Diffusion of fair value measurement (IFRS 13): Perception of auditors

Abstract

This study investigated the diffusion of fair value measurement, 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 various audit firms in terms of size, international affiliation, and global presence. Analysis of data obtained from 277 respondents, using descriptive and inferential (one-way ANOVA) statistical methods, revealed that the overall extent of application of fair value measurement is moderate. However, significant difference was found 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 observed 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 to the concerned asset/liability; while high level of investment in an asset/ a liability prompts extensive application, low investment level correspondingly causes low or negligible usage rate. 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 to 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.