What are Observable Inputs?

Observable inputs are used to develop fair values for assets and liabilities, and are derived from market information. These inputs reflect the pricing assumptions that third parties would use when setting prices for assets and liabilities. Ideally, the valuation chosen should maximize the use of relevant observable inputs and minimize the use of unobservable inputs. By avoiding unobservable inputs, you can derive fair values that are more justifiable to auditors.

Examples of Observable Inputs

Examples of markets that are considered to provide observable inputs are stock exchanges, dealer markets, and brokered markets, since they involve large numbers of buyers and sellers.