BC166 IFRS 13 uses a three‑level fair value hierarchy, as follows:

(a) Level 1 comprises unadjusted quoted prices in active markets for identical assets and liabilities.

(b) Level 2 comprises other observable inputs not included within Level 1 of the fair value hierarchy.

(c) Level 3 comprises unobservable inputs (including the entity’s own data, which are adjusted if necessary to reflect the assumptions market participants would use in the circumstances).

BC167 The IASB noted that many IFRSs already contained an implicit fair value hierarchy by referring to observable market transactions or measuring fair value using a valuation technique. For example, the following three‑level measurement hierarchy was implicit in IAS 39 and IFRS 9:

(a) financial instruments quoted in an active market;

(b) financial instruments whose fair value is evidenced by comparison with other observable current market transactions in the same instrument (ie without modification or repackaging) or based on a valuation technique whose variables include only data from observable markets; and

(c) financial instruments whose fair value is determined in whole or in part using a valuation technique based on assumptions that are not supported by prices from observable current market transactions in the same instrument (ie without modification or repackaging) and not based on available observable market data.