010 Inputs and Hierarchy

Question 1

Describe fair value measurement inputs. Inputs can be observable or unobservable

Answer 1

Observable inputs are based on market data from independent sources. Unobservable inputs are the entity’s assumptions about the factors that impact determination of fair value.

Question 2

What purpose does the fair value hierarchy serve?

Answer 2

To prioritize the inputs to valuation techniques used to measure fair value.

Question 3

What are the three levels of the fair value hierarchy and what does each consist of?

Answer 3

Level 1: highest level are unadjusted quoted prices in active markets for assets and liabilities identical to those being valued.
Level 2: are observable for assets or liabilities either directly or indirectly other than quoted prices described in Level 1.
Level 3: lowest level are unobservable and used to determine fair value only if observable inputs are not available.