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Child Care Resource Center, Inc. Notes to Financial Statements
Note 9 – Fair Value of Measurement of Investments
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value hierarchy requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The following three levels of inputs that may be used to measure fair value:
Level 1: Level 2:
Level 3:
Quoted prices in active markets for identical assets or liabilities
Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities
Unobservable inputs which are supported by little or no market activity
CCRC invests in various investment securities. Investment securities are exposed to various risk factors such as interest rate, market, and credit risks. Due to the level of risk associated with certain investment securities, it is at least reasonably possible that changes in the value of investment securities will occur in the near term and that such changes could materially affect investment balances and the amounts reported in the statements of financial position.
The following is a description of the valuation methodologies used for instruments measured at fair value on a recurring basis and recognized in the accompanying statements of financial position as of June 30, 2017 and 2016, as well as the general classification of such instruments pursuant to the valuation hierarchy.
Where quoted market prices are available in an active market, securities are classified within Level 1 of the valuation hierarchy. Level 1 securities include cash and cash equivalents, fixed income funds, equity securities, real estate funds, and commodity funds. There were no Level 2 or Level 3 securities held by CCRC. Private equity funds are recorded at net asset value (“NAV”) of the funds, or its equivalent, fair value based on ownership percentages in the limited partnerships as of and for the year ended June 30 2017 and 2016.
The availability of observable market data is monitored to assess the appropriate classification of financial instruments within the fair value hierarchy. Changes in economic conditions or model􏰀based valuation techniques may require the transfer of financial instruments from one fair value level to another. In such instances, the transfer is reported at the beginning of the reporting period.
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