How are financial instruments classified within the fair value hierarchy by Amerispec Inspection Services?
Amerispec_Inspection_Services Franchise · 2025 FDDAnswer from 2025 FDD Document
- Level 1 Observable inputs such as quoted prices in active markets.
- Level 2 Inputs other than quoted prices in active markets that are either directly or indirectly observable.
- Level 3 Unobservable inputs about which little or no market data exists, therefore requiring an entity to develop its own assumptions.
Financial instruments are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. The Company's assessment of the significance of a particular input to the fair value measurement requires judgment and may affect the valuation of fair value financial instruments and their placement within the fair value hierarchy levels.
Certain Class B Units were granted during the period ended December 31, 2023. The fair value is determined as of the grant date using significant unobservable inputs (see Note 11) and is categorized as Level 3. There were no Class B Units granted during the year ended December 31, 2024.
Source: Item 23 — Receipts (FDD pages 47–172)
What This Means (2025 FDD)
According to the 2025 FDD, Amerispec Inspection Services classifies financial instruments based on a three-level hierarchy that reflects the observability of inputs used in fair value measurements. The classification is determined by the lowest level of input that is significant to the fair value measurement. This means that even if some inputs are highly observable, the presence of a less observable input can lower the classification level.
Level 1 relies on observable inputs such as quoted prices in active markets for identical assets or liabilities. Level 2 uses inputs other than quoted prices in active markets, but these inputs are still either directly or indirectly observable. Level 3 involves unobservable inputs where little to no market data exists, requiring Amerispec Inspection Services to develop its own assumptions.
The FDD specifies that the company's assessment of the significance of a particular input requires judgment, which may affect the valuation of financial instruments and their placement within these hierarchy levels. Certain Class B Units granted during the period ended December 31, 2023, were categorized as Level 3 due to the use of significant unobservable inputs to determine their fair value as of the grant date. No Class B Units were granted during the year ended December 31, 2024.