Fair Value, Measurement with Unobservable Inputs Reconciliation, Recurring Basis, Liability, Gain (Loss) Included in Earnings

[Table of Contents](#i3788981a52d64e719f4aa81d6ab63fcb_7)The following table summarizes the financial assets and (liabilities) measured at fair value on a recurring basis as of December 31, 2021:

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| (in millions) | Level 1 |  | Level 2 |  | Level 3 |  | Total |
| Cash equivalents: |  |  |  |  |  |  |  |
| Money market funds | $ | 507  |  |  | $ | —  |  |  | $ | —  |  |  | $ | 507  |  |
| Time deposits | —  |  |  | 4  |  |  | —  |  |  | 4  |  |
| Commercial paper | —  |  |  | 266  |  |  | —  |  |  | 266  |  |
| Short-term investments: |  |  |  |  |  |  |  |
| Time deposits | —  |  |  | 554  |  |  | —  |  |  | 554  |  |
| Equity investment security | 26  |  |  | —  |  |  | —  |  |  | 26  |  |
| Available-for-sale investment securities: |  |  |  |  |  |  |  |
| Commercial paper | —  |  |  | 310  |  |  | —  |  |  | 310  |  |
| Other current assets: |  |  |  |  |  |  |  |
| Foreign exchange forward and option contracts | —  |  |  | 54  |  |  | —  |  |  | 54  |  |
| Long-term investments: |  |  |  |  |  |  |  |
| Restricted time deposits(1) | —  |  |  | 397  |  |  | —  |  |  | 397  |  |
| Other noncurrent assets: |  |  |  |  |  |  |  |
| Foreign exchange forward and option contracts | —  |  |  | 15  |  |  | —  |  |  | 15  |  |
| Accrued expenses and other current liabilities: |  |  |  |  |  |  |  |
| Foreign exchange forward and option contracts | —  |  |  | (7) |  |  | —  |  |  | (7) |  |
| Contingent consideration liabilities | —  |  |  | —  |  |  | (14) |  |  | (14) |  |
| Other noncurrent liabilities: |  |  |  |  |  |  |  |
|  |  |  |  |  |  |  |  |
| Contingent consideration liabilities | —  |  |  | —  |  |  | (21) |  |  | (21) |  |



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(1)See [Note 6](#i3788981a52d64e719f4aa81d6ab63fcb_64).The following table summarizes the changes in Level 3 contingent consideration liabilities for the nine months ended September 30:

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| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
|  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| (in millions) |  | 2022 |  | 2021 |
| Beginning balance |  | $ | 35  |  |  | $ | 54  |  |
| Initial measurement recognized at acquisition |  | 1  |  |  | 11  |  |
| Change in fair value recognized in SG&A expenses |  | —  |  |  | (24) |  |
| Payments |  | (12) |  |  | (3) |  |
| Ending balance  |  | $ | 24  |  |  | $ | 38  |  |

We measure the fair value of money market funds based on quoted prices in active markets for identical assets and measure the fair value of our equity investment security based on the published daily net asset value at which investors can freely subscribe to or redeem from the fund. The fair value of certificates of deposit and commercial paper is measured based on relevant trade data, dealer quotes, or model-driven valuations using significant inputs derived from or corroborated by observable market data, such as yield curves and credit spreads. The carrying value of the time deposits approximated fair value as of September 30, 2022 and December 31, 2021.We estimate the fair value of each foreign exchange forward contract by using a present value of expected cash flows model. This model calculates the difference between the current market forward price and the contracted forward price for each foreign exchange forward contract and applies the difference in the rates to each outstanding contract. The market forward rates include a discount and credit risk factor. We estimate the fair value of each foreign exchange option contract by using a variant of the Black-Scholes model. This model uses present value techniques and reflects the time value and intrinsic value based on observable market rates.We estimate the fair value of contingent consideration liabilities associated with acquisitions using a variation of the income approach, which utilizes one or more significant inputs that are unobservable. This approach calculates the fair value of such liabilities based on the probability-weighted expected performance of the acquired entity against the target performance metric, discounted to present value when appropriate. During the nine months ended September 30, 2022 and the year ended December 31, 2021, there were no transfers among Level 1, Level 2 or Level 3 financial assets and liabilities.  
  
  
  
  


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| Cognizant Technology Solutions | 17 | September 30, 2022 Form 10-Q |

                         
