FAIR VALUE ACCOUNTING MEASUREMENT AND RELIABILITY OF FINANCIAL STATEMENTS
The use of fair value accounting for estimation in financial statements have raised a lot of debate among the banking and accounting regulators around the world. The recent adoption of this method in Nigeria has called for the need to take proactive move to determine its effect on the Nigerian financial system. This study was carried out to ascertain whether fair value accounting (FVA) provide more useful information to users than the historical cost accounting (HCA); and also determined the impact of FVA on users’ investment decision making. The study was conducted on Banks that are quoted in the Nigerian Stock Exchange; where a sample of 10 banks was purposively selected. Data were collected from the bank’s annual reports and the Nigerian Stock Exchange Factbook were analysed using the content analysis, descriptive and inferential statistics. The result of the study showed that FVA provide more detailed information compared to when disclosures were done on HCA. It was also discovered that during the pre FVA measurement, Earnings per Share (t = 2.94; p< 0.05); and Net Asset Value per Share (t = 3.38; p < 0.05) had significant positive effect on Share price; while Price Earnings ratio (t = 0.71; p > 0.05) also had a positive effect, but it is not significant. While, Return on Equity (t = -1.38; p >0.05) affected Share Price negatively. Post FVA however showed that EPS (5.27; P< 0.01) and P_E_RATIO (2.37; p< 0.05) have significant positive effect on share price while NAVPS (-0.70; P > 0.05) and ROE (-0.86 P >0.05) have negative effects. It is concluded that financial performance indices that are driven by market forces are most significant in determining company’s share price; which makes fair value estimations more relevant and reliable in investment decision making.
|Keywords: Fair Value Accounting, Historical Cost Accounting, Reliability, Banking Sector, Nigeria.|
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