Post-implementation challenges of fair value measurement (IFRS 13): some empirical evidence

Abstract

PurposeConsequent on the widespread of fair value (FV) accounting with the coming into effect of International Financial Reporting Standard (IFRS) 13, this study investigated the post-implementation challenges of FV measurement from the perspective of auditors in Nigeria.Design/methodology/approachData collection was through a structured-questionnaire administered on auditors from diverse audit firm backgrounds in terms of size, international affiliation and global presence. Statistical techniques such as cluster analysis, factor analysis and ANOVA were applied to analyse data obtained from 277 respondents.FindingsIt was observed that the severest challenge of FV measurement bothers on the paucity of information for valuation of items. The magnitude of the challenges of applying FV measurement in various industry sectors appears similar. Although audit firm attributes affect perception on the challenges, there is concurrence among auditors that manipulation of values of assets/liabilities with no market price during estimation, leveraging on non-availability of market information on assets/liabilities by managers to manipulate financial statements, inappropriateness/non-compliance of valuation methods with IFRS 13, and low level of awareness among preparers of financial reports are notable post-implementation challenges of FV measurement.Practical implicationsConsidering that the adoption of IFRS 13 impliedly places responsibilities on countries applying the standard to develop institutional structures that facilitate the valuation of items using FV measurement, it seems the establishment of such apparatus may be a sine qua non for fully realising the socio-economic benefits of applying FV accounting.Originality/valueThe study contributes to knowledge by exposing the practical challenges of FV measurement and accounting estimates typical of a developing country that has fully implemented international accounting standards. Moreover, findings from this study could be compared with the result of investigations conducted in other jurisdictions to gain a deeper and wider insight into the challenges of FV measurement with a view to proffering solutions to the post-implementation challenges of IFRS 13.

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

“…The negligible usage rate of the cost and income methods may also not be unconnected to the difficulty of applying them owing to knowledge gap. Glover, Taylor & Wu's (2014) and Oyewo's (2020) study show that lack of verifiable and corroborative evidence, and limited knowledge and expertise regarding complex valuation inputs, analyses and models are challenges confronting preparers and auditors of fair value measurements. Appah (2018), Klibi (2016) and Abdullatif (2016) submit that knowledge gap among concerned stakeholders (i.e.…”

Fair value accounting and audit fees: The moderating effect of the global financial crisis in Jordan

“…Thus, they are acting as a monitoring tool that sends signals to stakeholders for the purpose of decisionmaking. Consequently, auditors ask for expensive audit fees to compensate for their extra effort to assess reputational risks, and the time spent confirming FVEs (Oyewo et al, 2020;Oyewo, 2020). Hence, H1 is accepted.…”

“…However, the presence of fair values increases the information load which eventually leads to a more complex auditing process (Glover et al, 2019). This is due to the risks of inherent uncertainties caused by management bias (Griffith, 2020;Oyewo, 2020). Auditors instead of dealing with facts about past financial events, they deal with estimates regarding subjective forecasts of expected future events (Abdullatif, 2016).…”