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

March 30, 2025

Sector:

As global trade tensions continue to evolve, Canadian businesses find themselves grappling with the financial reporting implications of tariff uncertainty. While many companies are focused on immediate operational concerns—such as supply chain adjustments and cost management—the financial reporting and disclosure requirements under Canadian GAAP (ASPE or IFRS) demand equal attention.

In particular, tariffs can have significant impacts on the assessment of going concern, asset valuation, and required disclosures. As a mid-sized Canadian accounting firm working with clients across sectors, Kreston GTA is seeing firsthand how these pressures are shaping year-end audits and interim reporting in 2025.

Industries Most Affected by Tariffs

While nearly every sector is touched by cross-border trade, certain industries are especially vulnerable to tariff-related uncertainty:

• Automotive and Manufacturing: Heavily reliant on just-in-time parts imported from the U.S., Mexico, and China, these sectors have faced rising costs and the need to renegotiate supplier contracts.
• Agriculture and Food Processing: Canadian exporters are facing reduced demand abroad and fluctuating input costs, leading to challenges in forecasting and inventory valuation.
• Technology and Electronics: Components sourced from Asia are now subject to cost increases and delays, complicating pricing strategies and impacting margins.
• Retail and Consumer Goods: With supply chains still rebalancing post-COVID, new tariffs create additional headwinds that may affect store-level profitability and inventory turnover.

These impacts, in turn, present complex challenges in the preparation of financial statements, particularly in the areas of disclosure and going concern.

Financial Reporting Challenges: Disclosure and Judgement

Businesses must carefully consider the implications of tariffs when preparing their financial statements. The announcement or implementation of tariffs—even if not yet enacted—may require disclosure under IAS 10 (Events After the Reporting Period) or similar ASPE guidance.

Entities must also exercise significant judgment in evaluating the following:

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

The guidance from CPA Ontario highlights that these assessments must be made with heightened professional skepticism and clear documentation, especially when the full impact of tariffs remains unknown.

Going Concern: The Silent Risk

Perhaps the most significant risk lies in the going concern assessment. For entities operating with thin margins or limited liquidity, tariffs can tip the balance toward financial distress. This is particularly relevant for small to mid-sized manufacturers who rely on U.S. or Chinese imports and have limited ability to pass costs onto customers.

Entities must incorporate geopolitical factors—like trade policy—in their going concern assessment. This requires updated cash flow forecasting, debt covenant testing, and in some cases, engagement with legal counsel or lenders to validate assumptions.

If management concludes that material uncertainties exist, but going concern is still appropriate, the financial statements must disclose these uncertainties transparently. Auditors, in turn, may be required to include an Emphasis of Matter or Material Uncertainty Related to Going Concern paragraph in the auditor’s report.

The Cost of Uncertainty

Beyond the technical accounting requirements, tariffs contribute to an environment of pervasive uncertainty. This uncertainty makes financial planning more difficult, impairs access to capital, and reduces stakeholder confidence. While some organizations have robust scenario planning processes, many smaller businesses lack the internal resources to address these challenges effectively.

How Kreston GTA Can Help

At Kreston GTA, we understand the pressure financial reporting teams are under in this dynamic environment. Whether you need assistance with impairment testing, going concern evaluations, or clear disclosures tailored to your industry, our team of experienced audit and advisory professionals can help.

We offer:

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