Accounting Measurement and Profitability: Comparative Analysis between Fair Value Regime and Historical Cost Regime

This study examined the effect of accounting measurement on profitability of selected consumer goods companies in Nigeria during historical cost regime and fair value regime. Accounting measurement was measured with revenue, cost of sales and operating cost while profitability was measured with net profit margin and return on equity. The data were generated from the annual reports of ten (10) selected consumer goods companies listed on the Nigeria stock exchange from 2008-2010 (representing historical cost regimes) and 2019-2021 (representing fair value regimes). The consumer goods companies used for this study included Dangote Sugar, Nigeria Breweries, Nestle, Guinness, Cadbury, Unilever, Nascon, Pz Cursors, Floor Mill and Honeywell.

Hausman test was conducted and the result led to the use of fixed effect estimation technique for testing the hypotheses. Regression result showed that cost of sale and operating cost have negative effect on net profit margin both on both historical cost and fair value regime while revenue has significant positive effect on net profit margin both on historical cost and fair value regime. Furthermore, cost of sales and operating cost have negative significant effect on return on equity both on historical cost and fair value while revenue has significant positive effect on return on equity both on historical cost and fair value.

The study concluded that both fair value and historical cost measurement have positive significant effect on net profit margin and return on equity. This implies that profitability is not a function of either fair value or historical cost accounting measurement. The study recommended that fair value accounting basis should be adopted in order to ensure a more realistic measure of profitability than under historical cost basis.