For Clean Your Dirty Face, what characterizes Level 3 fair value measurements?

According to Clean Your Dirty Face's 2025 Franchise Disclosure Document, Level 3 fair value measurements rely on inputs that are unobservable and significant to the fair value measurements. This is part of a broader framework established by FASB ASC Topic 820, which prioritizes inputs to valuation techniques. Level 1 measurements have the highest priority, using unadjusted quoted prices in active markets for identical assets or liabilities, while Level 3 measurements have the lowest priority due to their reliance on unobservable data.

The document explains that the fair value measurement level is based on the lowest level of any input that is significant to the fair value measurement. Clean Your Dirty Face utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable measurements. This approach aims to provide a balanced and reliable assessment of asset values, ensuring transparency and accuracy in financial reporting.

For a prospective Clean Your Dirty Face franchisee, understanding these measurements is crucial because they reflect how the company values its assets, which can impact the overall financial health and stability of the franchise system. While the document does not specify which particular assets are measured using Level 3 inputs, it is important for franchisees to be aware of the valuation methodologies employed and their potential impact on financial statements. Franchisees may want to inquire about the specific types of assets or liabilities that are subject to Level 3 fair value measurements and how these valuations are determined.