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March 2026

Effects of tariffs on financial reporting

Understand how trade, tariff and regulatory policy changes can impact financial reporting. And use our guide to help you ask the right questions.

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Navigating the complexities of evolving trade and tariff policies continues to be an important financial reporting consideration. These changes can lead to supply chain disruptions, increased costs, price fluctuations and shifts in market demand – potentially affecting multiple areas of financial reporting. 

Ongoing changes in the geopolitical, macroeconomic and regulatory environment have led to sustained uncertainty around the scope, duration and economic effects of tariffs and related trade actions. Recent legal and policy developments have added further complexity, reinforcing the need for careful judgment in developing estimates, assumptions and projected financial information, as well as in evaluating risk, liquidity and contractual impacts.

Scroll down to see some of the specific financial reporting questions you can ask and how to navigate our in-depth guidance for answers.

Applicability

  • This information is applicable for any company impacted by tariffs.

Inventory

  • Has inventory been stockpiled in response to tariffs?
  • Have the costs of tariffs been capitalized to inventory?
  • Have tariffs been considered when determining net realizable value?
 

Financial reporting considerations 

Resources

Capitalization of tariffs

Tariffs are capitalized if incurred in procuring the goods required to bring the inventory to its existing condition and location – e.g. inbound to the manufacturing facility or fulfillment center.

KPMG Handbook, Inventory

  • Question 3.2.20, Are tariffs and other import fees included in the cost of inventory? 

KPMG Handbook, Economic disruption

  • Section 4.3, Inventoriable costs - Tariffs

Net realizable value (NRV) / impairment assessment

Tariffs and related cost increases can lead to higher inventory costs without corresponding increases in selling prices. If these costs cause the inventory’s carrying amount to exceed its net realizable value, an impairment loss may result. 

For inventories measured at lower of cost or market, determining replacement cost may require additional time, effort and judgment due to supply chain disruptions and price volatility. 

If inventory has been stockpiled to avoid tariffs, it should be monitored for obsolescence or other signs of impairment.

KPMG Handbook, Economic disruption

  • Section 4.4, Impairment

Purchase commitments

 

 

 

 

Companies with firm purchase commitments should assess whether those agreements will result in a loss that needs to be recognized. If there are firm sales contracts for the future inventory, the pricing of those contracts including ability to pass on the cost of tariffs should be considered.

KPMG Handbook, Economic disruption

  • Section 4.5, Purchase commitments 

KPMG Handbook, Inventory

  • Question 4.6.20, Are losses as a result of firm purchase commitments evaluated similarly to on-hand inventory? 

Normal production levels

 

 

 

 

 

If production falls outside the range of normal capacity, companies may need to adjust how costs are allocated to inventory. If production is abnormally high, the fixed overhead allocated to each unit of production is reduced. 

If production is abnormally low, no adjustments are made to the fixed overhead allocations, and unallocated overhead is expensed in the period incurred. 


 

 

KPMG Handbook, Economic disruption

  • Section 4.3, Inventoriable costs – Normal production levels

KPMG Handbook, Inventory

  • Question 3.2.110, How are fixed and variable production overhead costs allocated to inventory?
  • Question 3.2.120, Are unallocated fixed overhead and other abnormal costs capitalized in the cost of inventory?  

 

Potential tariff refunds

  • Did you import goods subject to IEEPA tariffs? 
  • Did you pay increased prices due to IEEPA tariffs?
 

Financial reporting considerations 

Resources

Recognition and measurement of potential refunds

In relation to the Supreme Court’s decision on IEEPA tariffs, we believe it is appropriate to apply a loss recovery model to account for potential refunds from the government. Under this model, the amount recognized is limited to the amount of IEEPA tariffs incurred for which recovery is probable.

Companies that are not importers but paid increased prices evaluate whether they have a contractual refund right before applying a loss recovery model. If no contractual refund right exists, a contract modification may be required to obtain a refund in which case, a refund would not be recognized before an enforceable right exists. 

KPMG article: Supreme Court overturns IEEPA tariffs

KPMG Handbook, Contingencies

Other accounting considerations

The loss recovery model does not apply to other estimates in the financial statements where anticipated tariff changes are considered (e.g. impairment assessments, estimates to complete an overtime customer performance obligation).

See the ‘Revenue’ section for considerations related to contracts with customers.

See the ‘Additional disclosures’ section for subsequent events considerations.


KPMG article: Supreme Court overturns IEEPA tariffs
 

Revenue

  • If tariff costs are refunded by the government and those costs were passed through to customers, do you have a contractual obligation to provide a refund to customers?
  • If refunds are not contractually required, are refunds nevertheless expected to be provided to customers?
 

Financial reporting considerations

Resources
Contract modifications and price changes

If a price change to an existing contract is negotiated with a customer, it is evaluated as a contract modification.  When the only change in the contract terms is price, the price change is accounted for either prospectively (if the goods and services are distinct) or on a cumulative catch-up basis (if the remaining goods or services are not distinct).

If a price adjustment is contemplated in the terms of an enforceable contract, a company should assess whether it represents variable consideration or a contract modification. If the price change relates to a future contract, it is simply considered in the accounting for that contract.

KPMG Handbook, Economic disruption

  • Section 2.5, Contract modifications 

KPMG Handbook, Revenue recognition

  • Chapter 11, Contract modifications
Estimates and judgments

Key estimates and judgments in the revenue recognition process may be affected and therefore may need to be reassessed. Potential effects include::

  • Variable consideration, such as price concessions or rebates, which may require revenue to be constrained.
  • Allocation of consideration – standalone selling prices may need to be updated.
  • Measures of progress could be affected by supply chain or workforce disruptions leading to cost changes or project delays as well as increases to total forecasted costs due to tariffs.

KPMG Handbook, Economic disruption

  • Section 2.2, Variable consideration
  • Section 2.6, Standalone selling prices 

KPMG Handbook, Revenue recognition 

  • Section 3.4, Price concessions
  • Section 5.3, Variable consideration
  • Section 7.4, Measuring progress toward complete satisfaction of a performance obligation
Collectibility

If, at contract inception, a customer’s creditworthiness is such that the collectibility threshold is not met (i.e. it is not probable that the company will collect substantially all of the consideration to which it expects to be entitled), a contract does not exist and the general revenue model cannot be applied. 

After contract inception, companies need to evaluate whether significant changes in credit risk have occurred and, if so, reevaluate the collectibility criterion for existing contracts. If, on reassessment, it is determined that collectibility is no longer probable, use of the general revenue model should be discontinued. Previously recognized revenue is not reversed and the alternative (deposit) model is applied.

KPMG Handbook, Economic disruption

  • Section 2.4, Assessing collectibility, receivables and contract assets
Presentation of tariff surchargesIf tariff costs are passed along to customers (e.g. a tariff surcharge), these amounts represent additional transaction price that is included in revenue and cannot be offset against cost of goods sold. 

KPMG Handbook, Revenue recognition   

  • Section 5.2, Elements of transaction price

Potential tariff refunds

The Supreme Court ruling on IEEPA tariffs did not address refunds and, as such, there is uncertainty about whether all companies who paid IEEPA tariffs may be entitled to refunds. The Court of International Trade ordered the Administration to begin refunding tariffs, but it is expected that the Administration will likely appeal.

If tariff costs were passed through to customers, companies evaluate whether their contracts with customers create an obligation to provide refunds.

If refunds are not contractually required but are expected to be provided to customers, companies evaluate whether a contract modification or price concession model is appropriate.

KPMG article: Supreme Court overturns IEEPA tariffs

KPMG Handbook, Economic disruption

  • Section 2.2, Variable consideration 
  • Section 2.5, Contract modifications 

KPMG Handbook, Revenue recognition

  • Section 3.4, Price concessions
  • Section 5.3, Variable consideration

Goodwill and long-lived assets

  • Is the import/export of goods/resources part of the company’s business strategy?
  • How do tariffs affect projected financial information?
  • Are tariff policies disrupting demand for products?
  • Is there a plan to abandon or relocate operations?
 

Financial reporting considerations 

Resources

Indicators of Impairment 

The effects of evolving tariffs policies on certain industries or markets may lead to an impairment triggering event. This may occur, for example, due to permanent or temporary curtailment of operations, reduced customer demand or supply chain disruptions. 

Companies should assess whether triggering events indicate that the carrying amount of long-lived assets may not be recoverable or when an event or circumstance indicates that it is more likely than not that goodwill or indefinite-lived intangible assets are impaired.

KPMG Handbook, Economic disruption

  • Section 5.2, Triggering events
  • Section 6.2.10, Long-lived asset impairment

KPMG Handbook, Impairment of nonfinancial assets

  • Section 4.3, Trigger-based testing

Sequence of Impairment Testing

When impairment indicators are present, companies may need to test multiple asset classes. This is done in a specific order:

  1. Assets outside the scope of ASC 350/360 (e.g. inventory)
  2. Indefinite-lived intangible assets
  3. Long-lived assets
  4. Goodwill.

KPMG Handbook, Economic disruption

  • 6.2.50, Sequence of impairment testing

KPMG Handbook, Impairment of nonfinancial assets

  • Question 4.4.10, In what order are assets tested for impairment?
  • Question 4.4.20, Does the impairment of goodwill trigger impairment testing for the long-lived assets in that reporting unit?

Projected financial information 

 

 

 

 

 

 

 

If a quantitative impairment test is required, companies may need to revise key assumptions in their financial projections, including sales growth, supply costs, tariff costs and capital spending. In some cases it may be more appropriate to use probability-weighted cash flow projections given the uncertainty and evolving trade environment. 

As part of the valuation analysis, companies should consider a market participant or investor view in determining which, and to what extent, tariffs and other measures should be reflected in the valuation analysis. 

KPMG Handbook, Impairment of nonfinancial assets

  • Question 7.2.30, Are cash flows based on a single best estimate or probability-weighted?
  • Question 8.3.210, If an entity expects conditions after the measurement date to change, does it reflect that expectation in measuring fair value?

KPMG newsletter, Tariffs and valuation 

  • Three steps to assess rapidly changing policies and environments

KPMG Handbook, Economic disruption

  • Section 5.5, Quantitative assessment

Disposals and plans to abandon assets 

 


 

 

 

In response to evolving regulatory and economic pressures, companies may adopt various strategic measures, including asset disposals or operational shifts. When disposals are part of the strategy, the criteria for classification as held-for-sale are evaluated to determine whether the assets qualify for presentation as discontinued operations.

If a company commits to a plan to abandon a long-lived asset, it accelerates its depreciation or amortization. However, a long-lived asset that is temporarily idled is not considered abandoned and should continue to be depreciated over its remaining useful life.
 

KPMG Handbook, Economic disruption

  • Section 6.2.40, Abandoned and idled assets
  • Section 10.2, Disposals

KPMG Handbook, Discontinued operations & HFS disposal groups

  • Section 4.2, Disposed of by sale (held-for-sale criteria)
  • Question 4.3.30, Can a temporary idled long-lived asset be considered abandoned? 



Leases

  • Is relocating facilities to a different geographical location to avoid tariffs being considered?
  • Are leases being renegotiated or modified?
 

Financial reporting considerations 

Resources

Lease modifications and terminations

Relocation or other business considerations may require modifying or terminating existing lease agreements. A lessor and lessee may also agree to other changes to a lease (e.g. shortening the lease term or extending the lease term in return for reduced rent in the near term).  

A lease modification is any change to the terms and conditions of a lease that results in a change in its scope or consideration. The accounting for lease modifications should be approached carefully as their accounting effects can vary widely.

KPMG Handbook, Economic disruption 

  • Section 6.3.10, Lessee considerations
  • Section 6.3.20, Lessor considerations

KPMG Handbook, Leases

  • Section 6.7, Lease modifications (lessee)
  • Section 6.8, Lease terminations (lessee)
  • Section 7.6, Lease modifications (lessor)

Reassessment of lease terms

 

Tariff-driven actions may trigger a requirement to reassess the term of the lease or an option to purchase the underlying asset – for example, if the lessee elects not to exercise an option that it had previously determined it was reasonably certain to exercise. 

The expected residual value of an underlying asset may be affected by market disruption, requiring reassessment of the amount it is probable that the lessee will owe under a residual value guarantee.

KPMG Handbook, Economic disruption

  • Section 6.3.10, Lessee considerations – Lessee reassessments

KPMG Handbook, Leases

  • Section 6.6, Lease reassessments (lessee)

Impairment or abandonment of ROU assets

 

Refer to the Goodwill and long-lived assets considerations above. 

If a lessee has both the intent and practical ability to sublease the underlying asset, further evaluation should be performed related to reassessment of asset groupings. 

KPMG Handbook, Leases 

  • Section 6.5.2, Interaction with Topic 360 when asset will be abandoned or subleas
     

Collectibility 

 



 

 

Lessors should evaluate whether tariffs have adversely affected the financial condition of lessees, potentially affecting the collectibility of lease payments. 

The accounting implications vary depending on the type of lease (i.e. sales-type, direct financing or operating) and whether collectability is assessed as not probable at lease commencement or becomes not probable subsequently.   
 

KPMG Handbook, Economic disruption 

  • Section 6.3.20, Lessor considerations – Lessor revenue recognition – collectibility

KPMG Handbook, Leases 

  • Section 7.5, Collectibility (lessor)

Restructuring

  • Are there plans to restructure the company’s supply chain or operations?
 

Financial reporting considerations 

Resources

Restructuring

Tariffs and related cost pressures may prompt companies to restructure operations, potentially leading to exit activities such as severance, contract termination costs, and expenses to consolidate or relocate facilities and workforce. 

Companies should evaluate: 

  • whether these activities result in recognition of termination benefits; and
  • the appropriate timing of recognition and disclosure in the financial statements.

KPMG Handbook, Economic disruption

  • Section 8.3.10, Termination benefits

KPMG Handbook, Employee benefits

  • Chapter 4, Termination benefits and other nonretirement postemployment benefits

 

Going concern

  • Could tariffs and counter measures affect the company’s ability to meet its obligations as they become due?
  • How do tariffs affect projected financial information or forecasted covenant compliance?
 

Financial reporting considerations 

Resources

Going concern

Companies may face liquidity challenges if they are not able to sufficiently increase selling prices to offset tariffs or due to decreased customer demand. 

Given the uncertainty around the timing and amount of the tariffs, relying on past experience to establish future expectations may not be appropriate. It may also be difficult to establish the probability of a plan’s future success when critical elements of the plan depend on events outside management’s control (e.g. availability of credit lines or obtaining other financing).

KPMG Handbook, Economic disruption

  • Section 10.4, Going concern

KPMG Handbook, Going concern 

  • Chapter 3, Step 1: Assess whether substantial doubt is raised
  • Chapter 3, Step 2: Assess whether substantial doubt exists

 

Financial assets, debt, derivatives and hedging

  • Are the company’s financial assets affected by tariffs or related changes to the macroeconomic environment? 
  • Do tariffs, or related changes to the macroeconomic environment, affect the company’s debt and other liabilities, such as derivatives?
 

Financial reporting considerations 

Resources

Loan modifications and credit impairment (lenders)

 

Changes in the macroeconomic environment may affect borrowers’ ability to meet obligations, leading to an increase in the allowance for expected credit losses. 

Lenders may also need to consider the accounting for loan modifications and whether there are transfers between categories of debt securities.

KPMG Handbook, Economic disruption

  • Section 3.2, Credit impairment
  • Section 3.3, Loan modifications – lender
  • Section 3.4, Transfers between categories of debt securities

KPMG Handbook, Credit impairment

Debt classification and covenant compliance (borrowers)

 

 

Borrowers should consider whether tariff-related disruptions affect debt covenant compliance, potentially requiring reclassification of debt from noncurrent to current. 

Borrowers may need to consider the accounting for debt modifications, including whether a debt modification constitutes a troubled debt restructuring (TDR), debt modification or debt extinguishment (debt modification that results in the recognition of a new loan).

KPMG Handbook, Economic disruption 

  • Section 7.2.30, Debt covenants
  • Section 7.3, Debt modification

KPMG Handbook, Debt and equity financing

  • Chapter 4, TDR, debt modifications and extinguishments

Derivatives and hedging

 

Tariff-related economic disruption may affect whether a financial instrument or other contract is required to be accounted for as a derivative or whether the criteria to qualify for hedge accounting continue to be met. 

KPMG Handbook, Economic disruption

  • Section 3.5, Derivatives and hedge accounting 
     
Equity securities and fair value measurementTariffs may contribute to market volatility, affecting the fair value of equity investments and requiring impairment assessments for securities without readily determinable fair values.

KPMG Handbook, Economic disruption 

  • Section 3.6.20 Equity securities without a readily determinable fair value when measurement alternative is elected

Additional disclosures

  • Has management considered whether the effect of tariffs warrants further discussion in the financial statements?
  • Have subsequent events related to tariffs been evaluated under ASC 855?
 

Financial reporting considerations 

Resources

Risks and uncertainties

Companies are required to disclose risks and uncertainties that could significantly affect the amounts reported in the financial statements in the near term or the near-term functioning of the company. Tariffs may represent such a risk and uncertainty, for example, if they affect supply chains, pricing strategies or customer demand. 

KPMG Handbook, Economic disruption 

  • Section 10.5, Risks and uncertainties 

KPMG Handbook, Financial statement presentation

  • Chapter 7, Risks and uncertainties
Subsequent events

In relation to the Supreme Court’s decision on IEEPA tariffs, we believe it is acceptable to treat the decision as a nonrecognized (Type 2) subsequent event in financial statements that have not yet been issued as of February 20, 2026.

Companies evaluate the potential effect on the financial statements and whether disclosures are required.

KPMG article: Supreme Court overturns IEEPA tariffs

KPMG Handbook, Financial statement presentation

  • Chapter 9, Subsequent events

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