Level 3 reconciliation and sensitivity

Context

Groupe Halvern (fictitious entity) combines an industrial division and a financial division. For the 31 December 20X5 closing, you prepare the fair value measurement file: copper lot, industrial site, warranty, level 3 instruments, an instrument acquired during the year and a derivatives portfolio. A reviewer will check the file and may ask questions. Teaching simulation: the review trail of the file (preparation, reviewer notes and final sign-off) is simulated for demonstration purposes; it is neither a real review nor a validation of the content.

Assignment

Level 3 reconciliation and sensitivity

Purpose of the workpaper

For each category of level 3 items measured on a recurring basis (one instance per category), take the opening balance and the movements of the period (profit or loss, other comprehensive income, purchases, sales and settlements, transfers into and out of level 3), rebuild the closing balance, compare it with the reported balance, document the transfers, then prepare the reconciliation and the note on sensitivity to unobservable inputs.

Questions of the file covered by this workpaper

• Reconcile the level 3 balance with the reported balance.
• Prepare the disclosure: table by level, techniques and inputs, reconciliation.

• MemoEngagement letterOpen
• ScheduleMarkets for the copper lotOpen
• ScheduleBrenno siteOpen
• ScheduleIncome approach cross-checkOpen
• ContractPerformance warrantyOpen
• ScheduleLevel 3 movementsOpen
• ContractInstrument acquired in OctoberOpen
• ScheduleInterest rate derivatives portfolioOpen
• DocumentReply from the risk departmentOpen
• MemoTraining budgetOpen