Navigating Tariffs: Accounting and Financial Reporting Considerations (August 13, 2025)

Under U.S. GAAP, most inventory must be measured at the lower of its cost or (1) market value (for inventory measured by using the last-in, first-out method or the retail inventory method) or (2) net realizable value (for all other inventory). The ASC master glossary defines net realizable value as “estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation.” Any trade measures that affect the cost of inventory should be reflected in the acquisition cost of those goods. That is, any tariffs levied on inventory purchases would be considered part of the cost of such inventory. In a volatile economic environment, especially if goods are purchased in future periods at a higher cost as a result of tariffs, it may be particularly important for entities to determine whether their inventory on hand has become impaired as a result of their inability to increase prices to customers. Assumptions related to the current macroeconomic environment, as well as the effect of those assumptions on the net realizable value of inventory, should be included in the calculations of net realizable value as part of management’s inventory impairment analysis. Further, entities with noncancelable, unhedged firm purchase commitments for inventory should recognize expected net losses to the extent that they are unable to recover such costs through sales.

Long-lived assets (or asset groups) such as property, equipment, assets under construction, finite-lived intangibles, or right-of-use assets are tested for impairment upon the occurrence of triggering events, which are events or circumstances that make it more likely than not that the carrying amount of the asset (or asset group) is not recoverable. Therefore, management may need to consider whether factors such as rising costs attributable to tariffs have resulted in a triggering event. If so, the entity would first assess whether the asset is recoverable on an undiscounted-cash-flow basis. If the entity determines that the carrying amount of the assets is not recoverable, it would calculate the fair value and measure any subsequent impairment of the assets’ carrying value. Regardless of whether the entity recognizes an impairment loss, it should consider whether there has been a change in the remaining useful life or salvage value because of the triggering event that occurred.

Indefinite-lived intangible assets (such as trade names), as well as reporting units that include goodwill, should be tested for impairment at least annually or more frequently if a triggering event has occurred (i.e., an event or change in circumstances that indicates that it is more likely than not that the assets or reporting units are impaired). If a triggering event has occurred, the entity would compare the fair value of such assets (or reporting units that include goodwill) with their carrying value. For indefinite-lived intangible assets other than goodwill, management should consider whether events and circumstances continue to support its conclusion that an asset has an indefinite useful life in addition to determining whether it must perform an interim impairment test. An entity might perform an interim impairment test if its expected use of the asset changes as a result of certain conditions.

In a manner similar to management’s consideration of other potential changes in cost over a contract term, the anticipated impact of a proposed or expected change in tariff policy should typically be factored into an entity’s estimated costs to be incurred under a contract. That is, when an entity estimates costs related to satisfying performance obligations in a contract with a customer, that estimate, which is made as of the balance sheet date, would take into account the expected impact of tariffs and whether such tariffs will be increased, lowered, or removed. The actual effect of announced tariffs that differ from those used in management’s estimates would typically be considered a nonrecognizable (or Type 2) subsequent event. In other words, management’s estimates of costs to be incurred under a contract as of the balance sheet date would not be adjusted to reflect the impact of actual tariffs announced after the balance sheet date. It will be important for management to disclose significant judgments and estimates related to its contracts with customers, including significant judgments and estimates associated with the impact of anticipated tariffs.

Some contracts may have economic pricing adjustment clauses that automatically allow for the cost increase to be mirrored in a price increase, but many may not contain such a provision. When a contract does not include a mechanism for addressing changing input pricing, potential price increases should not be accounted for until the conditions in ASC 606 for a contract modification are met — that is, an expected price increase passed on to a customer should not be accounted for until it is enforceable. Price increases that an entity passes on to its customers would be considered as part of the transaction price and therefore as additional revenue when or as the associated performance obligation(s) are satisfied. For more information, see Chapter 9 of Deloitte’s Roadmap Revenue Recognition.

Tariffs may also affect the ability of an entity’s customer to pay amounts due under the contract. As a result, expected credit losses may be affected (and allowances may be required) and entities may need to consider whether a customer’s inability to pay affects their conclusion that a revenue contract exists. In such cases, further revenue recognition may be precluded. In addition, many entities may renegotiate contracts, grant concessions, or cancel contracts and may need to consider the accounting requirements for contract modifications and price concessions. For further discussion, see Chapter 4 (on identifying a contract), Chapter 6 (on determining the transaction price), and Chapter 9 (on contract modifications) of Deloitte’s Roadmap Revenue Recognition.

In accordance with ASC 606, entities should remember to disclose the following information related to their estimates made and conclusions reached (this list is not all-inclusive):

• Significant judgments and changes in judgments (ASC 606-10-50-17).
• Revenue recognized in the current period for performance obligations satisfied (or partially satisfied) in a prior period (ASC 606-10-50-12A).
• Methods used to recognize revenue over time (ASC 606-10-50-18).

Entities whose reporting periods end before the issuance of executive orders or other actions announcing the tariffs, and that have not issued their financial statements, will need to consider the subsequent-event guidance in ASC 855 to determine the appropriate treatment of their interim or annual financial statements. Such entities will need to evaluate the tariffs’ effects on their financial statements and whether the tariffs meet the definition of a Type 1 or Type 2 subsequent event.

As a result of the tariffs’ effects on an entity’s operations and forecasted future cash flows, engagement teams may need to inquire whether management has properly reevaluated whether the entity has the ability to continue as a going concern within one year after the date on which the interim or annual financial statements are issued (or available to be issued, when applicable). Management is required to provide comprehensive disclosures in its annual and interim financial statements when events and conditions are identified that raise substantial doubt about the entity’s ability to continue as a going concern, even when management’s plans alleviate such doubt.

Entities may need to include disclosures about the impact of tariffs in the footnotes to their financial statements (e.g., see ASC 275-10-50-6 through 50-8) as well as in other areas of their SEC filings, such as in MD&A or the risk factors section. The extent of such disclosures would be based on the potential materiality of the impact. For more information about disclosure considerations related to macroeconomic events, see Deloitte’s December 1, 2022, Financial Reporting Alert.

Management may need to discuss with legal counsel whether disclosures related to risk factors, MD&A, and forward-looking information must be updated to reflect the impact of the tariffs either in periodic reports on Forms 10-K, 10-Q, and 8-K or in registration statements that do not automatically incorporate such periodic reports by reference (e.g., Forms S-1 or S-4). For example, risk factors might need to be updated to reflect that these tariffs are likely to affect a company’s cost structures, profitability, and consumer demand and that strategic adjustments may need to be made to avoid potential issues with global supply chains. Further, companies that are materially affected by tariffs may consider whether such effects would represent a material known trend that should be disclosed and quantified, to the extent practicable, in MD&A.