US Tariffs: Accounting implications under UK GAAP and IFRS

On Friday 8 May 2025, a UK - US trade deal was announced. This deal will increase access to the UK market for a limited range of US goods, including beef and ethanol, and change the 25% US import tariffs on up to 100,000 UK made cars to match the general baseline 10% US import tariffs initially announced on 2 April 2025.

New US import tariffs, and their ongoing amendments have created significant global economic uncertainty, reduced consumer confidence, and may have far reaching consequences for many businesses across the supply chain, including those in the UK that don’t directly export to the USA.

This article aims to highlight some of the key financial reporting implications of new trade deals and tariffs for UK businesses to consider when preparing financial statements.

What are tariffs?

In summary, tariffs are taxes imposed by governments on imported goods. Where they apply, such taxes must be paid by the importer bringing foreign goods into the jurisdiction in question. Tariffs can vary based on factors such as the type of goods, their country of origin and any relevant trade agreements.

What areas are most likely to be impacted in the financial statements?

Going concern

Management must assess going concern, and their forecasts need to reflect the current macro-economic factors at the time of approving the financial statements. The impact of the recently announced changes therefore needs to be considered irrespective of the year-end.

Some industries will be impacted more than others (such as those involved in the supply chain of vehicle exports to the USA), as well as those industries who will now be able to acquire US goods under the trade deal announced on 8 May 2025, eg beef and ethanol.

Management should consider the potential impact of trade deals and tariff changes and the business’s response when generating a range of likely events and outcomes to build into forecasts.

For example, if there are pauses or slow-down in exports in the supply chain, there may be an increased risk of non-compliance with bank covenants, which could impact the going concern assessment.

Given the increased level of uncertainty as countries each negotiate their positions, it is expected that more ‘what if scenarios’, and sensitivity analysis will be required to support the going concern assessment as well as more material uncertainties being identified and disclosed. This applies whether the business is audited or not.

The February 2025 FRC going concern publication offers detailed guidance on the depth of disclosures required under both IFRS and UK GAAP.

Asset values

Adjustments to expected future cash flows may result in changes to asset carrying values. Things to consider include:

• Potential impairments of goodwill, investments, intangibles or property, plant and equipment.
• Implications for recoverability of accounts receivable and inventory.
• The need to reconsider the recognition of deferred tax assets.

Some entities may benefit from the new trade deal and tariffs and therefore may see reduced or no impairments, however all entities should assess the impact on their asset values.

Whether or not expected future cash flows should be adjusted depends on whether the balance sheet date falls before or after the announcement of the tariffs, as impairment reviews should reflect the position at the balance sheet date. As a result, forecasts used for impairment testing may differ from those used in going concern assessments.

Events after the balance sheet date

Management must determine whether the US Tariff announcements are adjusting or non-adjusting events under applicable GAAP (eg per IAS 10, or FRS 102 section 32). Adjusting events provide evidence of conditions that existed at the reporting date while non-adjusting events (requiring disclosure only) indicate conditions that arose after the reporting date.

Revenue recognition

While the revenue recognition of UK entities may not be directly impacted by the tariffs, market adjustments may result in contract amendments or adjustments to variable consideration which should be accounted for in line with applicable GAAP (eg IFRS 15, or FRS 102 Section 23). Similarly, goods which were in transit when the announcement was made may have been returned.

Cost capitalisation

UK entities may face some increased costs of purchasing assets subject to tariffs (eg goods made in USA using materials from outside the USA), or due to global suppliers changing their pricing structure. The additional costs arising from new tariffs are directly attributable costs which should be included in the cost of the purchased asset.

Share-based payments

Share-based payment awards should be kept under review to ensure they still meet the commercial objectives. eg if share options are underwater, do they incentivise and motivate staff? Any changes to the options, such as reducing the exercise price, will be accounted for in the period the change is enacted, and may result in an acceleration of the charge. Therefore, the accounting impact of a cancellation or modification should be modelled before being enacted, and may be a disclosable post balance sheet event.

Significant accounting estimates and judgements

Where significant estimates or judgements have been made appropriate disclosure will be required. This is a point that the FRC emphasised in their February 2025 Guidance on the Going Concern Basis of Accounting and Related Reporting.

Narrative reporting

Narrative reporting must reflect the relevant impacts of the trade deals and tariffs including in the going concern, viability and principal risks and uncertainty disclosures.

Particular care should be taken to ensure the annual report and financial statements are internally consistent, especially where parts of the document were drafted before the trade deal and tariff announcements, or are being created by different sub-teams.

How can we help?

To explore how we can support your finance team understand the impact of the changes on your financial statements, or more generally across your business, please get in touch with your usual RSM contact.

Further information 

You can keep up to date with the economic impact of trade deals and tariffs in the weekly Economic Voice from our UK chief economist, Tom Pugh.