Classifying by the lowest-level input

Learning objectives

• Analyse which input is significant and categorise the measurement at the level of the lowest level input.L3
• Justify the significance of an input for the categorisation.L3

Normative references

• IFRS 13 §72The fair value hierarchy categorises the inputs to valuation techniques into three levels, in decreasing order of priority.
• IFRS 13 §73The measurement is categorised in its entirety in the level of the lowest level input that is significant to it; assessing significance requires judgement, and adjustments such as costs to sell are not taken into account for the categorisation.
• IFRS 13 §74The hierarchy prioritises inputs, not techniques: a measurement using a present value technique may fall within Level 2 or Level 3, depending on the significant inputs used.
• IFRS 13 §75If an observable input requires an adjustment using an unobservable input and that adjustment results in a significantly different measurement, the measurement is categorised within Level 3 (example: the effect of a restriction on the sale of the asset).

Original summaries of the paragraphs (reference register), never a quotation of the standard.

3 questions

• A fair value measurement rests on several inputs falling in different levels of the hierarchy. How is the measurement classified?L3
• An instrument is measured from a Level 2 price, which represents most of its value, and a Level 3 volatility that the valuer judges significant to the measurement (case judgement). Which of these analyses of the classification is wrong?L3
• Tolven measures an instrument with a model using a Level 2 yield curve and an unobservable liquidity adjustment equal to 0.2% of the value. After analysing the factors specific to the instrument, it judges (case judgement) this adjustment not significant to the measurement as a whole. In which level does it classify the measurement?L3