Explain the IFRS 13 fair value hierarchy — and why Level 3 measurements attract so much audit and investor attention.

IFRS 13 defines fair value as the exit price in an orderly transaction between market participants and organizes measurement inputs into a hierarchy. Level 1: unadjusted quoted prices in active markets for identical items — listed shares, exchange-traded bonds; the measurement is essentially observation. Level 2: observable inputs other than Level 1 quotes — yield curves, FX forwards, quoted prices for similar assets — feeding standard valuation techniques; most OTC derivatives live here. Level 3: significant unobservable inputs — the entity's own assumptions about what market participants would use: unlisted equity stakes, complex earn-outs, investment property in thin markets, impairment-level DCFs. Level 3 attracts scrutiny for a structural reason: the measurement rests on management's models and assumptions, exactly where estimation uncertainty and bias risk concentrate — hence the expanded disclosure package: reconciliation of movements, valuation techniques, significant inputs and their sensitivity. The classification judgment itself matters: the LOWEST significant input drives the level, so a model with one significant unobservable assumption is Level 3 regardless of how observable the rest is — and transfers between levels signal changing market observability worth reading.