Abstract
This study investigates the diffusion of fair value measurement (IFRS 13), with a focus on extent of application, and valuation methods used by reporting entities in Nigeria. Data-collection was through a structured questionnaire administered on 400 auditors from diverse backgrounds in terms of audit firm size, international affiliation, and global presence. Analysis of data obtained from 277 respondents, using descriptive statistics and one-way ANOVA, reveals that the overall extent of application of fair value measurement is moderate. However, there is significant difference in application level among reporting entities in the valuation of financial assets, financial liabilities, investment property, and goodwill & intangibles acquired in business combination, but no significant difference in the valuation of pension liabilities, endowment funds, share-based payments, property, plants & equipment, and land & building. It appears the level of investment in an asset/liability determines the application rate of fair value measurement—while high level of investment in an asset/ liability prompts extensive application, low level of investment correspondingly results into negligible usage. Further, the overall application rate of the valuation methods is in the descending order of: market, expert estimation, cost and income approaches respectively. The market and cost approaches are applied more extensively in the valuation of tangible assets; the market approach is preferred in the valuation of financial instruments, while expert estimation is more applicable in the valuation of intangible assets and liabilities. Given that the market approach is the predominant valuation method, the study calls on relevant authorities and concerned stakeholders to emplace institutional apparatus that will facilitate the ready availability of fair value prices for accounting items.
Highlights
The debate on the quality of accounting information has continued to attract much research attention, perhaps, because users of company reports have been unrelenting in their clamour for betterment in the quality of information which informs their economic decisions
This study investigated the diffusion of fair value accounting in the Nigerian context, based on the perception of external auditors as one of the important stakeholder-groups concerned with the quality of accounting information
The study examined the extent of application of fair value measurement, and the valuation methods used in estimating fair value of assets and liabilities by reporting entities in Nigeria
Summary
The debate on the quality of accounting information has continued to attract much research attention, perhaps, because users of company reports have been unrelenting in their clamour for betterment in the quality of information which informs their economic decisions. To satisfy the information needs of users for varying purposes, financial reports are expected to possess certain qualitative characteristics such as relevance, verifiability, reliability, freedom from bias, comparability, consistency, and fruitful representation (Riauhi-Belkaoui, 2004; Deloitte, 2012; The International Accounting Standards Board, IASB, 2012). In achieving these qualitative characteristics, several approaches have been put forward to measure the elements of financial statements, including: historical cost, current cost, replacement cost, and fair value measurement (Deloitte, 2012; Kaplan, 2015). The appropriateness of measurement approach adopted, the correctness of the monetary values conferred on accounting items (i.e. assets, liabilities, equity, income and expenses) based on the selected measurement approach, and their subsequent recognition as elements of financial reports all determine the overall quality of accounting information
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