Who decides that a loan is level 3

ASC 820 is issued by the Financial Accounting Standards Board, a private standard-setter. It binds SEC registrants through 17 CFR 210.4-01(a)(1), which presumes financial statements not prepared in accordance with generally accepted accounting principles to be misleading or inaccurate.

the dates

2006SFAS No. 157 introduces the fair value hierarchy. The SEC describes it as effective for financial statements issued for fiscal years beginning after 15 November 2007.
11 December 2012The European Union adopts IFRS 13 into Union law by Commission Regulation (EU) No 1255/2012, published in OJ L 360 of 29 December 2012. IFRS 13 applies to annual periods beginning on or after 1 January 2013.

What becomes machine readable

Under Form N-PORT Item C.8, a registered fund states the level for each portfolio investment — 1, 2, 3, or N/A where net asset value is used as the practical expedient. That is the only place the level appears as a structured field at position level.

granularity · Position level, but only for funds that file Form N-PORT. In a business development company’s financial statements the levels are reported in aggregate, by category.

What stays out of reach

The level is a judgement made by the filer. It is not a market attribute, it is not harmonised between filers, and ASC 820 prescribes no valuation method — level 3 covers a wide range of approaches. We describe what we read in filings and do not interpret the standard: the official text governs. The definitions above are drawn from the SEC’s own description of the hierarchy and from IFRS 13, which is convergent with ASC 820 but is a different text from a different standard-setter.

What it changes for the measurement

Because the filer assigns the level and we only read it, the classification can be used as a control on our own matching: the same rule applied to loans filers call observable and loans they call modelled produces two very different answers.

primary sources

17 CFR 210.4-01(a)(1) — Form, order and terminologyhttps://www.ecfr.gov/current/title-17/section-210.4-01
SEC, Study on Mark-To-Market Accounting (December 2008)https://www.sec.gov/files/marktomarket123008.pdf
Commission Regulation (EU) No 1255/2012 — IFRS 13http://data.europa.eu/eli/reg/2012/1255/oj
Form N-PORThttps://www.sec.gov/files/formn-port.pdf

this page describes what the texts say · it is not legal advice, and the official text always governs · where we could not read a primary source, we have left the point out rather than paraphrase it