Fair Value Hierarchy Harvard Case Solution & Analysis

Fair Value Hierarchy Case Solution


GAAP offers a hierarchy of details sources that vary from Level 1 (finest) to Level 3 (worst). The basic intent of these levels of info is to step the accounting professional through a series of appraisal options, where options closer to Level 1 are chosen over Level 3. The attributes of the 3 levels are as follows:

This is the most dependable proof of fair value, and must be utilized whenever this details is offered. When there is a bid-ask rate spread, utilize the rate most representative of the fair value of the property or liability.

The IFRS needs the category of the monetary instruments at fair value under classifications, the property classes can be categorized as follows

  1. Level 1 represents estimated rates (unadjusted) in active markets for equivalent possessions or liabilities examples consist of United States federal government and companies, foreign federal government financial obligation and a number of loan market securities.
  2. Level 2 are the inputs aside from estimated rates consisted of within level 1, that shows up for the possession or liability, either straight (i.e.as rates) or indirectly (i.e., originated from rates), a few of the examples are level 2 inputs are business bonds, home mortgage securities, OTC acquired securities. appraisal professionals helping audit groups, or experts either within or outside public accounting.

Considering that financier need for the stock mostly figures out quote and ask rates, the exchange is the most trusted approach to figure out a stock's fair value

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