Impact of tariffs on financial reporting and disclosure

The past five years have delivered a global health pandemic, wars, and economic uncertainty, all of which present numerous accounting challenges.

For reporting periods in 2025, the recently announced tariffs by the United States and retaliatory tariffs from other nations will introduce new complexity and uncertainty to the accounting for a wide range of transactions and events.

What you need to know

BDO’s recent bulletin summarises nine key areas to consider when determining how tariffs may affect your organisation.

Accounting areas most affected by tariffs
Impairment of non-financial assets	Fair value measurement	Discount rates
Going concern	Judgements, estimates and estimation uncertainties	Events after the reporting period
Financial instruments	Other reporting effects	Interim financial reporting

We discuss each topic briefly below.

Impairment of non-financial assets

Tariffs can trigger impairment indicators due to increased input costs, reduced demand and inflation-related cost pressures, especially affecting the recoverable amounts of goodwill, property, plant and equipment, right-of-use assets and intangible assets. Value-in-use calculations should consider multiple scenarios and higher discount rates to reflect the greater uncertainty in cash flows due to tariffs.

Our bulletin answers your FAQs, such as:

FAQ #1	If an entity does not export a significant amount of goods or services subject to tariffs and is also minimally affected by rising import costs, could impairment indicators still be present?
FAQ #2	If tariffs have not been enacted by the reporting date, can they be ignored in the value-in-use calculation if there is an expectation that tariffs may be introduced after the reporting date?
FAQ #3	If tariffs have been enacted by the reporting date, do entities need to assume they will endure for the remaining useful life of the asset?
FAQ #4	Can entities make assumptions about changes to their operations in response to tariff policies?

Consequentially, certain entities may be required to write down previously recognised goodwill and subsequently will not be able to reverse that impairment if circumstances improve in subsequent periods.

Fair value measurement

Key points to note here are:

Fair value measurements will be affected by tariff announcements, with Level 3 valuations being particularly sensitive.
Entities will have to consider whether market participants pricing of assets would assume that enacted tariffs will endure over the long-term.
Given rising tariffs, many organisations may be thinking about, but not yet committed to, restructuring their business. While restructuring assumptions can be included in determining the recoverable amounts of assets (and cash-generating-units (CGUs)) based on fair value less costs of disposal, this is not the case for recoverable amounts based on value-in-use models.

Discount rates

With tariff uncertainty, the potential for high inflation and a general economic downturn, entities should revisit whether discount rates used to calculate value-in-use, employee benefit provisions, incremental borrowing rates for leases, provisions and share-based payments are still appropriate. Errors in inflation treatment (real vs. nominal) can lead to material misstatements.

Going concern assessments

Companies in tariff-impacted sectors may struggle with liquidity, customer demand and complying with loan covenants. Scenario testing, stress testing, and disclosures are critical.

The bulletin provides examples of disclosures about an entity’s going concern assessment.

Judgements, estimates and estimation uncertainty

Due to tariff-induced reductions in demand for goods or services and increased input costs, entities may need to revise assumptions used in impairment assessments, fair value measurements, accounting for deferred taxes, employee benefits, inventory valuation, assessment of control/joint control, contingent consideration, and more.

The bulletin sets out what regulators expect to see entities doing when making significant judgements and estimates, as well as some example disclosures.

Events after the reporting period

Assessing events that occur after the end of the report until the financial statements are authorised for issue is even more critical during times of uncertainty and rapid change. This is because there is an increased risk that a material event will occur during this period.

Entities should continually monitor and assess events that occur after the reporting date to ensure that material post-balance date events have been appropriately adjusted or disclosed in the financial statements.

FAQ #2 in the bulletin is important because it discusses tariffs enacted after the reporting date and how uncertainty about future economic conditions should be considered in your impairment tests.

Financial instruments

Here the bulletin highlights the impact to entities’ Expected Credit Loss (ECL) models, with rising tariffs potentially affecting certain industries and jurisdictions more than others.

Enhanced disclosures are needed about sector-specific drivers in ECL measurement and risk concentrations related to specific sectors and/or jurisdictions.

FAQ #12 in the bulletin also notes that increased tariffs may impact the effectiveness of hedging relationships if forecasted transactions are no longer highly likely.

Other reporting effects

Here the bulletin highlights how tariffs can impact areas such as:

The classification and presentation of borrowings as current or non-current.
Accounting for:
- Deferred tax assets
- Share-based payments
- Revenue from contracts with customers
- Leases
- Government grants
- Provisions
- Inventory (FAQ #10 in the bulletin looks at whether tariffs paid to import goods are included in the cost of inventories).

Interim financial reporting

In addition to all the recognition and measurement issues mentioned in this article, entities preparing interim financial reports in accordance with NZ IAS 34 Interim Financial Reporting must also disclose details about significant transactions and events that have occurred since the end of the last annual reporting period.
New or expected tariff announcements mean substantial additional disclosure in interim financial reports.

It is important for entities to note that once Goodwill is impaired (even if in an interim reporting period), the impairment cannot be subsequently reversed if and when facts and circumstances change.

Accordingly, if as a consequence of the tariff environment entities are required in their interim reporting period(s) to write down goodwill balances, if and when the tariffs are subsequently removed (or are reduced or mitigated) the goodwill previously written off cannot be reversed/reinstated in future interim/annual reporting periods.

More information

Please refer to BDO’s recent bulletin for more information about how tariffs may impact your financial statements.

Need help?

For assistance, please contact our Financial Reporting Advisory team for help.

For more on the above, please contact your local BDO representative.

This article has been based on an article that originally appeared on BDO Australia, read the original article here.