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GLOSSARY OF TERMS ANNUAL FINANCIAL GLOSSARY OF TERMS STATEMENTS
NOTES TO THE CONSOLIDATED AND SEPARATE ANNUAL FINANCIAL STATEMENTS (continued)
for the year ended 30 June 2020
3. FINANCIAL RISK MANAGEMENT (continued)
3.5 Fair values of financial assets and liabilities (continued)
(a) Fair value estimation (continued)
(xii) Financial instruments not recorded on the statement of financial position
The estimated fair values of the financial instruments not recorded on the statement of financial position are based on market prices for similar facilities. When this information is not available, fair value is estimated using discounted cash flow analysis.
(b) Fair value hierarchy
IFRS specifies a hierarchy of valuation techniques based on whether the inputs to those valuation techniques are observable or unobservable. Observable inputs reflect market data obtained from independent sources; unobservable inputs reflect the Group’s market assumptions. These two types of inputs have created the following fair value hierarchy:
• Level 1 – quoted prices (unadjusted) in active markets for identical assets or liabilities. This level includes listed equity securities
and debt instruments on exchanges.
• Level 2 – inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (that
is, as prices) or indirectly (that is, derived from prices). This level includes the majority of OTC derivative contracts, traded loans and issued structured debt. The sources of input parameters like JIBAR yield curve or counterparty credit risk are Bloomberg and Reuters.
• Level 3 – inputs for the asset or liability that are not based on observable market data (unobservable inputs). This level includes equity investments and debt instruments with significant unobservable components.
This hierarchy requires the use of observable market data when available. The Group considers relevant and observable market prices in its valuations where possible.
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