COMPARATIVE ANALYSIS OF THE IMPACT OF FAIR VALUE AND HISTORICAL COST MEASUREMENT IN THE DETERMINATION OF PROFIT OF LISTED MANUFACTURING FIRMS IN NIGERIA IN PRE- AND POST-IFRS

This study investigates the effect of fair value accounting and historical cost accounting on the
profitability of listed manufacturing firms in Nigeria. Specifically, it examined the effects of property,
plant, and equipment valuation, fair value hierarchy measurements, and inventory valuation on profit
after tax under both accounting regimes. The study adopted an ex post facto research design and
utilized secondary data obtained from the audited annual reports and accounts of selected listed
manufacturing firms in Nigeria. Profitability was measured using the natural logarithm of profit after
tax (LOGPAT), while the explanatory variables included property, plant, and equipment (LOGPPE),
fair value hierarchy proxies (LOGFHP), and inventory valuation (LOGINV). Data were analyzed using
descriptive statistics and Ordinary Least Squares (OLS) regression techniques. The findings showed
that the historical cost model explained 20.66% of the variations in profitability, whereas the fair value
model explained 33.39%, indicating that fair value accounting has greater explanatory power. The
results further revealed that property, plant, and equipment had a positive but insignificant effect on
profitability under both accounting methods. In addition, fair value hierarchy measurements positively
influenced profitability, while inventory valuation had a significant negative effect on profit under the
fair value model. The study concluded that fair value accounting provides more relevant and useful
information for evaluating corporate profitability than historical cost accounting. Consequently, the
study recommends improved adoption and implementation of fair value accounting practices and more
effective valuation procedures to reduce earnings volatility and enhance the quality of financial
reporting. The study implies that the adoption of fair value accounting can enhance the quality,
relevance, and usefulness of financial reporting, thereby improving investment decisions, corporate
governance, and the efficiency of financial markets.