Fair Value Hierarchy

2.1.1.
Fair value hierarchy

To increase consistency and comparability in fair value measurements and related disclosures,
this IFRS establishes a fair value hierarchy that categorizes into three levels the inputs to
valuation techniques used to measure fair value. The fair value hierarchy gives the highest
priority to quoted prices (unadjusted) in active markets for identical assets or liabilities (Level 1
inputs) and the lowest priority to unobservable inputs (Level 3 inputs).
In some cases, the inputs used to measure the fair value of an asset or a liability might be
categorized within different levels of the fair value hierarchy. In those cases, the fair value
measurement is categorized in its entirety in the same level of the fair value hierarchy as the
lowest level input that is significant to the entire measurement. Assessing the significance of a
particular input to the entire measurement requires judgment, taking into account factors specific
to the asset or liability. Adjustments to arrive at measurements based on fair value, such as costs
to sell when measuring fair value less costs to sell, shall not be taken into account when
determining the level of the fair value hierarchy within which a fair value measurement is
categorized.
If an observable input requires an adjustment using an unobservable input and that adjustment
results in a significantly higher or lower fair value measurement, the resulting measurement
would be categorized within Level 3 of the fair value hierarchy.
A. Level 1 inputs
Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities
that the entity can access at the measurement date. A quoted price in an active market provides
the most reliable evidence of fair value and shall be used without adjustment to measure fair
value whenever available.
A Level 1 input will be available for many financial assets and financial liabilities, some of
which might be exchanged in multiple active markets (eg on different exchanges). Therefore, the
emphasis within Level 1 is on determining both of the following:
 the principal market for the asset or liability or, in the absence of a principal market, the
most advantageous market for the asset or liability; and
 whether the entity can enter into a transaction for the asset or liability at the price in that
market at the measurement date.
B. Level 2 inputs
Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for
the asset or liability, either directly or indirectly.
If the asset or liability has a specified (contractual) term, a Level 2 input must be observable for
substantially the full term of the asset or liability. Level 2 inputs include the following:
o quoted prices for similar assets or liabilities in active markets.

o quoted prices for identical or similar assets or liabilities in markets that are not active.
o inputs other than quoted prices that are observable for the asset or liability, for example:
 interest rates and yield curves observable at commonly quoted intervals;
 implied volatilities; and
 credit spreads.
o market-corroborated inputs.
Adjustments to Level 2 inputs will vary depending on factors specific to the asset or liability.
Those factors include the following:
 the condition or location of the asset;

 the extent to which inputs relate to items that are comparable to the asset or liability
(including those factors described in paragraph 39); and
 the volume or level of activity in the markets within which the inputs are observed.
An adjustment to a Level 2 input that is significant to the entire measurement might result in a
fair value measurement categorized within Level 3 of the fair value hierarchy if the adjustment
uses significant unobservable inputs.
C. Level 3 inputs
Level 3 inputs are unobservable inputs for the asset or liability. Unobservable inputs shall be
used to measure fair value to the extent that relevant observable inputs are not available, thereby
allowing for situations in which there is little, if any, market activity for the asset or liability at
the measurement date.

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2.1.1.

Fair value hierarchy

o quoted prices for similar assets or liabilities in active markets.

 the condition or location of the asset;

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