Which level of fair value input is based on quoted prices in active markets for identical assets?

The correct answer is based on the definition of fair value inputs outlined in the fair value measurement framework established by accounting standards. Level 1 inputs are defined as unadjusted quoted prices in active markets for identical assets or liabilities. This means that the value derived from Level 1 inputs is the most reliable, as it is based on actual market transactions occurring in a competitive marketplace, ensuring transparency and objectivity.

In practice, when valuing an asset using Level 1 inputs, there is little to no variability or estimation involved, as the prices are readily observable and represent what buyers are willing to pay and sellers are willing to accept at the time of valuation.

This level is preferred in fair value measurement due to its clear, direct relationship with market activity, making it the highest level of input in the hierarchy. Other levels, such as Level 2 and Level 3, involve greater levels of estimation and rely on observable inputs from similar assets or unobservable inputs, respectively, which introduces a higher degree of uncertainty and subjectivity.