Lendlease Annual Report 2022

154 Lendlease Annual Report 2022 Notes to Consolidated Financial Statements continued 26. Fair Value Measurement Accounting Policies The accounting policies for financial instruments held at fair value are included in Note 13 ‘Other Financial Assets’ and Note 25 ‘Hedging’ . Management considers the valuation of assets at fair value including financial instruments to be an area of estimation uncertainty. While this represents the best estimation of fair value at the reporting date, the fair values may differ if there is volatility in market prices or foreign exchange rates in future periods. All financial instruments recognised in the Statement of Financial Position, including those instruments carried at amortised cost, are recognised at amounts that represent a reasonable approximation of fair value, with the exception of the following borrowings: JUNE 2022 JUNE 2021 Carrying Amount Fair Value Carrying Amount Fair Value Note $m $m $m $m Liabilities Current Commercial notes 16.a - - 555 565 Non Current Commercial notes 16.a 2,082 1,996 1,682 1,838 The fair value of commercial notes has been calculated by discounting the expected future cash flows by the appropriate government bond rates and credit margin applicable to the relevant term of the commercial note. 26.a. Basis of Determining Fair Value The determination of fair values of financial assets and liabilities that are measured at fair value are summarised as follows: • The fair value of unlisted equity investments, including investments in property funds, is determined based on an assessment of the underlying net assets, which may include periodic independent and Directors’ valuations, future maintainable earnings and any special circumstances pertaining to the particular investment. Fair value of unlisted equity investments has also taken the COVID pandemic and other economic conditions into consideration to determine fair value at 30 June 2022. This included valuations of underlying investment properties at balance date • The fair values of other financial assets and financial liabilities (excluding derivative instruments) are determined in accordance with generally accepted valuation techniques; these include the use of recent arm’s length transactions, reference to other assets that are substantially the same, and discounted cash flow analysis • The fair value of derivative instruments comprises forward foreign exchange contracts, which are valued using forward rates at balance date, and interest rate swap contracts, which are measured at the present value of future cash flows estimated and discounted based on applicable yield curves derived from quoted interest rates and include consideration of counterparty risk adjustments. 26.b. Fair Value Measurements The different levels for valuation method have been defined as follows: • Level 1: The fair value is determined using the unadjusted quoted price for an identical asset or liability in an active market for identical assets or liabilities • Level 2: The fair value is calculated using predominantly observable market data other than unadjusted quoted prices for an identical asset or liability • Level 3: The fair value is calculated using inputs that are not based on observable market data. During the financial year, there were no material transfers between Level 1, Level 2 and Level 3 fair value hierarchies. Section D. Risk Management continued