Inputs and Hierarchy

Question 1

Inputs

Answer 1

refer to the various assumptions that mrkt participats would use in determining FV, including risk in using a a single valuation technique as well using various inputs

Question 2

Inputs used

Answer 2

1 Observable: based on mkt data obtained from independent sources of the reporting entity. Inputs used in pricing an Ass, Liab or equite
2. Unobservable:entity’s own assumptions,based on the best information avaibl.

Question 3

Level 1

Answer 3

Highest level, are unadjusted quoted prices in active markets for A,L, OE items identical to those of the entity valued at measurement date.

1. Quoted Prices in active makt provide the most reliable evidence of FV
2. Quoted prices should not be adjusted since the entity holds a sizable position in the A or L relative to the trading value (refered as the blockage factor)
3. • Adjustments to Quoted results in a FV meast catergorized in a lower level of FV 2 or 3

Question 4

Level 2

Answer 4

Inputs in this level are observable for A or Lia or Eqity . directly or indirectly, other than quoted prices
A. Quoted prices for similar asset of liabilites in active Mkt
B. Q prices for identical A or liab in mkt that are not active, few transact, prices not current , little info
C. Inputs othe than QP are observable for the A or L being valued (e.g interest rates, yield curves,implied volatilities and Cr spread
D. market corroborated inputs, derive from or corroborated by observable mkt
2.Depending on factors specific to the A or lib these inputs may be Adjusted when applied to a or liab for factors such as”condition,location and the level of activity
3. when mkt participants would apply premiun or discount (control premium), the entity should apply it in measuring FV
4. in exesive adj in the observable imputs, it may be categorize in level 3

Question 5

Level 3

Answer 5

the lowest level, are unobservable for the A or L or Eqy should be used to determine FV only to the extent observable inputs are not avbl

1. based on the best info avbl which might include the entiry’s own data. unobservable inputs should reflect the entity’a assumptions about mkt participats will assume,
2. should not ignore info avbl about mkt participants should adj its own data indicated that mkt partcp would use diff assupmtions
3. when mkt participnts would apply premiun or discount (control premiun), the entity should apply it in measuring FV
4. when valuation uses unobservable inputs to determine FVsubsequent to initial recognition and FV at initial recognition it the transaction price, the Valuation technique should be adjusted at initial recognition

Question 6

Note

Answer 6

If NAV is used as practical expedient to determine FV, then NAV is not reported withing the Hierarchy but rather in the footnotes of the FS

Question 7

what Purpose does the fair value hierarchy serve?

Answer 7

To prioritize the ibputs to valuation techniques used to measure FV