Which of the following approaches for determining fair value of Level 3 assets is used by the auditor?
A)Determining appropriate model and sensitivity of model.
B)Reviewing contracts to determine if loss is other than temporary.
C)Performing an analysis of volume of trading activity.
D)Performing an analysis of trades on similar assets.

Question

Quizplus · Accepted Answer

The auditor would use the approach of determining appropriate model and sensitivity of model for determining fair value of Level 3 assets. This approach involves selecting and applying a valuation model that is appropriate for the asset and testing the sensitivity of the model inputs to determine if the final fair value estimate is reasonable. This approach is consistent with the requirements of auditing standards for auditing fair value measurements and disclosures. The other options listed (B, C, and D) may also be relevant to determining fair value of Level 3 assets, but they are not specifically listed as approaches used by the auditor in this context.

Which of the Following Approaches for Determining Fair Value of Level