The most significant portion of an investment company’s assets is its investment portfolio, which is measured at fair value. The process of valuing securities in an investment company can be routine for some securities and quite complex for others. ASC 820 defines fair value, establishes a framework for measuring fair value in GAAP, and expands disclosures about fair value measurements. ASC 820 establishes a fair value hierarchy that distinguishes between (1) market participant assumptions developed based on market data obtained from sources independent of the reporting entity (observable inputs) and (2) the reporting entity’s own assumptions about market participant assumptions developed based on the best information available in the circumstances (unobservable inputs). See FV, PwC’s accounting and financial reporting guide Fair value measurements, for a more detailed discussion on ASC 820. 

Chapter 2 of the Audit Guide and ASC 946-320-S99 also discuss securities valuation. In general, the objective of securities valuation is to state securities in financial statements at amounts that represent what could have been realized in a current sale. When bona fide offers to buy are not present, a market value for a security may not be readily ascertainable. In such cases, good faith estimates of fair value may be made using procedures approved by a fund’s board of directors. Such procedures are designed to approximate the values that would have been established by market forces, but these values are inherently subject to uncertainties.