The final version of the AICPA Accounting and Valuation Guide (the “Guide”) entitled, “Valuation of Portfolio Company Investments of Venture Capital and Private Equity Funds and Other Investment Companies” is now available. This is an important development for infrastructure funds and other investors who report investments at fair value. The main objective of the AICPA Guide was to produce a user friendly guide with examples that can be used to reason through real situations faced by valuation specialists and auditors as it relates to valuing illiquid equity and debt investments.
The “New valuation guidance for illiquid investments” article discusses some of the key topics covered in the guide, which include market participant assumptions, unit of account, valuation of debt investments, discounts for lack of control/control premiums, discounts for lack of marketability, calibration and backtesting. Although the guidance is non-authoritative, it is likely to become the standard for which auditors and valuation specialists will evaluate and perform fair value estimates of illiquid private investments.