Tariff Uncertainty in 2025: Key Reporting and Due Diligence Earnings Considerations

Kroll’s experts have recently identified significant challenges in accounting and financial reporting due to the shifting U.S. tariff policies. These issues not only impact GAAP accounting but are also increasingly influencing financial due diligence processes and broader compliance strategies.

As U.S. trade policies evolve, companies are encountering significant accounting implications. While management works to mitigate supply chain disruptions and operational hurdles, the tariffs’ financial reporting effects also demand attention.

Proactive measures and strategic foresight will be key for businesses to navigate these complexities and maintain robust financial governance in a shifting regulatory landscape.

In anticipation of these challenges, we have compiled a list of 10 critical accounting and financial reporting issues related to tariff impacts that management and due diligence teams should address to avoid unexpected pitfalls. This summary does not assess the potential ripple effects—such as shifts in pricing, cost structures or margins—that may arise from the timing or scale of tariff implementation. Nonetheless, given the widespread implications, we believe these topics are equally significant for comprehensive financial due diligence.

Kroll’s top 10 key financial reporting and due diligence issues:

• Integrating tariff charges into inventory cost - When calculating the overall cost of your inventory, any tariffs paid at the time of purchasing specific items should be considered just like other purchase-related charges—such as freight charges and taxes (sales, value-added or excise taxes). This approach ensures that the entire cost of acquiring these goods is fully captured in the inventory valuation. The gross profit margins are likely to narrow unless companies can pass the tariff cost onto their customers.  Financial due diligence teams will need to understand the impact of such higher inventory costs on both EBITDA and working capital.  An understanding of the supply chain and the ability to shift sourcing to lower tariff environments will need to be considered.
• Elevated inventory levels may increase the risk of impairment charges - Tariffs not only raise the purchase price of inventory but can also tip the balance when assessing whether inventory is fully recoverable under the lower-of-cost or net-realizable value (NRV) rule. NRV is the estimated selling price in the ordinary course of business, minus predictable costs for completion, disposal and transportation. When tariffs drive up acquisition costs, companies must carefully reexamine their inventory valuations to determine if the increased cost pushes the inventory’s carrying value above its NRV, potentially resulting in an impairment loss. Keeping a close watch on these shifts is essential for accurate financial reporting.
• Goodwill and long-lived asset impairment triggers – Tariffs can touch different parts of a business in unique ways. When a reporting unit or asset group—whether tied to goodwill or encompasses long-lived tangible or finite-lived intangible assets—is significantly exposed to tariffs, it can trigger several warning signals for asset impairment. What's critical here isn’t just the formal imposition of tariffs, but the market’s expectations about their future impact on cash flow. If management or industry experts begin to believe that new tariffs will materially affect future earnings, it may be time to reconsider asset values immediately. This proactive approach ensures that any potential impairment loss is recognized promptly, so financial statements remain both accurate and reflective of current market sentiment. The fair value of both tangible and intangible assets will be reset as part of purchase accounting, which may have tax impacts depending on the taxable structure of a transaction. Lower asset fair values may result in lower allowable tax deductions.
• Increased exposure to contingencies and liabilities – Tariffs may lead to unanticipated costs and enduring shifts in the company’s operations, such as penalties from non-compliance or customs duty audits. Given the unpredictability of the legal landscape, entities must carefully evaluate the following considerations:
  • Companies must determine if they have incurred a liability in which liability is estimated and recognized immediately or a contingent liability where the recognition depends on whether the liability is probable and estimable.
  • Potential tariff refunds generally fall under gain contingencies which are not recognized until the underlying uncertainty is resolved. If it remains unsettled by the close of the reporting period, it must be evaluated as a subsequent event—assessing factors such as court rulings to determine whether it qualifies as a Type I or Type II event.
  • Companies that have passed these costs on should be mindful of the potential need to reverse the associated revenue contingent upon legal ruling.
  • These issues will need to be addressed in the transaction purchase agreement.
• Transfer pricing implications – Companies need to evaluate how new tariffs are affecting their current transfer pricing frameworks or if transfer pricing adjustments may impact customs valuation and tariff liability. They should also determine whether any adjustments made to offset these tariffs introduce new tax uncertainties.
• Impact on revenue recognition – Tariffs can push companies to renegotiate customer contracts due to the material cost exposures which are either treated as a contract modification under ASC Revenue Recognition (ASC 606) or reflected in future revenue contracts. Increased uncertainty for estimating variable consideration will lead to more judgement in revenue recognition, while the ability to pass along price increases from tariffs will impact margins.  This could result in a proforma adjustment that contemplates lower future margins.
• Impact on percentage of completion revenue contract – Under ASC 606, for performance obligations that are satisfied over time, progress can be measured using a cost-to-cost input method in which revenue is recognized based on the percentage of completion and the transaction price. With new tariffs coming into play, companies must now include these extra expenses in their overall cost estimates, which could compress margins and impact revenue recognition timing.  Factoring in tariffs is challenging due to uncertainties surrounding their exact timing, scope and duration, making forecasting more complex.
• Share-based compensation impact – Tariff-driven economic uncertainty can also affect companies that grant share-based compensation with performance-based vesting conditions. These awards, which rely on achieving targets like profitability or other operating metrics, may require a reversal of the associated compensation expense if it becomes unlikely that these conditions will be met. Share-based compensation agreements may need to be amended given certain metrics or targets are no longer achievable.
• Foreign currency changes – Recent market uncertainty and the implementation of tariffs have led to significant turbulence in foreign currency rates. Companies exposed to imports are expected to have higher costs due to the weakening U.S. dollar. Companies now need to carefully assess how this intensified volatility might influence their financial statements—affecting both the balance sheet and the income statement.  Financial due diligence will need to consider the impact of FX changes, and the ability to hedge such movements, on EBITDA and working capital.
• Financial statement disclosures – If new tariffs are expected to significantly affect a company's operations, they could put liquidity under pressure and, consequently, challenge the company's ability to continue as a “going concern”. The “going concern” assessment is a forward-looking assessment at the time the financial statements are issued. Therefore, if tariffs have been imposed, including after the balance sheet date, they would need to be considered in the “going concern” assessment.