securities note gives the fair value of locked-up securities at both balance sheet dates and when the restrictions expire. As a bank, Wells Fargo stays on 820-10-35-36BB after ASU 2026-03, with no lock-up discount.

Hercules Capital is a BDC and applies Topic 946, so the new rule is aimed at holders like it. Its FY2025 10-K says part of the portfolio is in public companies or companies completing an IPO, and that almost all investments are Level 3, valued in good faith by a Valuation Committee designated under Rule 2a-5. Once Hercules adopts ASU 2026-03, any position it cannot sell on the measurement date because of a lock-up must carry a market-participant discount, and the discount amount must be disclosed.

Nvidia shows the scale of public equity stakes outside the fund world. In its Q1 FY2027 10-Q, a 10% fall in its publicly held equity securities would have reduced their fair value by $3.9 billion at 26 April 2026, up from $1.8 billion at 25 January 2026. As an operating company, Nvidia keeps the quoted price for any of those stakes that become subject to contractual sale restrictions.

What to check in the next 10-K and 10-Q

• Adoption date. Funds that early adopt (allowed from 9 September 2026) will say so in the recent accounting pronouncements note; the adjustment on adoption sits in current-period earnings.
• The new discount line. For BDCs, look for the amount of the discount next to the fair value, nature and remaining duration of restricted holdings.
• NAV bridges. A change in unrealized appreciation may now include discount unwinds as lock-ups expire, separate from price moves.

The same comparability question runs through other standards; see our piece on how IFRS 18 changes what companies report. To find these notes quickly, search filing text across companies: