Unpredictable global trade policies, led by a scattershot rollout of tariffs levied by the US, are having widespread implications across huge swaths of the world economy and affecting organizations large and small in diverse industries. And while those most obviously affected are often operations and supply chain teams, Riveron’s Lara Long spotlights the tariff-driven financial reporting challenges that can ripple through the entire organization.
As geopolitical tensions mount and global trade policies evolve from week to week, companies across industries are facing mounting pressure to assess the need to account for and disclose the current and potential future financial impact of rising tariffs.
These policy shifts are not only affecting operations and supply chains but also are triggering significant ripple effects across financial reporting, from impairment testing and revenue recognition to tax positions and internal controls. For organizations, especially those with global operations or heavy reliance on imported goods, it’s critical to proactively evaluate and disclose the resulting risks and consequences these changes may introduce.
Impairment risks, inventory valuation and asset recoverability
Long-lived assets, which may be exposed to impairment due to declining revenues, margin compression and the economic uncertainty that tariffs introduce, should be at the top of any checklist. Businesses must reassess assumptions about future cash flows and market participant behavior.
Companies are now more frequently required to test for impairment between regular reporting periods, known as interim impairment testing, for assets like goodwill, intangibles, and plant and equipment (PP&E). This is especially important when a facility is closed or sold as part of a change in supply chain strategy.
For instance, if a multinational company has a plant or factory in China with machinery and equipment that produces component parts for other US facilities and the company makes a decision to close the Chinese facility due to tariffs, this triggers a need for an impairment test immediately on those long-lived assets.
Deferred tax assets (DTAs) should follow closely behind long-lived assets in the review process. While the standard for recording a valuation allowance (“more likely than not”) differs from other impairment tests, the financial strain brought on by tariffs may cast doubt on earlier assumptions about future taxable income. Similarly, lease assets and liabilities may need to be re-measured as companies seek to renegotiate or exit lease agreements to reduce expenses.
Inventory also requires scrutiny. With acquisition costs rising, businesses must evaluate whether the net realizable value (NRV) of their inventory has fallen. Even though tariffs aren’t classified as “abnormal costs,” future tariffs can affect the predictability of costs like completion, transportation or disposal when forecast modeling.
Companies that can’t pass increased costs on to customers might face write-downs or margin hits. One way to soften the blow is open lines of communication with vendors so companies can try to negotiate based on their internal costs instead of the prices they charge you as their customer. Keep in mind that NRV has to be assessed for both finished goods and work-in-process (“WIP”), as tariffs for components needed to complete WIP may apply and increase the cost to complete.
Additionally, companies must review accounts receivable and contract assets for collectability concerns. Increased financial strain on customers may elevate credit risk, necessitating the potential need for reserves. If tariff-related pressures result in delays or defaults, impairment of receivables should be considered.
Tax, restructuring and benefit plan impacts
Assets are not alone in their trade-related vulnerabilities. The liability side of the equation is also feeling the heat. When companies adjust their transfer-pricing models to mitigate rising tariff costs, it can raise flags under ASC 740 tax guidelines, resulting in uncertain tax positions that must be carefully evaluated.
Operational shifts — like downsizing, offshoring or reshoring — may be necessary, but they won’t come without consequences. Any restructuring effort must be paired with assessment through a financial lens: Are restructuring provisions warranted? How will these changes impact benefit plans, actuarial assumptions or the company’s existing stock-based compensation structures? These aren’t theoretical questions; they demand immediate attention and detailed analysis.
Meanwhile, debt covenant compliance is another stress point. If shrinking margins or restructuring efforts worsen a company’s financial ratios, lenders may trigger covenant breaches. That could reclassify long-term debt as current, creating new challenges for cash flow management and liquidity planning. On top of that, hedge accounting strategies could unravel as the volatility introduced by tariffs makes it harder to prove the likelihood of forecasted transactions.
Vendor relationships create yet another area of concern. If tariffs or related cost increases make existing supplier contracts unprofitable, companies might find themselves holding loss contracts. These must be recognized and accounted for under ASC 450, adding yet another layer of financial complexity to an already uncertain environment.
Fair-value assumptions and evolving market participant definitions
Tariffs ripple through valuation models, too. The volatility they introduce can upend fair-value assumptions in a heartbeat. Companies need to revisit their discount rates and other related assumptions to make sure they reflect today’s heightened level of risk. The old models may no longer hold up in a landscape shaped by shifting trade dynamics and unpredictable pricing.
One approach gaining traction is the use of expected cash flow models with probability-weighted scenarios. These models incorporate different outcomes, ranging from the duration of tariff enforcement to customer behavior and broader macroeconomic trends, to arrive at a more grounded, realistic view of value. For example, a restaurant chain valuing its imported ovens (a long-lived asset) under fair-value accounting might create scenarios: one where tariffs last a short time with minimal customer impact and another where tariffs are long-lasting, causing menu price increases and decreased customer visits. By probability-weighting the cash flows under each scenario, the business arrives at a more realistic fair value for the ovens than a single-point estimate.
Beyond changes on paper, the very definition of a “market participant” might evolve. In a trade-constrained economy, what an informed buyer is willing to pay — or what they consider a fair risk premium — could shift dramatically. These changes have the potential to move the needle on fair-value estimates across a wide range of assets and liabilities.
Disclosure considerations
Transparency is key in all business operations. If a perceived financial consequence of rising tariffs could potentially have a material impact on reported earnings or balance sheet positions, it needs to be disclosed clearly and thoroughly. Investors, auditors and regulators are all watching, and clarity here can go a long way in preserving stakeholder trust.
To maintain investor confidence and meet regulatory expectations, companies must enhance disclosures across financial statements, management’s discussion and analysis (MD&A) and risk factors. These should cover:
- Impairments, write-downs and recoverability assessments of assets
- Restructuring activities and associated liabilities
- Effective tax rate changes and uncertain tax positions
- Shifts in revenue recognition assumptions, including pricing
- Fair-value methodologies and assumptions
Tariff swings rattle the bottom line and disrupt core processes. Companies should refresh risk disclosures to reflect today’s turbulence, from supply chain delays to rate hikes and credit tightening, as well as the impact of internal controls. If companies are modifying key internal controls to mitigate risks and uncertainties related to tariff impacts, they need to address the need for such modifications and focus internally with management so that key control owners are aware of changes, as well as communicate such changes to their auditors.
Preparing for what’s next
As tariff uncertainty continues, companies must remain agile and informed. It is critical that corporate accounting and tax departments have regular and transparent discussions with their operations counterparts to ensure they are aware of all potential and current decisions, as well as the timing of operational plans, so that they can ensure financial reporting and disclosure consequences are accurate, complete and timely.
Ultimately, this environment presents an opportunity for finance leaders to strengthen internal processes, sharpen forecasting accuracy and bolster investor trust. With a proactive approach to risk identification, scenario planning and compliance, companies can weather today’s challenges and position themselves for long-term resilience. Organizational and operational agility will be a critical success factor moving forward, and the ability to pivot in any direction will keep organizations ahead of the tides.
Lara Long is a managing director at Riveron, a business advisory firm. She has significant experience with both public and private companies (including multinational companies) across a variety of industries including manufacturing, distribution, technology and financial services. In her depth of expertise, Lara held a national appointment to FASB’s Financial Accounting Standards Advisory Council from 2020 to 2024. 
