US companies in every sector are confronting an unprecedented level of uncertainty as the global tariff landscape evolves. Trade tensions remain a persistent fear, and policy changes are affecting not only supply chains and operational planning but also the core of corporate integrity, compliance and financial due diligence and reporting. Gareth Lake of Kroll examines best practices for effective trade risk management in this environment.
For compliance officers, C-level executives, board members, general counsels and risk managers, the unsettled situation around tariffs represents much more than a technical accounting challenge. It demands an enterprise-wide response to safeguard both the organization’s reputation and financial stability. In today’s climate, maintaining accurate financial disclosures, upholding corporate integrity and preserving stakeholder trust are not simply optional — they are essential to long-term success.
Leaders should consider four proactive approaches that can significantly reduce tariff risk from a compliance perspective to successfully navigate this period of volatility.
Integrating tariff charges into inventory cost
A foundational step for any organization is ensuring that tariffs are properly allocated to inventory cost, as required under generally accepted accounting principles (GAAP). Companies need to update their accounting policies to explicitly include tariffs in inventory valuations, alongside freight, insurance and taxes. This task extends beyond technical accounting and requires a coordinated effort among procurement, finance, supply chain and compliance functions.
Automation plays a critical role in this process. Modernizing enterprise resource planning systems to capture tariff expenses at the point of entry is one of the most effective ways to reduce the risk of manual errors and enable real-time oversight. When organizations rely on manual processes to record and allocate tariffs, they expose themselves to the risk of misstatements and audit issues. Automated systems help ensure consistency and create a clear audit trail for both internal and external review.
It is also vital to establish cross-functional task forces that include representatives from procurement, finance and compliance. These groups should meet regularly to review tariff allocation processes, monitor changes in tariff rates and ensure that all relevant expenses are being captured accurately and completely. This collaborative approach helps break down silos and fosters a culture of shared responsibility for compliance.
Scenario planning should also become a standard practice. By regularly modeling the potential effects of tariff fluctuations on inventory valuation, EBITDA, working capital and overall margin, leadership teams can anticipate challenges and make more informed decisions. These exercises can reveal vulnerabilities in the business model and highlight opportunities to adjust sourcing strategies or renegotiate supplier contracts. When scenario planning is institutionalized, organizations are better prepared to respond to both incremental changes and sudden shocks in the trade environment.
Proactively managing contingencies and liabilities
Tariffs create a host of new compliance risks in the form of contingent liabilities. These can include penalties for noncompliance, exposure to customs audits and the possibility of tariff refunds or reversals. Managing these risks requires organizations to establish robust assessment protocols that can distinguish between immediate and contingent liabilities and ensure the correct accounting treatment.
One best practice is to implement comprehensive checklists for compliance and finance teams. These checklists should outline the criteria for recognizing liabilities, the documentation required for each type of exposure and the steps to escalate potential issues. By formalizing this process, organizations can reduce the risk of overlooking key exposures or misclassifying liabilities.
Early involvement of legal counsel is critical, especially when disputes with customs authorities or regulatory agencies arise. Legal teams should be engaged as soon as potential issues are identified, helping to evaluate the likelihood of a liability materializing and advising on the best course of action. This approach ensures that the organization is prepared to defend its position and respond quickly to regulatory inquiries.
Transaction agreements, particularly in mergers and acquisitions, must contain standardized language that clarifies responsibility for both existing and future tariff exposures. This safeguards against post-closing disputes and ensures that both parties have a clear understanding of the risks involved. A centralized system for tracking gain and loss contingencies, with built-in triggers for reassessment and disclosure, is essential for maintaining transparency and audit readiness. Such systems enable organizations to quickly adapt to changes in the legal or regulatory landscape and ensure that all relevant disclosures are made in a timely manner.
Addressing transfer pricing implications
Tariffs can disrupt established transfer pricing frameworks and expose companies to new tax and customs risks. To mitigate these risks, compliance and tax teams should conduct regular, semi-annual reviews of transfer pricing policies. These reviews should focus on documenting any adjustments made in response to tariffs and ensuring that the rationale for each adjustment is clearly articulated.
Robust documentation is a cornerstone of effective transfer pricing compliance. Maintaining detailed records of all transfer pricing decisions, including the data and assumptions used to support them, is essential for withstanding scrutiny from tax authorities and customs regulators. Joint audits conducted by compliance, tax and finance teams can further strengthen controls and help identify potential gaps or inconsistencies in the organization’s approach.
Organizations should also be proactive in communicating with tax authorities and customs officials when significant changes are made to transfer pricing structures. Transparent communication can help build trust and reduce the risk of disputes or penalties down the line.
Managing foreign currency exposure
Tariffs frequently contribute to foreign exchange volatility, which can have a significant effect on profit margins and financial reporting. Companies should have in place formal foreign exchange risk management policies, including hedging strategies that have been reviewed and approved by the board of directors.
Regular reporting of foreign exchange exposures and the results of hedging activities is essential for maintaining robust oversight. Finance and compliance teams should provide periodic updates to senior leadership, highlighting trends, emerging risks and the effectiveness of current strategies. Stress testing should also be employed to assess the potential impact of various foreign exchange and tariff scenarios on key financial metrics.
By integrating foreign exchange management into the broader risk and compliance framework, organizations can respond more quickly to market movements and protect their financial position.
Tariffs introduce new layers of complexity to corporate compliance and financial reporting. The need for strategic oversight and robust internal controls has never been greater. By focusing on accurate inventory cost allocation, proactive management of contingencies and liabilities, vigilant transfer pricing oversight and comprehensive foreign currency risk management, organizations can navigate tariff uncertainty with confidence.
Gareth Lake is a managing director and global head of Kroll’s technical accounting practice in New York. His expertise spans M&A, joint venture arrangements and Chapter 11 bankruptcy fresh start reporting. He is a trusted adviser specializing in technical accounting and transaction structuring, providing expert guidance on financial due diligence for both buy-side and vendor engagements across diverse industries and global markets. 
