ACFR - FY2020 5-28-21 FINAL - Flipbook - Page 69
NOTES TO FINANCIAL STATEMENTS
CITY OF EUSTIS, FLORIDA
(Continued)
Note 3 - Cash, Cash Equivalents, and Investments (Continued)
Fair Value of Investments
The City measures and records its investments using fair value measurement guidelines
established by generally accepted accounting principles. These guidelines recognize a
three-tiered fair value hierarchy, as follows:
Level 1: Inputs to the valuation methodology are unadjusted quoted prices for identical
assets or liabilities in active markets that the Plan has the ability to access.
As a rule, any asset that has a daily closing price and is actively traded will be classified
as a Level 1 input.
Level 2: Inputs are inputs (other than quoted prices included within Level 1) that are
observable for the asset or liability, either directly or indirectly. Inputs to the valuation
the full term of the asset or liability.
As a rule, if an asset or liability does not fall into the requirements of a Level I or Level
3 input, it would default to Level 2. With Level 2 inputs, there is usually data that can
be easily obtained to support the valuation; even though it is not as easily obtained, as
a Level 1 input would be.
Level 3: Inputs to the valuation methodology are unobservable and significant to the
fair value measurement.
As rule, Level 3 inputs are those that are difficult to obtain on a regular basis and require
verification from an outside party, such as an auditor or an appraisal, to validate the
valuation.
Debt and equity securities categorized as Level 1 are valued based on prices quoted
in active markets for those securities. Debt securities categorized as Level 2 are valued
using a matrix yield curve that values securities based on their relationship to
benchmark quoted prices and credit spreads. Equities categorized as a Level 2 are
valued using a multifactor model, which includes price, sector indices, and currency
fluctuations.
Debt and equity securities classified in Level 1 are valued using prices quoted in active
markets for those securities. Currently, the City does not have any debt obligations
classified in Level 3.
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