An equity security has a readily determinable fair value under ASC 321 when its price can be verified through one of three external sources: a U.S. securities exchange or qualifying OTC reporting system, a foreign market comparable in breadth and scope to those U.S. venues, or a published per-share value from a mutual fund or similar structure that is actually used for current transactions. The definition sits in the FASB Master Glossary and is applied through ASC 321. Meeting any one of the three conditions is enough. Failing all three sends you to a different accounting model.
The classification decides how the investment moves through your financials. A security with a readily determinable fair value is carried at fair value through net income. A security without one is carried under the measurement alternative or, in some cases, at NAV as a practical expedient, with different disclosures and different audit conversations attached to each path.
The Three Qualifying Conditions
A common misconception is that ASC 820 defines readily determinable fair value. It does not. ASC 820 tells you how to measure fair value once another standard requires it. The readily determinable threshold itself comes from the FASB Master Glossary, and a security qualifies if any one of the following is true:
- Sales prices or bid-and-asked quotations are currently available on an SEC-registered securities exchange or in the over-the-counter market, provided that OTC prices are publicly reported through NASDAQ systems or OTC Markets Group Inc. Restricted stock also qualifies if the restriction terminates within one year.
- The security trades only on a foreign market, but that market has breadth and scope comparable to a U.S. market described above.
- The security is an investment in a mutual fund or similar structure such as a limited partnership or venture capital entity, and the fair value per share or unit is determined, published, and serves as the basis for current transactions.
The common thread is external verifiability. Internal models, appraisals, and management estimates do not satisfy any condition, no matter how well-supported.1Financial Accounting Standards Board. Definition of Readily Determinable Fair Value
Domestic Exchanges and Qualifying OTC Systems
The first condition covers most publicly traded equity securities. A stock listed on an SEC-registered national exchange meets the threshold as long as a sales price or bid-and-asked quotation is currently available. A same-day sale is the clearest evidence, but a current quotation works when no trade occurred. The key word is “currently.” Stale prices, historical averages, and projected values do not count.
For OTC securities, the definition adds a gatekeeper: prices or quotations must be publicly reported through NASDAQ systems or OTC Markets Group Inc. A security that trades informally between private parties, even when the parties agree on a number, does not qualify. Public reporting is what makes the price observable to any market participant, not just the two on either side of one transaction.1Financial Accounting Standards Board. Definition of Readily Determinable Fair Value
Restricted Stock Within One Year
Restricted stock can still qualify under this first condition if the restriction terminates within one year. This applies to legal restrictions such as those imposed under SEC Rule 144. Once the restriction period exceeds one year, the security no longer qualifies under condition (a), and you have to look at whether either of the other two conditions applies or whether the security has no readily determinable fair value at all.1Financial Accounting Standards Board. Definition of Readily Determinable Fair Value
Foreign Markets Comparable to U.S. Venues
The second condition extends the definition to equity securities that trade exclusively on a foreign exchange, but only if the foreign market has breadth and scope comparable to U.S. markets. Major venues such as the London Stock Exchange or the Tokyo Stock Exchange will typically satisfy the test. Thinly traded exchanges with sparse volume and limited price transparency will not. The comparison focuses on whether the foreign market produces pricing information with the same frequency, volume, and reliability as a domestic SEC-registered exchange or the NASDAQ/OTC Markets reporting systems.1Financial Accounting Standards Board. Definition of Readily Determinable Fair Value
Mutual Funds and Published Per-Share Values
The third condition handles investments that do not trade on any exchange but still have a verifiable price. A mutual fund, limited partnership, or venture capital entity qualifies when three things are true: the fair value per share or unit is determined by the fund, published to investors, and actually used as the basis for current transactions. A registered open-end mutual fund that publishes a daily NAV and processes purchases and redemptions at that price is the textbook example. In that situation, the published NAV is itself a readily determinable fair value.1Financial Accounting Standards Board. Definition of Readily Determinable Fair Value
This is different from the NAV practical expedient, and the distinction matters. A published NAV that meets condition (c) means the investment has a readily determinable fair value and is carried at fair value through earnings under ASC 321. Relying on the practical expedient means, by definition, that the investment does not have a readily determinable fair value and different disclosure rules apply.
When a Security Fails All Three Conditions
If a security clears none of the three conditions, ASC 321 gives you two possible paths.
The Measurement Alternative
Under ASC 321-10-35-2, you can elect to carry the investment at cost, minus any impairment, and then adjust the carrying amount up or down when you identify an observable price change in an orderly transaction for an identical or similar investment of the same issuer. Each adjustment remeasures the security to fair value under ASC 820 as of the date of the observable transaction. The election is made on an investment-by-investment basis, so you can apply it selectively across a portfolio. It is not available to investment companies, broker-dealers in securities, or postretirement benefit plans, which follow their own industry-specific fair value guidance.2Financial Accounting Standards Board. Codification Improvements – Topic 321 Measurement Alternative, ASU 2019-04
The NAV Practical Expedient
Some investments without a readily determinable fair value still receive a NAV from the fund manager. ASC 820-10-35-59 permits using that NAV as the fair value estimate if two criteria are met. First, the investment must be in an entity that has the characteristics of an investment company under Topic 946, or in an entity where industry practice is to follow Topic 946 measurement principles, such as certain real estate funds. Second, the NAV must be calculated in a manner consistent with Topic 946 as of your measurement date. If the most recent NAV does not align with your measurement date or was not calculated on Topic 946 principles, you may need to adjust it to produce an estimate that would be consistent with Topic 946 as of the date you need. The expedient is elected on an investment-by-investment basis and must be applied consistently to your entire position in that investment. Hedge funds, private equity funds, and real estate funds are where it comes up most often.1Financial Accounting Standards Board. Definition of Readily Determinable Fair Value
How Restrictions Affect the Price You Use
Even when a security has a readily determinable fair value based on a quoted market price, restrictions on your ability to sell it can change how you treat that price. ASU 2022-03, now effective for all entities, draws a bright line between two types of restrictions, and mixing them up produces the wrong fair value.
Legal restrictions, such as those imposed by SEC Rule 144, are considered characteristics of the security itself. Because a market participant who bought the security would also be subject to the restriction, you measure fair value based on the quoted price of an otherwise identical unrestricted security and then adjust downward to reflect the effect of the restriction.
Contractual restrictions, such as lock-up agreements or market standoff provisions, are characteristics of the reporting entity holding the security, not of the security itself. You do not apply any discount. Fair value equals the market price of the same security without the contractual restriction. You also cannot recognize the contractual restriction as a separate unit of account. If you hold a publicly traded stock subject to a 180-day lock-up, its fair value is the quoted market price with no adjustment.3Financial Accounting Standards Board. Fair Value Measurement Topic 820 – Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions, ASU 2022-03
What ASC 321 Doesn’t Cover
Before applying any of this, confirm the investment actually falls within ASC 321. The standard covers equity securities and other ownership interests in an entity, including interests in partnerships, unincorporated joint ventures, and limited liability companies. Several categories are carved out:
- Consolidated subsidiaries are accounted for through consolidation under ASC 810.
- Equity method investments where you hold significant influence follow ASC 323.
- Derivative instruments within the scope of ASC 815, including bifurcated embedded derivatives, follow their own measurement rules.
- Specialized industry entities that already carry substantially all investments at fair value through earnings, including investment companies under ASC 946, broker-dealers under ASC 940, and defined benefit pension and health and welfare plans under ASC 960, 962, and 965, are outside ASC 321.
The sequencing matters. Evaluate consolidation first, then the equity method, then derivative accounting. Only after ruling out all three do you apply ASC 321 and ask the readily determinable fair value question. Skipping a step lands the investment in the wrong model.
Where the Answer Leaves You
The classification is binary in effect: either the security clears one of the three conditions and you carry it at fair value through net income, or it does not and you choose between the measurement alternative and the NAV practical expedient, each with its own scope requirements. The three conditions are narrow on purpose. External, verifiable pricing is what separates a readily determinable fair value from an internally estimated one, and the FASB definition holds that line whether the security trades on the NYSE, on a foreign exchange, or as units in a fund that publishes a transactable per-share value.