Valuation Techniques - General

Question 1

Briefly describe the nature of level 1 inputs identified in the fair value framework of U.S. generally accepted accounting principles (GAAP).

Answer 1

Level 1 of the U.S. GAAP fair value framework consists of quoted market prices in active markets for identical assets or liabilities.

Question 2

Briefly describe the nature of level 3 inputs identified in the fair value framework of U.S. generally accepted accounting principles (GAAP).

Answer 2

Level 3 of the U.S. GAAP fair value framework consists of inputs that are not observable but are based on an entity’s assumptions and estimates.

Question 3

Briefly describe the nature of level 2 inputs identified in the fair value framework of U.S. generally accepted accounting principles (GAAP).

Answer 3

Level 2 of the U.S. GAAP fair value framework consists of inputs that are either directly or indirectly observable, including:

1. Quoted prices for similar items in active markets and in inactive markets;
2. Quoted prices for identical items in inactive markets;
3. Observable inputs other than quoted prices;
4. Inputs not directly observable but that are derived from or corroborated by observable market data.