COMMENTARY · IFRS 13 HIERARCHY
Level 3 classification under IFRS 13 is not a neutral accounting descriptor. It is a signal to the auditor, regulator and investor that defensibility of value depends entirely on the quality of technical work.
IFRS 13 fair value hierarchy organizes inputs into three levels. Level 1: quoted prices in active markets for identical assets. Level 2: observable inputs (rates, multiples, comparable transactions). Level 3: non-observable inputs, where value derives from internal models calibrated with judgment.
In Level 3 there is no hiding. Value is constructed by the valuer from premises, and defensibility depends on the discipline with which these premises were extracted, documented, and calibrated.
CVM and sector regulators have historical reason to look at Level 3 with redoubled attention. Cases of inflated marking of FIP and FIDC quotas over the past decade produced relevant losses for institutional quotaholders and exposed the fragility of poorly substantiated reports.
The institutional quotaholder, fiduciary administrator, and fund auditor demand from the valuer a standard of defensibility superior to that required in other contexts. It is not enough to calculate: it is necessary to document each methodological decision.
Three disciplines separate reports that withstand review from those that do not:
Calibration with observable reference. Even in Level 3, it is rare for there to be no point of reference: last transaction, sector multiple, capture rate in the period. The report must make explicit the calibration and justify divergences.
Input traceability. Each premise must point to a verifiable source: balance sheet, signed business plan, market curve on specific date. A premise without traceable source is an undefendable premise.
Sensitivity analysis to critical input. Not the decorative sensitivity of WACC ±1 percentage point. Sensitivity to the input that actually moves the result, with justification of the range chosen.
"The auditor does not ask whether value is high or low. They ask whether it is defensible given the available evidence at the data-base. The Level 3 report must be built to answer that question before being asked."
The operational consequence reaches the three actors involved. The fiduciary administrator needs to select valuers who document each decision. The manager needs to treat the quarterly report as technical obligation, not procedural exercise. The valuer needs to accept that defending the work in committee and in auditor review is part of the scope, not additional work.