The NAV practical expedient is a US GAAP shortcut in ASC 820 that lets you estimate the fair value of certain fund investments using the investee’s reported net asset value per share (or an equivalent NAV-based measure), instead of building a separate valuation from scratch. 

In practice, it is most relevant when your reporting entity owns interests in other investment companies, such as fund-of-funds holdings, LP interests, or member units where the investee reports a NAV.

For fund administrators and PE ops teams, the value is practical: it can simplify the fair value process, but it also comes with specific disclosure and documentation expectations. The most common close pain points are eligibility (can we use it?), timing (does NAV line up with our measurement date?), and disclosures (what do we need to say about liquidity, restrictions, and commitments?).

This article explains what the expedient is, when you can use it, how to run it through the close, and what disclosures to prepare.

Key takeaways

What the NAV practical expedient is

ASC 820 includes a practical expedient that permits a reporting entity to estimate the fair value of certain investments using the investee’s NAV per share (or an equivalent measure, like member units or partners’ capital allocations), as long as that NAV is calculated consistently with the measurement principles in Topic 946 and is as of the reporting entity’s measurement date.

In plain language, the expedient says: if the investee’s NAV is produced using an investment-company style measurement approach and is aligned to your measurement date, you can use that NAV figure as your fair value estimate (subject to the guidance on adjustments and other considerations).

A practical note for global teams: the NAV practical expedient is a US GAAP concept. Deloitte’s comparison discussion notes that the IASB decided against providing a similar expedient under IFRS.

When you can use NAV as a practical expedient

This is the section most teams need during the close. The goal is to answer one question: “Does this investment qualify for the expedient, and do we have enough evidence to support using it?”

Eligibility criteria you should verify

At a minimum, you want to be comfortable with three ideas:

1) The investment is in scope for the expedient.
ASC 820 describes the expedient as applying to investments within the relevant scope paragraphs, measured using NAV per share (or an equivalent NAV-based measure) as a practical expedient.

2) The investee’s NAV is calculated consistent with Topic 946 measurement principles.
This is the core technical hinge. The guidance ties the expedient to the NAV calculated in a manner consistent with investment-company measurement principles.

In practice, this often means you want documentation that the investee is an investment company under ASC 946 (or otherwise uses investment-company accounting conventions) and that the reported NAV is built on a fair value basis.

3) The NAV aligns with your measurement date.
The practical expedient is framed around NAV as of the reporting entity’s measurement date, not merely “the most recent statement you happened to receive.”

Operationally, this is why fund-of-funds reporting often waits for quarter-end capital account statements from underlying funds. You may receive them weeks later, but they should still be dated to your measurement date (for example, a December 31 NAV statement received in February).

When you should not use it

The guidance does not force the expedient onto every eligible investment. It is a permitted approach.

You should be cautious about using it when:

• NAV is not clearly prepared on a fair value basis. If you cannot get comfortable that the investee’s NAV reflects a fair value measurement approach (or you do not have sufficient information to support that conclusion), your support will be weak. 
• You expect a significant adjustment that you cannot support. If known facts suggest NAV is not a reasonable proxy for fair value (for example, significant subsequent events, known side-pocket issues, or other factors) and you cannot document an adjustment credibly, the expedient may not be the right choice. 
• You only have a lagged NAV that you cannot bridge responsibly to your measurement date. This often becomes a control and documentation issue. If you are effectively doing a rollforward estimate from an old NAV without robust support, you are no longer in “simple expedient” territory, and you need to consider whether a different fair value technique and hierarchy classification is more appropriate. 

How to apply it in the close

Think of the NAV practical expedient as a mini process with its own inputs, documentation, and disclosures. It is not only a number you copy into a worksheet.

Inputs you typically need

Most teams build an “evidence pack” around:

Close process walkthrough

A repeatable approach looks like this:

Step 1: Confirm the election and define the investment classes for disclosure.
The disclosure requirements are organized “by class of investment,” so you should define your classes up front (for example, private equity funds, real estate funds, hedge funds, credit funds).

Step 2: Validate measurement date alignment.
Confirm the investee NAV date matches your reporting date. If it matches, document it and move on. If it does not, document the gap and your conclusion about whether you can still estimate fair value appropriately.

Step 3: Assess whether NAV is consistent with Topic 946 principles.
Document why you believe the NAV is calculated consistently with investment-company measurement principles. If you rely on investee financial statements or administrator confirmations, store them with the close evidence.

Step 4: Document the conclusion and prepare disclosures in parallel.
Do not leave disclosures as an afterthought. ASC 820-10-50-6A disclosures are specific and often require liquidity details that are easier to gather while you are already reviewing investee terms.

Step 5: Build the fair value hierarchy reconciliation.
Even though the investment is not categorized within the fair value hierarchy, the guidance requires presenting the amount measured using the expedient so users can reconcile the hierarchy disclosure to the statement of financial position.

Controls that make audits smoother

In practice, a few controls reduce back-and-forth:

NAV practical expedient versus direct fair value estimation

Below is a practical comparison that helps teams decide whether they are truly applying the expedient or whether they are doing a separate valuation with NAV as one input.

The key point is disclosure consequences. When the practical expedient is not used, the specific 50-6A disclosures are not required, and the investment’s fair value is included in the hierarchy based on the observability of the inputs used in the valuation.

Disclosures checklist

ASC 820-10-50-6A requires disclosures for investments measured using the practical expedient during the period. The disclosures are meant to help users understand the nature and risks of the investments and whether, if sold, the investments are probable of being sold at amounts different from NAV.

A practical “close checklist” version of those requirements looks like this.

What to disclose by class of investment

Two additional presentation points matter in practice:

• These investments are not categorized in Level 1, 2, or 3, and the normal hierarchy disclosures in ASC 820-10-50-2 do not apply to them. 
• You still need a reconciliation bridge because you must provide the amount measured using the expedient to permit reconciliation of the fair value hierarchy disclosure to the statement of financial position. 

Fair value hierarchy treatment and why it works this way

A common question in close reviews is: “If we used NAV, is this Level 2 or Level 3?”

Under the guidance, investments measured using the NAV practical expedient are not categorized within the fair value hierarchy.

This presentation approach was reinforced by FASB guidance (ASU 2015-07). In its basis for conclusions, the Task Force noted that classifying these investments within the hierarchy based on redemption criteria was inconsistent with the hierarchy’s purpose (which focuses on input observability) and could mislead users.

KPMG’s summary reminder makes the operational implication explicit: the ASU eliminates the requirement to categorize these investments in the hierarchy, but they continue to be measured at fair value, and entities provide information that permits reconciliation between hierarchy amounts and the balance sheet.

Worked example

Here is a simplified example that matches what fund admins and PE ops teams commonly see.

Scenario

Applying the expedient

This example illustrates the operational reality: most of the work is documentation and disclosures, not arithmetic.

What auditors typically ask for

Even when the accounting conclusion is straightforward, audits often slow down on evidence and clarity. In practice, auditors typically focus on four areas: eligibility, date alignment, liquidity and restrictions, and disclosure completeness.

A solid evidence pack usually includes:

Common issues that trigger follow-up questions:

How FundCount can support the process

Applying the NAV practical expedient well is partly an accounting judgment exercise and partly an operational discipline exercise. The operational side is easier when you can produce consistent positions, capital activity, and reporting outputs and store supporting schedules in a controlled workflow.

FundCount positions its platform as integrating partnership and portfolio data in an investment-grade general ledger, which helps consolidate reporting across multi-entity structures.

In practical close terms, capabilities described by FundCount that can support this process include:

• Partnership accounting workflows that connect investor accounting and NAV processes. FundCount highlights partnership accounting capabilities that include calculating NAV and handling contributions, distributions, and share series, which can support the capital activity and class reporting that feed disclosures. 
• A multi-currency, multi-book general ledger. FundCount describes a general ledger that supports multi-currency and multi-book reporting across IFRS and GAAP, which can be helpful for teams that need consistent reporting outputs across bases and entities. 
• Configurable reporting and extracts. FundCount describes a library of built-in reports and options for Power BI integrations, custom reports, and data extracts, which can help standardize the schedules you need for fair value notes and reconciliations. 
• Centralization that supports repeatability. When reporting outputs and accounting data are generated from a consistent accounting core, it is easier to maintain version control of the disclosure tables and the reconciliation between fair value disclosures and the statement of financial position. 

If you are documenting or improving your process, use the disclosures checklist above to translate the technical requirements into system requirements and repeatable close steps.

Conclusion

The NAV practical expedient under ASC 820 can be a sensible and efficient way to estimate fair value for certain fund investments, but it only works well when eligibility is clear, measurement dates are disciplined, and disclosures are treated as part of the close process rather than an afterthought. If you use the expedient, remember two headline implications: the investment is not categorized in Level 1, 2, or 3, and the disclosure focus shifts heavily to liquidity, restrictions, commitments, and reconciliation support.

FAQ

What is the NAV practical expedient under ASC 820?

It is a permitted approach that allows a reporting entity to estimate the fair value of certain investments using the investee’s NAV per share (or an equivalent measure), when that NAV is calculated consistently with investment-company measurement principles and aligned to the reporting entity’s measurement date.

When can I use NAV as a practical expedient?

You can use it for investments within the relevant ASC 820 scope where NAV per share (or equivalent) is calculated consistent with Topic 946 principles as of your measurement date, and you elect to apply the expedient.

Do NAV practical expedient investments go in Level 2 or Level 3?

No. When fair value is measured using NAV as a practical expedient, the investment is not categorized within the fair value hierarchy levels.

What if the NAV statement date is not my reporting date?

The guidance ties the expedient to the NAV calculated as of your measurement date, so if you only have a lagged NAV, you need to evaluate, document, and support how you are estimating fair value as of the measurement date, including whether adjustments or a different valuation approach are necessary.

Can I use the practical expedient if redemptions are restricted?

Restrictions do not automatically prevent using the expedient, but they do drive disclosures. You generally need to disclose redemption terms, circumstances where redemption might not be available (lockups, gates), and when restrictions might lapse if known.

What disclosures are required for NAV practical expedient investments?

ASC 820-10-50-6A requires disclosures by class of investment that include the fair value amount and investee strategies, redemption terms, restrictions, unfunded commitments, and liquidation timing for nonredeemable investments (among other items).

Does this apply to private equity fund investments?

It can, especially for fund-of-funds or other reporting entities that hold interests in private equity funds and use the investee’s NAV as a practical expedient for fair value, but eligibility and disclosures depend on whether the investee’s NAV is calculated on the appropriate basis and aligns with your measurement date.

How do unfunded commitments affect disclosures?

The disclosure requirements include disclosing the reporting entity’s unfunded commitments related to investments in each class measured using the practical expedient.