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Accounting Implications from U.S. Tariffs
Key accounting considerations for U.S. tariffs
While tariffs are not new, the U.S. has recently imposed baseline and additional reciprocal tariffs, prompting concerns of trade wars. These developments introduce economic uncertainties that could have significant impact on the business and operations of many entities. ISCA Professional Standards Division has put together this communique to highlight some key accounting considerations for affected entities.
The imposition of new tariffs is a non-adjusting event for entities with 31 December 2024 financial reporting date.
If the event is material, the entity should disclose its nature and an estimate of its financial effect. If the entity is unable to estimate the financial effect, it should disclose that fact.The entity should consider disclosing impact on the following items*:
- Breach of loan covenants
- Changes in economic & market conditions affecting fair values of assets & liabilities
- Changes in impairment assessment of non-financial assets
- Additional expected credit losses due to declining repayment ability of certain debtors
*list is not exhaustive
The imposition of new tariffs may impact the entity’s ability to continue as a going concern. The going concern assessment is to be performed up to the date that the financial statements are authorised for issue.
If the going concern assumption is no longer appropriate, there is a fundamental change in the basis of accounting and this should be disclosed in the financial statements.
Depending on the financial reporting date, the imposition of new tariffs could be considered a current period event, subsequent adjusting event or subsequent non-adjusting event. Hence, assessment is required.
If determined to be a subsequent material non-adjusting event, the entity should disclose its nature and an estimate of its financial effect. If the entity is unable to estimate the financial effect, it should disclose that fact.
The entity should consider disclosing impact on the following items*:
- Breach of loan covenants
- Changes in economic & market conditions affecting fair values of assets & liabilities
- Changes in impairment assessment of non-financial assets
- Additional expected credit losses due to declining repayment ability of certain debtors
*list is not exhaustive
The imposition of new tariffs may impact the entity’s ability to continue as a going concern. The going concern assessment is to be performed up to the date that the financial statements are authorised for issue.
If the going concern assumption is no longer appropriate, there is a fundamental change in the basis of accounting and this should be disclosed in the financial statements.
Tariffs may result in an indicator of impairment (e.g. decreased sales, increased production costs, impact on investment or business plans etc.)
The entity is to assess the recoverable amount and disclose significant judgement/ley assumptions made.
There is a potential need for entities to adjust the approaches to determine the ECL based on the available information about past events, current conditions and forecast scenarios of future conditions.
The newly imposed tariffs may increase costs significantly such that the unavoidable costs of fulfilling the contract exceed the consideration to be received. Entities should review their contracts to determine if any contract has become onerous.