The Impact of Fair Value Measurement on Financial Instrumentof Firms in Nigeria

Abstract

ABSTRACT This study assessed the impact of fair value measurement on financial instrument of firms in Nigeria. The objective of this study is to determine the extent to which fair value measurement can be applied with precision in the assessment of a firm’s financial position and to determine the possibility of measurement errors in financial instrument measured on Fair Value.The method of data collection used in this study was field survey method involving the use of questionnaire administered to 188 samples. The method of data analysis was the Kruskal-Wallis rank sum test statistic. From the result of the analysis it was observed that the implementation of Fair Value measurements gives sufficient precision in assessing firm’s financial position and earning potential since majority of the respondents agreed with a mean rank (mean rank=35.38) and a corresponding Chi-Square test statistic val-ue of 33.27 and a p-value of 0.00 which falls on the rejection region of the hypothesis. Also observed was that the possibility of measurement errors in financial instrument measured on Fair Value basis was high since majority of the respondents agreed with a mean rank (mean rank= 24.50) and a corresponding Chi-Square test statistic value of 20.13 and a p-value of 0.00 which falls on the rejection region of the hypothesis. Hence, we conclude that Fair value is the best reflection of the expected future cash flow as it predicts the ability of the entity to take advantage of opportunities or to react to adverse situations. We recom-mend that for fair value accounting to be beneficial in Nigeria there should be vigorous policing and enforcement of punitive actions against insider abuse and other forms of market manipulation.