Navigating Uncertainty: Financial Reporting and Going Concern Implications of Tariffs for Canadian Businesses

March 30, 2025

Sector:

Navigating Tariff Uncertainty: Financial Reporting Implications for Canadian Businesses

As global trade tensions continue to evolve, Canadian businesses are increasingly challenged by the financial reporting implications of tariff uncertainty. While immediate issues such as supply chain disruptions and cost management are urgent, the requirements for financial reporting and disclosure under Canadian GAAP (ASPE or IFRS) are just as critical and must not be overlooked.

In this article, we examine how tariffs affect the assessment of going concern, asset valuation, and disclosure obligations for organizations operating in Canada. Drawing on the expertise of Kreston GTA—a leading mid-sized Canadian accounting firm advising clients across industries—we provide technical guidance on maintaining compliance and transparency in an unpredictable trade environment.

Industries Most Affected by Tariffs

Although nearly every sector is impacted by cross-border trade, certain industries experience heightened vulnerability to tariff-related uncertainty:

Automotive and Manufacturing

Heavily dependent on just-in-time parts sourced from the U.S., Mexico, and China, these sectors are now grappling with rising costs and the need to renegotiate supplier contracts. This directly affects cost of goods sold and inventory valuation. For more on our work in this sector, explore our manufacturing industry services.

Agriculture and Food Processing

Canadian exporters in agriculture face reduced demand abroad and fluctuating input prices, leading to challenges in forecasting and inventory valuation. These obstacles are further compounded by regulatory changes and global market shifts.

Technology and Electronics

With key components sourced from Asia now subject to cost increases and delays, pricing strategies and margins are directly impacted. This sector must remain agile to mitigate tariff-driven shifts in market dynamics.

Retail and Consumer Goods

Retailers, still stabilizing post-pandemic, now contend with new tariffs that create additional headwinds, affecting store-level profitability and inventory turnover. The ripple effect is particularly pronounced in financial reporting and scenario planning.

Financial Reporting Challenges: Disclosure and Judgement

When preparing financial statements, businesses must carefully consider the implications of tariffs. The mere announcement of tariffs—even if not yet enacted—may trigger disclosure requirements under IAS 10 (Events After the Reporting Period) or similar ASPE guidance.

Key Areas Requiring Professional Judgment

• Asset Impairments: Are inventories now carried above recoverable value due to reduced demand or elevated costs?
• Revenue Forecasts: Have customer orders declined, or has pricing power weakened, necessitating a reassessment of expected revenues?
• Cost Structures: Have gross margins narrowed significantly, requiring additional commentary in the MD&A or footnotes?

CPA Ontario emphasizes that these assessments must be approached with heightened professional skepticism and meticulously documented, particularly when the full impact of tariffs is uncertain. For more information on financial reporting, visit our financial statement audit services.

Going Concern: The Silent Risk

Perhaps the most significant technical risk lies in the assessment of going concern. Entities with thin margins or restricted liquidity may find that tariffs threaten their financial stability. This is especially relevant for SMEs reliant on U.S. or Chinese imports who lack pricing flexibility.

Technical Aspects of Going Concern Assessment

• Incorporate geopolitical and trade policy considerations into forecasts.
• Update cash flow projections and perform debt covenant testing.
• Engage legal counsel or lenders as needed to validate critical assumptions.

If management determines that material uncertainties exist but going concern remains appropriate, these must be disclosed transparently in the financial statements. Auditors may need to include an Emphasis of Matter or Material Uncertainty Related to Going Concern paragraph in their report.

The Cost of Uncertainty

Beyond technical accounting, tariff uncertainty creates a challenging environment for financial planning. This impairs access to capital, reduces investor confidence, and makes scenario planning essential. While large organizations may have robust internal controls, many smaller businesses lack the resources to respond proactively to the volatility introduced by shifting trade barriers.

How Kreston GTA Can Help Canadian Businesses

At Kreston GTA, our team of Chartered Professional Accountants has deep expertise in supporting clients through changing economic and regulatory landscapes. Whether you require assistance with impairment testing, going concern evaluations, or industry-specific disclosures, we deliver tailored solutions for your organization’s needs.

Our Value-Added Service Offerings

• Proactive audit planning that considers sector-specific tariff risks
• Guidance on transparent, decision-useful financial disclosures
• Financial modeling to support management’s going concern assessment
• Support in communication with stakeholders, including lenders and boards

Learn more about our audit and assurance services or contact us today to discuss your unique financial reporting challenges in the face of tariff uncertainty.

Frequently Asked Questions

1. How do tariffs impact Canadian financial reporting requirements?
Tariffs can affect asset valuations, revenue forecasts, and disclosure obligations under Canadian GAAP (ASPE or IFRS), requiring careful professional judgment and timely updates to financial statements.

2. Which industries in Canada are most affected by tariff uncertainty?
Industries such as automotive, manufacturing, agriculture, food processing, technology, electronics, and retail are most vulnerable to the financial reporting impacts of tariffs.

3. What are the main disclosure requirements triggered by new tariffs?
New or announced tariffs may require disclosure as subsequent events or uncertainties, particularly under IAS 10 or ASPE, and may necessitate updates to MD&A or footnotes.

4. How should companies assess going concern in light of tariff risks?
Companies must incorporate geopolitical factors and revised cash flow forecasts, and, if necessary, engage legal counsel or lenders to validate assumptions surrounding business continuity.

5. How can Kreston GTA support businesses facing tariff-related financial reporting challenges?
Kreston GTA offers expert audit planning, financial modeling, and advisory support to ensure compliance and transparent reporting in sectors heavily affected by tariffs.