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Is Your Finance Team Ready for Economic and Fiscal Policy Challenges?

In today’s world, economic and fiscal policy uncertainty is a global challenge. Navigating the complexities of major disruptive social and political changes requires careful consideration. Businesses should regularly review relevant issues and refine their risk assessments. Centri’s advisors can assist your management team in preparing for and evaluating potential impacts, ensuring your financial statements are filed with robust transparency to enhance shareholder value.

With the inauguration of a new administration in the United States in January 2025, a wide array of announced, speculated, or anticipated changes in the economic and fiscal policies and priorities of the executive and legislative branches of the United States government has been anticipated. Changes, such as the imposition of tariffs and renewed scrutiny over federal spending, along with related freezes or curtailments, can have significant and wide-ranging direct and indirect economic impacts on both domestic and international entities across public and private sectors. While forecasting the magnitude and duration of these impacts can be challenging, it is incumbent upon management teams and their boards to engage in timely discussions and bring in specialists and experts as needed.

The implications of these uncertainties may appear throughout a company’s financial statements and underlying internal processes, such as:

• How accounting estimates are approached by management and discussed in financial statements
• Transactional accounting and disclosure
• Disclosure with respect to an entity’s ability to continue as a going concern
• Subsequent event identification, consideration, and disclosure
• Other disclosures in sections of interim and annual reports outside of the financial statements and footnote disclosures

Accounting Estimate Considerations

The determination of accounting estimates, which rely on an entity’s judgmental assumptions that should be based on reasonable interpretation of conditions or events which are known or knowable at the relevant measurement date, needs to be both reasonable and supportable. “Reasonable and supportable” may require an even higher standard during times of economic uncertainty, as an entity’s ability to exercise sufficient professional judgment that is rooted in a well-controlled and supported estimation process will become more complex when additional variables are introduced. Changes in the United States government’s economic and fiscal policies, specifically the recent emphasis on imposing tariffs as an international policy approach and rigorous scrutiny of federal agencies and departments, along with their related spending, can result in curtailments and freezes, which have implications for certain types of accounting estimates for businesses. These may include, but are not limited to:

• Impairment of indefinite-lived intangible assets and goodwill (ASC 350)
• Impairment of finite-lived intangibles (ASC 350) and long-lived assets (ASC 360), including right-of-use assets (ASC 842)
• Impairment of receivables under ASC 326, Credit Losses, if an entity’s customers and/or borrowers may be potentially impacted by the uncertainty of fiscal and economic policy developments and changes
• Fair Value estimates made in accordance with ASC 820, Fair Value
• Realizability of deferred income tax assets and valuation allowances under ASC 740, Income Taxes

Contractual and Transactional Considerations

Most entities have contractual arrangements that support their business operations and operating results, including revenue generation, sourcing contracts for materials used in production processes to create saleable outputs, or lending and borrowing arrangements used for working capital purposes, among other uses. Entities may potentially experience direct negative economic impacts from these uncertainties or indirectly experience impacts from them through their upstream or downstream business channels, creditors, or supply chain partners. Consequently, certain contracts may become modified in response to businesses adapting to these unprecedented changes in 2025 and beyond. Modifications of contracts are accounting events that trigger evaluation(s) on the modification date(s), depending on the type of contract and the nature of the modification, including but not limited to:

• ASC 606, Revenue from Contracts with Customers – price concessions or other modifications to revenue contracts
• ASC 842, Leases – rent concessions or other modifications to leases
• ASC 470, Debt – debt modifications, which may need to first be evaluated as a troubled debt restructuring

Additionally, for entities with lending and borrowing arrangements, where such entities expect to be significantly impacted by the potential changes underlying these uncertainties, there should be consideration of whether such changes result in violations of existing debt covenants, for example, where contracts include “material adverse event” provisions that may render an outstanding debt immediately callable. Entities should be considering, monitoring, and documenting at each financial reporting date whether any debt covenant violations could have occurred. For any such identified violations, an entity should document its assessment and conclusions with respect to the impact on the classification of the debt as a current or noncurrent liability on its balance sheet as a result of any violation determined to have occurred.

Disclosure Considerations

Going Concern

With respect to required Going Concern disclosures prescribed by ASC 205-40, Presentation and Disclosure: Going Concern, entities at each reporting date must assess their ability to continue as a going concern within twelve (12) months after the financial statements are issued or made available to be issued. An entity is required to disclose if it concludes that there is substantial doubt about its ability to continue as a going concern. If substantial doubt is concluded, the entity must disclose its plans to alleviate that doubt.

As discussed above, the exercise of judgement is prudent here for an entity when assessing and weighing different scenarios in the current environment of uncertainty; for example, less weight may be assigned to scenarios that are predicated upon actions that have only been proposed but not enacted through an executive order or passed into law by the legislative branch, than to scenarios that are predicated upon enacted and promulgated policy changes.

Subsequent Events

Entities do not need to consider every possible future scenario when developing estimates, as this could be unduly burdensome in terms of time or practicality. However, entities should not exclude certain future scenarios from their estimation processes solely due to uncertainty. If these scenarios are considered reasonable and supportable under the standard of “known and knowable” at the estimation date, they should be included. Instead of excluding these scenarios, entities can address the uncertainty by assigning appropriate weight to such reasonable and supportable future scenarios in their estimation processes.

Take tariffs, for example, a policy point that the new administration campaigned on in 2024 and has continued to explore and enact thus far in 2025. Entities may need to consider, and document in their estimation processes, whether economic scenarios that incorporate the effects of direct and indirect U.S.-imposed tariffs and retaliatory tariffs are reasonable and supportable as of any post-inauguration estimation dates. As new policies are announced, or prior policies are potentially announced to be taken in another direction, entities should consider at the time of announcement, whether such announcements change accounting estimates determined based on what an entity deemed to be known and knowable, and reasonable and supportable at prior estimation dates prior to the announcements.

Risks and Uncertainties

ASC 275, Risks and Uncertainties, requires entities to make qualitative disclosures surrounding risks and uncertainties that could have a significant impact on the amounts reported in their financial statements within one (1) year from the date of the financial statements. Entities should evaluate and document its conclusions around necessity of specific explicit disclosure regarding risks and uncertainties related to imposition of tariffs, suspension of or curtailments in government spending, and or other changing economic and fiscal policies and conditions of the United States government, including disclosures for significant and critical accounting estimates and vulnerabilities due to concentrations in vendors or customers.

Management’s Discussion and Analysis (“MD&A”) and Risk Factors

Entities should also consider and document their conclusions on whether there should be additional disclosures provided about the impacts of these changes in their SEC filings under Regulation S-X in both an entity’s disclosures within MD&A and Risk Factors.

How Centri Can Help

Centri can assist companies with the evaluation of the US GAAP accounting and disclosure requirements in all areas throughout its interim and annual financial statements, including those areas where these implications may impact, including:

• Contract modifications executed by either the company or its counter-parties, affecting:
  • Revenue arrangements, price concessions, or other modifications under ASC 606, Revenue from Contracts with Customers, and ASC 340-40, Other Assets and Deferred Costs
  • Rent concessions or other modifications to leases under ASC 842, Leases
  • Debt modifications, which may represent troubled debt restructurings, or extinguishments under ASC 470, Debt
• Impairments of goodwill and intangibles under ASC 350, Intangibles – Goodwill and Other
• Change in estimated useful lives of property, plant, and equipment under ASC 360, Property, Plant and Equipment

At Centri, our SEC Financial Reporting & Compliance and technical accounting experts have the knowledge and expertise to help your business navigate these uncertainties and their impacts on your business and contractual arrangements. 

Even if you’ve done your own impairment testing in years past, there are benefits to seeking outside assistance to properly analyze the appropriate measurement date, evaluate whether any triggering events have been identified during the year prior to the next annual assessment, and determine the fair value of reporting unit(s) relative to the carrying amount. We have an in-depth understanding of the valuation requirements of ASC 350, key areas of concern to your auditors, and the SEC. Centri’s valuation and technical accounting professionals can be a valuable resource to help navigate the financial reporting complexities resulting from these uncertainties and keep you on track with your requirements. Contact us to learn more.

Blake Roberts

Partner | Technical Accounting Practice Leader | CPA

Blake is a Partner at Centri Business Consulting and the leader of the firm’s Technical Accounting Practice. He has more than 18 years of public accounting experience. View Blake Roberts's Full Bio

Joseph Hayes

Senior Manager | CPA

Joseph is a Senior Manager at Centri Business Consulting. He has more than 12 years of experience in public and private accounting. View Joseph Hayes's Full Bio