When are financial instruments considered Level 3 in Aira Fitness' financial reporting, according to the criteria described?

According to Aira Fitness' 2025 Franchise Disclosure Document, the determination of fair value for financial instruments involves a hierarchy based on whether the inputs are observable or unobservable. Observable inputs are derived from market data obtained from independent sources. Conversely, unobservable inputs reflect the company's own market assumptions.

The FDD excerpt does not specify the exact criteria that would classify a financial instrument as Level 3. However, it indicates that the classification is based on the observability and reliability of the inputs used to determine fair value. Level 1 assets are those with readily available values from exchanges. Level 2 assets are those without readily available values but can be valued using models and observable market inputs. Level 3 assets are those with unobservable inputs.

For a prospective Aira Fitness franchisee, understanding these classifications is important for assessing the financial health and reporting practices of the franchisor. Since the specific criteria for Level 3 classification are not detailed in this excerpt, it would be prudent for a potential franchisee to seek clarification from Aira Fitness regarding the types of financial instruments they hold and the valuation methods used for each level. This information can provide a clearer picture of the risks and uncertainties associated with the franchisor's financial position.