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03/06/2025
Financial reporting update: Accounting for impacts of tariff ruling, refunds
Reporting entities should not delay in assessing the impacts of federal tariffs on their operations. Explore our list of financial statement considerations.
Update: On Feb. 20, 2026, the Supreme Court struck down the 2025 tariffs imposed under the IEEPA, opening the door for companies to obtain refunds for these tariffs paid. Read about the tariff ruling and how companies can prepare to seek refunds – or reach out to discuss your best next steps.
In early March, U.S. Customs and Border Protection (CBP) announced a proposed process for submitting requests for refunds of the additional tariffs imposed under IEEPA that the U.S. Supreme Court struck down(Opens a new window)(Opens a new window)(Opens a new window)(Opens a new window) in February. As of the date of this article, the proposed refund process is not yet finalized. This may create uncertainty for reporting entities as they navigate these significant trade developments.
Further adding to that uncertainty, in the absence of a special court directive on the refund process and/or finalized CBP guidance, the preexisting tariff dispute rules may continue to apply. Accordingly, eligible importers seeking refunds may need to dispute the tariffs they paid with the CBP.
Finally, the current expectation is that the CBP is expected to avail themselves of a review period to ensure no violation of other customs laws and that no other tariffs, taxes, or fees are owed irrespective of those assessed under IEEPA.
Reporting entities that are issuing financial statements are encouraged to consider the financial reporting impact of these trade developments. Financial statements should provide stakeholders with timely, transparent, and decision-useful information, including information about current trends and conditions that may inform predictions about an entity’s future cash flows, operating results, and financial position.
Assessing and reporting impacts to your reporting entity
Given the uncertainty and potential complexities around claims for IEEPA refunds, we generally believe that the realization thereof represent gain contingencies (ASC 450-30). A contingency that might result in a gain should generally not be reflected in the financial statements until it has been resolved. In the case of an IEEPA refund claim, this would generally be when the refund is approved (i.e., represents an unconditional right to receive cash) or when it is received. This accounting approach may be the most practical and operable for many reporting entities.
Reporting entities may seek to apply other guidance, such as analogizing to the guidance for government assistance, the contingent contribution guidance included within not-for-profit subtopics, or government grant accounting under International Accounting Standards. However, a reporting entity should have sufficient appropriate support and a solid basis for recognizing a refund for IEEPA claims filed prior to CBP’s approval or remittance thereof.
Reporting entities should continue to monitor the situation. Additional clarity should manifest itself as the refund claim process ramps up and/or additional guidance is provided.
The following discussion and list of financial statement considerations are intended to serve as a starting point for management teams. They are not all-encompassing, and reporting entities should consider the potential impact these changes could have on their organizations given their respective facts, circumstances, operating environments, and level of materiality.
SEC Filers
Reporting entities that file with the SEC (e.g., Forms 10-Q and 10-K) should consider whether their filings have appropriate information that prevents them from being misleading. Areas to consider include reference to the potential impact of the Supreme Court’s decision around IEEPA and expected refund claims. Such references may be appropriate within the reporting entity’s financial statement information (i.e., Item 8 of Form 10-K and Item 1 of Form 10-Q) and elsewhere such as within the reporting entity’s Risk Factors and Management’s Discussion and Analysis (MD&A).
Events occurring after the balance sheet date, but before the financial statements are issued or become available to be issued
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Consider including disclosures of subsequent events in the footnotes to the financial statements (in accordance with ASC Topic 855, Subsequent Events). For example, if a reporting entity has submitted a refund claim and, based on current customs law, expects to receive such refund, a subsequent events disclosure may be included with respect thereto. However, subsequent events disclosures are often focused on those events occurring after the balance sheet date but before the date when the financial statements are issued or become available to be issued that provide information about circumstances such as losses, uses of cash, etc. Generally, the filing of a refund claim subsequent to the balance sheet date would represent a non-recognized subsequent event. A potential refund claim may be a gain contingency in the reporting period in which the claim is submitted to CBP. Reporting entities should also consider whether there is any requirement (e.g., contractual or otherwise) to remit all or a portion of such refund, when and if received, to the customers to whom it ultimately resold those imports on which IEEPA duties had been assessed and paid. Management teams should consider discussing subsequent events disclosures with their accountants.
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When evaluating whether there is substantial doubt about the reporting entity’s ability to continue as a going concern, management may seek to consider the impact of expected IEEPA refunds. However, given the uncertainties around refund claims, care should be taken to understand whether there is sufficient and appropriate support to include realization of the refund in management’s projections used in a going concern assessment. In addition to uncertainties around refund claim protocols, refunds are expected to be subjected to a review period to ensure no violation of other customs laws and that no other duties, taxes, or fees are owed irrespective of assessed IEEPA.
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Reporting entities should consider whether additional risk disclosures are appropriate. Transparent risks and uncertainties disclosures may also serve as an effective supplement to other financial statement information.
Events occurring on or before the balance sheet date (i.e., within the reporting period)
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Reporting entities with foreign operations or exposure to foreign currency risk (e.g., via exchange rate fluctuations) should understand the sources of those risks and remain cognizant about the potential for market volatility. There are specific accounting and financial reporting requirements for reporting entities with exposure to countries that are highly inflationary.
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Reporting entities should consider whether additional risk disclosures are appropriate. See “Concentrations, risks, and uncertainties" above for further discussion.
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Reporting entities may consider whether tax planning is appropriate when a refund is expected. There may be planning considerations that, if implemented, could impact the reporting entity’s deferred taxes and income tax provision. Furthermore, reporting entities should continue to stay abreast of any changes to federal tax law under the current administration, which could also trigger changes in state and local tax laws. Changes in tax rates have an impact on the carrying value of deferred tax assets, valuation allowances thereon, and the carrying value of deferred tax liabilities when such rate changes take effect. In addition, reporting entities should consider the impact of tax law changes on expected reversals of temporary differences and uncertain tax positions.
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The impact of governmental actions should be considered by management when assessing a reporting entity’s ability to continue as a going concern. See “Going concern" above for further discussion.
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Hedging instruments currently in place (whether they represent economic hedges or have been designated for accounting purposes) may not be structured to accommodate cost increases caused by tariffs. Reporting entities may, therefore, seek to modify existing hedge positions. Furthermore, transactions designated as hedges for accounting purposes should be considered carefully when evaluating whether they continue to be highly effective. Also worth noting is that market disruptions and counterparty credit risk could have an impact on hedge effectiveness. In addition, changes in the likelihood of a forecasted transaction should be contemplated when assessing the effectiveness of designated hedges.
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The carrying value of a reporting entity’s inventory and supplies, when they consist of imported finished goods or raw materials needed to finish those goods, may be higher due to customs duties incurred to bring them to their existing condition and location. Reporting entities should consider whether refunds, when and if received, should be recognized as a reduction of recognized cost of inventory on-hand (i.e., units of inventory for which IEEPA duties have been assessed). To the extent a refund is attributable to inventory that has already been sold, reporting entities should consider how refunds received from CBP should be presented in their statements of operations. For example, a reporting entity may consider whether the portion of a refund of IEEPA duties attributable to inventory sold should be recognized as a reduction of cost of goods in the period received or within other income. Further, a reporting entity should also consider whether their own customers are expected to seek refunds. Appropriate financial statement disclosure should be made to provide decision-useful information that will help users understand period fluctuations in gross profit margins and profitability. Higher inventory costs incurred prior to the Supreme Court decision and for which a refund has not been received could also have impairment-related effects. For example, reporting entities should consider the impact, if any, of the Court’s decision on selling prices when measuring inventory at the lower of cost or net realizable value (or, in cases where the retail method is applied, market) at each balance sheet date. Finally, reporting entities that are considering switching from first-in, first-out (FIFO) to another inventory costing method such as last-in, first-out (LIFO) should understand the potential benefits of making such a change for accounting and tax purposes.
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A reporting entity should understand the impact that higher costs driven by import duties may have had when evaluating assets for impairment. To the extent an asset group is not recoverable, a reporting entity would measure the fair value thereof when determining whether there has been an impairment. Management may need to make an accounting policy election as to the classification of refunds received for IEEPA duties when they relate to imported costs recognized within property, plant, and equipment and intangibles. This may be a conversation that management teams should consider having with their accountants.
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Consider including disclosures of subsequent events in the notes to the financial statements. See “Subsequent events" above for further discussion.
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Any advice contained in this communication, including attachments and enclosures, is not intended as a thorough, in-depth analysis of specific issues. Nor is it sufficient to avoid tax-related penalties. This has been prepared for information purposes and general guidance only and does not constitute legal or professional advice. You should not act upon the information contained in this publication without obtaining specific professional advice specific to, among other things, your individual facts, circumstances and jurisdiction. No representation or warranty (express or implied) is made as to the accuracy or completeness of the information contained in this publication, and CohnReznick, its partners, employees and agents accept no liability, and disclaim all responsibility, for the consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it.