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The overall cost of most costs is determined by how efficient and effective the method of financial reporting is, and in the case of Nigeria, there are still many problems and challenges that have prevented the Nigerian financial reporting standard from achieving international status, and these pose a greater challenge to the implementation of fair value accounting in the Nigerian financial system.

Fair value accounting was a term that was frequently used in the 1980s in the context of acquisition as a foundation for allocating entry prices and buy goodwill, despite problems and conflicts.

Fair Value Accounting is a financial reporting approach in which companies are required or permitted to measure and report certain assets/liabilities (generally financial instruments) on an ongoing basis at estimates of the prices they would receive if the assets were sold or would pay if the liabilities were discharged.

It largely applies to financial assets and liabilities, but three primary categories of non-financial assets are also susceptible to fair value measurement: property, plant, investment property, and intangible assets.

Whereas the use of fair values results in increased earnings and a consistent increase in carrying values during good times, the situation fully reverses during bad times when price reductions put pressure on the company’s earnings situations.

During the financial crisis, the use of fair value accounting resulted in the reporting of losses from heightened risk of default anticipation at an earlier stage than historical cost accounting.

Thus, opponents sometimes suggest that large write-downs caused by declining market prices set off a negative spiral when banks were compelled to sell their assets at fire prices, which can lead to contagion as asset fire sale prices from one financial institution became important also for other institutions.

The amount at which an asset can be acquired or sold in a current transaction between willing parties, or transferred to an analogous party, other than in a liquidation sale, is defined by Generally Accepted Accounting Principles (GAAP).

Fair Value Accounting is also a financial reporting approach that requires or permits companies to measure and report certain assets/liabilities (generally financial instruments) on an ongoing basis at estimates of the prices they would receive if they sold the assets or pay if they were relieved of the liabilities. The introduction of the fair value concept to financial reporting was a departure from the traditional accounting standards of prudence and dependability.

The use of fair values in financial reporting stems from the implementation of IFRS, which produced significant changes in many African countries as compared to local GAAP regulations. Unlike Nigerian national accounting systems, which are frequently thought to be tax-driven, law-based, creditor-oriented, and not particularly concerned with determining income as a measure of success, the IFRS have a rigorous orientation on the financial information demands of investors.

According to the International Financial Reporting Standards (IFRS), fair value is the amount for which an asset might be traded, or a liability paid, between educated, willing parties in an arms length transaction (IASB, 2006).

As a result, the mandatory adoption of IFRS not only represented a significant change for financial statement preparers, but also meant a radical transformation for financial statement readers. Whereas under many local GAAP standards, for example, the interests of the firm’s stakeholders were subject to the prudence principle, which required the corporation to report results only after they were realized, the IFRS took a different approach.

It should be emphasized that the underlying assumption of this concept is that delivering meaningful and timely information by preparing accounts in accordance with a set of high-quality criteria best serves the interests of investors.

This could be a significant concern, particularly in the case of fair value accounting, and should be considered when investigating the implications of fair value accounting for users of accounting information.

The notion of FVA arose to fill gaps in historical cost accounting (Holt, 2008). Historical cost accounting has coexisted with major corporate failures and tremendous pressure from financial report users, prompting the Financial Accounting Standards Board (IFRS) and International Accounting Standards Board (IASB) to shift their focus from historical cost accounting to Fair Value Accounting (Rayman, 2007).

This move has an impact on the entire world in some way. Fair Value Accounting has found its way to Nigeria despite the country’s turbulent economy. As a result, in the Nigeria setting, it is critical to address ‘Fair Value Accounting.’

This research study is to investigate the problems and prospects of applying Fair Value Accounting in Nigeria by users of accounting information, accounting procedures, financial statements, and foreign investors in general.



The primary issue to be investigated in this study is the identification of challenges to fair value reporting by investors, corporate management, auditors and other users of financial statements, professional bodies, regulators, and policymakers involved in regulating the practice of accounting and auditing, and primarily auditors.

Thus, the authors’ investigation and previous research work show that business owners, investors, and other users of financial statements have recently deviated from the use of fair value accounting of asset and liability valuation to historical cost asset valuation as a result of its (FVA) complexity, creating greater challenges to an economy’s economic development.

There are other controversies concerning the use of fair value accounting, however we will focus on four major issues:

(i)The Applicability of Fair Value Accounting

(ii)Comprehensive understanding of Fair Value Accounting concerns

(iii)Audit Issues Relating to Fair Value Accounting, and

(iv) The applicability of fair value accounting.

Many people believe that there were contractual and transactional motivations to discover any fair value components of goodwill, including as brands and intangibles.

Despite these problems, the earlier time was characterized by a degree of tolerance for diverse measuring bases in financial accounting.

Despite widely acknowledged intellectual flaws in historical cost measurement and occasionally large gaps between accounting net book value and market capitalization, pressures for a single measurement gained both expanded significance and a contentious position within the financial accounting policy process, and thus the status changed completely.

Many people blamed fair value accounting for one of the Nigeria Financial System’s financial and economic disasters. The decline in the price of many financial assets measured at fair value prompted banks to write down the carrying values represented on their balance sheets, lowering capitalization ratios.

To enhance their capitalization ratios and meet with regulatory requirements, these banks began to sell securities, which exacerbated the downdraft in quoted prices and necessitated additional devaluations of financial assets.

Auditing the fair values of assets and liabilities subject to inactive markets presents unique problems to auditors. According to Humphrey et al. (2009), prices are determined by forecasting variables like as interest rates, credit spreads, default rates, and so on, but such projections are subjective and thus difficult to verify.

Benston (2008) further adds that in some situations, external auditors will be unable to check the data or even challenge management estimations. The question therefore becomes how well auditors are technically equipped for the issues posed by Fair Value Accounting. There is considerable concern regarding auditor readiness to audit FVA financial statements. The problem then is how technically equipped auditors are for the challenges provided by Fair Value Accounting.

According to Kumarasin (2011), the requirement for the Accounting Standard Board to make a request for input on the application of FVA in emerging and transition economies demonstrates the Accounting Standard Board’s concern about the implementation of Fair Value Accounting in these nations.

Finally, Pacter (2007) identified some of the significant difficulties with the use of Fair Value Accounting in developing nations like Nigeria:

I Inactive market, (ii) High cost

(iv)Government-managed markets (v) Inadequate regulatory environment and

(vii) Absence of valuation standards and guidelines.


The goal of this research was to investigate the definition and understanding of fair value accounting (problem and prospect) in Nigeria, as well as to determine how fair value is calculated in this inflationary country with a sizable market (for shares and property investments).

Other specific objectives of this research include:

Determine the level and contribution of fair value accounting to giving meaningful information to Nigerian investors.
Determine whether the Nigerian capital market structure is a barrier to the implementation of fair value accounting.
Examine whether the entire fair value of financial instruments achieves the goal of financial reporting.
Remove the issue raised by the use of fair value accounting.

Determine the precision with which fair value measurement can be employed in assessing a firm’s financial status.
Determine how fair value is calculated in this inflationary economy with a sizable market (for shares and property investments).


In the project study, the following research questions were asked:

What are the levels and contributions of fair value accounting in Nigeria to giving valuable information to investors?

Is the Nigerian capital market structure a barrier to the application of fair value accounting?

Does the full fair value of financial instruments meet the goal of performance reporting?

Are there any limitations to the use of fair value accounting?

What are the limits to the precision with which fair value measurement can be employed in assessing a firm’s financial position?

What effect does the use of fair value accounting have on the appropriateness of accounting information in decision-making financial statements?



H1: Fair Value Accounting implementation does not provide sufficient precision in assessing a firm’s financial state and earning potential.

H0: Fair Value Accounting implementation provides appropriate precision in assessing a firm’s financial status and earning potential.

The second hypothesis

H1: The Nigerian capital market structure creates a risk to the application of fair value accounting.

H0: The Nigerian capital market mechanisms do not represent a significant risk to the implementation of fair value accounting.


In light of the dependability and applicability of the fair value accounting explanation to share prices. They provided compelling evidence that recognized and published fair value measures are meaningful to investors and reliable enough to be reflected in share prices.

Fair value accounting, which incorporates all parts of financial instrument measurement, invokes some degree of market discipline, and is more relevant to investment decision-making, is a better measurement for financial instrument recognition inside the basic financial statements. The overall tenor of fair value critiques is that fair value information lacks sufficient quality to be relevant to investors and other financial statement users, particularly in the context of the Financial Crisis.

The lack of empirical studies on the relationship between fair value accounting and financial reporting in Nigeria, or even in other countries, encouraged this study.

This project study will also propose a framework that can be used as a practical tool for teaching and learning current and emerging fair value accounting standards. It will also identify financial instruments, including fundamental ones that may be characterized in terms of assets, liabilities, and owners’ equity, as well as derivative instruments that are based on contingent occurrences and may necessitate special handling.

The study adds to the current literature on Fair Value Accounting difficulties, particularly in developing countries such as Nigeria. The study is regarded unique, at least in Nigeria, because it analyzes FVA auditing difficulties from the auditors’ perspective. Fair value accounting auditing difficulties will undoubtedly continue to be of interest in Nigeria, as they are in other countries across the world.

This study will also add to the accounting literature and provide useful input to the audit profession, academic research, and associated governmental departments such as Income Tax and Companies Controlling Department. It will increase understanding of Fair Value Accounting concerns and facilitate the process of preparing and auditing financial statements on a Fair Value Accounting basis.

The study will also be useful to professional bodies, regulators, and policymakers involved in the regulation of accounting and auditing.

Finally, this study will be very important to schools and students since it will act as a reference point for future scholars who want to do more research on the subject.


The Study’s Description Data Collection and Population The field survey approach was employed to collect data in this study, which included the use of a questionnaire. A sample of 80 people was drawn from a population that included members of the

Nigerian Accounting Standard Board, members of the Institute of Chartered Accountants of Nigeria/Association of National Accountants of Nigeria, financial institutions, government agencies, and the majority of companies listed on the Nigerian stock exchange.

Also Secondary data was gathered from textbooks, journals, and published annual financial statements of certified banks or clean banks (as defined by the CBN) during a four-year period (2011-2014). Because of the homogeneity of previously gathered data, and because some of the banks included in this study had gone extinct or merged, data from 2011 to 2013 was excluded.


This project focused on the issues and prospects in the application and execution of Fair Value Accounting on financial reporting of various businesses in Lagos, using chosen corporations listed on the stock exchange Market and Accounting firms in Lagos as case studies.

The following are the study’s limitations:

Financial restrictions: One of the key constraints that hindered the investigation was money. This is because the researcher’s sources of financial assistance were unable to appropriately support her academic financial commitments and project work.

Time limitation: Time was another key barrier that impacted this investigation. This was because the investigation was conducted alongside regular academic studies. As a result, the researcher found it impossible to keep some of the appointments with responders.

Material scarcity: Another important limitation of this investigation was the scarcity of materials.


Fair Value Accounting: At the measurement date, the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market players.

Market activity A market in which transactions for the asset or liability occur with sufficient regularity and volume to give continuing pricing information.

Exit Price: The price obtained when selling an asset or paid to transfer a liability.

The historical cost of an economic item is its initial nominal monetary value.

The book value of an asset is its worth based on its balance sheet account balance. The value of an asset is determined by subtracting the asset’s original cost from any depreciation, amortization, or impairment expenses.

In accounting theory, deprival value is used to identify the proper measurement basis for assets. It is an alternative to historical cost and fair value accounting, as well as mark to market accounting.

According to the Efficient-Market Hypothesis (EMH), asset prices fully reflect all relevant information. A obvious implication is that it is difficult to continually “beat the market” on a risk-adjusted basis, because market prices should only react to fresh information or changes in interest rates.

Depreciation: the reduction in the value of an asset or the allocation of asset costs to times when the assets are used.
A balance sheet, also known as a statement of financial condition, is a summary of a sole proprietorship, a business partnership, a corporation, or another commercial organization, such as an LLC or an LLP.

The assets, liabilities, and equity ownership are presented as of a given date, such as the conclusion of the fiscal year.
10. Equity: the difference between the value of an entity’s assets/interest and the cost of its obligations.

11. Asset: An economic resource that an individual, corporation, or country owns or controls with the prospect of future gain.




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