How does the fair value evidence the auditor is likely to gather differ between Level 1 and Level 3 assets?

Fair value audit evidence for Level 1 is objective and market-based so the auditor will obtain fair values from publicly available sources (e.g., finance website).
Level 3 fair value evidence will involve examining management's assumptions and subjective inputs to valuation models.
Complicated financial instruments, such as credit default swaps, asset-backed securities, and collateralized debt obligations, among others, may not be traded on active markets, making accurate valuation of such instruments difficult.
The auditor will likely need to involve a valuation specialist.