Annual Report 2014
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2
Basis of preparation (continued)
2.4 Use of estimates and judgements (continued)
Information about assumptions and estimation uncertainties that have a significant risk of resulting in a
material adjustment within the next financial year are included in Note 19 – fair value determination of
investments.
Measurement of fair values
The Group has an established control framework with respect to the measurement of fair values. This
framework includes a valuation team that has overall responsibility for all significant fair value
measurements, including Level 3 fair values, and reports directly to the Board of Directors.
Fair values of financial assets that are traded in active markets are based on quoted prices or dealer
price quotations. For unquoted investments the valuation team determines fair values using valuation
techniques primarily earnings multiples, discounted cash flows and recent comparable transactions. The
objective of valuation techniques is to arrive at a fair value determination that reflects the price of the
financial instrument at the reporting date that would have been determined by market participants acting at
arm’s length.
The valuation of the unquoted investments involves estimates, assumptions and judgement based upon
available information and does not necessarily represent amounts which might ultimately be realised, since
such amounts depend on future events. Due to the inherent uncertainty of valuation, the estimated fair
values for the unquoted investments may differ significantly from the amounts that might ultimately be
realised, and the differences could be material.
The valuation team regularly reviews significant unobservable inputs and valuation adjustments. If
third party information, such as broker quotes or pricing services, is used to measure fair value, then
the valuation team assesses and documents the evidence obtained from the third parties to support the
conclusion that such valuations meet the requirements of FRS, including the level in the fair value
hierarchy in which such valuations should be classified.
When measuring the fair value of an asset or a liability, the Group uses market observable data as far as
possible. Fair values are categorised into different levels in a fair value hierarchy based on the inputs used
in the valuation techniques as follows:
Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities.
Level 2: inputs other than quoted prices included in Level 1 that are observable for the asset or
liability, either directly (i.e., as prices) or indirectly (i.e., derived from prices).
Level 3: inputs for the asset or liability that are not based on observable market data (unobservable
inputs).
If the inputs used to measure the fair value of an asset or a liability might be categorised in different levels
of the fair value hierarchy, then the fair value measurement is categorised in its entirety in the same level
of the fair value hierarchy as the lowest level input that is significant to the entire measurement (with
Level 3 being the lowest).
