LensCrafters 2013 Annual Report Download - page 180

Footnotes to the statutory financial statements as of December 31, 2013 Page 13 of 71
Disclosures relating to the fair value of derivative financial instruments
The Company uses valuation techniques based on observable market data (Mark to Model) to determine the fair value
of its financial instruments; such techniques therefore fall into Level 2 of the fair value hierarchy identified by IFRS 7.
When selecting valuation techniques, the Group adopts the following order of priority:
a) Use of prices quoted on markets (even if not active) for identical instruments (recent transactions) or similar
instruments (Comparable Approach);
b) Use of valuation techniques based predominantly on observable market data;
c) Use of valuation techniques based predominantly on unobservable market data.
Valuation of derivative financial instruments
Since derivative financial instruments are not quoted on active markets, the Company uses valuation techniques
largely based on observable market data to determine their fair value. In particular, the Company has determined the
value of outstanding derivatives as of December 31, 2013 using commonly adopted valuation techniques for the type
of derivatives entered into by the Group. The models used for valuing these instruments rely on inputs obtained from
the info provider Bloomberg, which mostly consist of observable market data (Euro and USD yield curves and official
exchange rates at the valuation date).
The Company adopted the amendments to IFRS 7 for financial instruments measured at fair value effective January 1,
2009. These amendments identify a three-level hierarchy of valuation techniques as follows:
• Level 1: inputs are quoted prices in active markets for identical assets or liabilities;
• Level 2: inputs are those, other than quoted prices included within Level 1, that are observable for
the asset or liability, either directly (i.e. prices) or indirectly (i.e. derived from prices);
• Level 3: unobservable inputs, which are used when observable inputs are not available in situations
where there is little, if any market activity for the asset or liability.