Abstract
M.Comm.
A discussion paper was issued by the IASB in April 2010 wherein it is proposed that discounted cash flow
measurement disclosures should be made by entities that operate in extractive industries. These
disclosures are similar to those made by oil and gas companies that report under US GAAP. A review of
the South African code for the reporting of mineral asset valuation (SAMVAL) and fair value principles
suggest that standardised discounted cash flow disclosures by entities in the extractive entities will not
always be relevant to users of financial statements. This study includes an assessment of the value
relevance of discounted cash flow measurements based on its correlation with share prices. The
regression results of a price change study suggest that changes in the standardised discounted cash flow
measurements are value relevant because they are significant in explaining changes in share prices.
Previous research suggested that in periods of relative oil price stability, reserve based measures are
relatively non-informative. Data used in this study covered the period 2004 – 2008, a period that was
characterised by oil price instability as a result of the global economic recession. On the other hand, the
regression results of a price level study indicate that standardised discounted cash flow measurements
did not make significant contributions to explaining changes in the market value of equity and are
therefore not value relevant.