Inputs & Hierarchy

Question 1

FV Inputs

Answer 1

inputs are assumptions and data used in valuation techniques

1) observable inputs: derived from market data from sources independent of the reporting entity
2) unobservable inputs: entity’s assumption based on best information available in circumstances

Question 2

Observable inputs

Answer 2

-should be maximized

Question 3

Unobservable inputs

Answer 3

-should be minimized

Question 4

Level 1

Answer 4

unadjusted quoted price at measurement date in active markets for identical items

• highest level with most desirable inputs
• most reliable evidence of fair value
• should be used when available
• liquidity discount-permitted
• control premium-not permitted
• blockage discount-not permitted

Question 5

Level 2

Answer 5

Observable Inputs either directly or indirectly that do not meet all conditions for level 1

• quoted prices in active markets for similar items
• quoted prices in markets that are not active
• observable inputs other than quote prices that are relevant to item being valued
• inputs derived from or corroborated by from observable data using correlation or other means
• may need to be adjusted for characteristics of the specific items being valued
• use of significant unobservable inputs to adjust observable inputs may result in a level 3 measurement

Question 6

Level 3

Answer 6

Unobservable inputs for the item being valued

• lowest level with least desirable inputs
• may use reporting firms internal data
• based on assumptions or inferences that market participants can make
  eg. determining fair value of closely held stock