IAS 39 — Valuation of restricted securities

Date recorded:

The IFRIC considered a request to add an item to its agenda to provide guidance on whether a discount must be applied to the quoted market price when establishing the fair value of a security quoted in an active market when there is a contractual, governmental or other legally enforceable restriction that prevents the sale of the security for a specified period.

The submission restricted its request for guidance to those instruments for which the restriction was specific to the current holder of the security, suggesting that there was diversity in practice. Examples include various participants in initial public offerings, such as underwriters or venture capital investors, who are prohibited from selling securities they hold or receive as part of the IPO for a specified period.

The IFRIC decided not to add this item to its agenda. In doing so, it noted that the issue is addressed specifically in the Application Guidance of IAS 39 Financial Instruments: Recognition and Measurement, which states that the market price of a security traded in an active market should not be adjusted for restrictions specific to the current holder. Consequently, the staff does not expect diversity in practice. With respect to securities traded in inactive markets, the IASB has an ongoing project on measurement issues with respect to inactive markets, whose work is well advanced and which will address such issues. Consequently, the IFRIC would likely be unable to complete its due process with respect to securities traded in an inactive project before the IASB completed its own project. A Tentative Agenda Decision will be issued in the forthcoming issue of IFRIC Update.

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