Cost optimisation

There may be an immediate impact in terms of direct increased costs to businesses from the tariff impositions including higher input costs, as well as additional costs caused indirectly through higher inflation or increased employee wage demands. Accountants will need to work with their organisations to develop and implement cost optimisation strategies recognising too that investment is as much of an optimisation strategy as cost cutting.

Working capital management and cash flow

Tariffs are likely to have an immediate impact on working capital management and particularly cash flow with increased input prices and reduced profit margins. Other impacts may include the need to shift to more expensive suppliers, an increased need for re-financing and impacts on working capital through inventory stockpiling or changing supplier or customer terms.

Supply chain analysis

The application of tariffs will disrupt existing company supply chains. Accountants could be required to assess the implications of businesses seeking to shift their sourcing strategies to tariff free or more friendly tariff regimes, assessing the costs of moving production to different locations and additional financial risk analysis, as well as reassessing supplier contract negotiations and due diligence on potential new suppliers.

Financial planning and analysis, forecasting and scenario modelling

Tariffs introduce much more uncertainty in terms of the cost volatility of imported or exported goods, which can be further exacerbated with exchange rate movements. Traditional, static approaches to financial budgets and forecasts will be increasingly exposed; scenario analysis involving the development of multiple scenarios and dynamic modelling and more agile approaches to financial management as market conditions change are needed. Access to the right data and tools is critically important here too.

Risk management and internal control

Tariffs have a profound impact on the risks facing organisations, and accountants are well placed to advise and support on how these can be managed effectively, as well as providing assurance on internal control systems and the quality of crisis resilience and business continuity plans. The risks created from tariffs are potentially wide-ranging, including strategic risks, financial risks, compliance and regulatory risks, behavioural and employee risks through fraudulent activity, supply chain risks, reputational risks and geopolitical risks.

Compliance and regulation changes

Accountants have a key role to play in ensuring organisations comply with new rules and regulations in relation to tariff impositions, otherwise companies can easily incur unnecessary fines and costs. Tariff impositions inevitably lead to increased additional documentation and data requirements, as well as a need to constantly monitor new importing and exporting requirements across different jurisdictions. There will be a greater need for increased training and awareness raising on fast-changing regulation.

Pricing strategies

Tariffs will likely have an impact on organisation pricing strategies through the desires to maintain profit margins given the likely increased costs facing the business. Accountants have an obvious role to play in supporting and understanding the implications of repricing strategies through scenario analysis and forecasting activities to assess customer and demand impacts short and longer term.

Investment reappraisal and corporate restructuring

Accountants could be involved in reappraising existing investment commitments.  Investment reappraisal may also be linked to supply chain reviews, opportunities to fast-track new innovations or sustainability initiatives, or diversification projects to manage risk and value chain stress points. If the impacts of tariffs are very significant, businesses may seek to evaluate counter-opportunities through business restructuring or merger and acquisition activity.

Financial reporting

Tariff changes can lead to a wide-ranging financial and corporate reporting impacts. Accountants will need to play a key role in understanding potential reporting issues such as asset impairments and shifting inventory valuations, investment classifications, transfer pricing, tax accounting implications, suitability of provisions and the validity of estimates given heightened uncertainty, recognition of new financial liabilities, and the recoverability of financial assets as well as recognition of sustainability – related impacts, climate and social impacts.

Auditing

The imposition of tariffs may create a heightened risk of material misstatements in statutory reports due to management bias, manipulation of estimates, or premature revenue recognition. Auditors need to consider the risk of fraud, apply robust analytical procedures to assess the validity of management forecasts and assumptions, and evaluate the tone at the top and management’s incentives. The appropriateness of management’s going concern assumption, particularly in sectors highly exposed to international trade, must be critically assessed.

Tax

Aside from ensuring compliance with all tax compliance requirements, accountants will be called on for tax planning purposes. Tariffs can impact on transfer pricing decisions as businesses seek to reallocate profits across different business jurisdictions from which overall tax burden considerations will need to be evaluated. Tax treaties themselves may be indirectly influenced by shifting tariff arrangements between countries. Tax professionals will need to be working closely with their finance and commercial colleagues to align tax, trading and strategy decisions. ACCA believes tax policy design should meet three key principles – simplicity, certainty, and stability - these three principles can be compromised by tariff imposition.

Sustainability

Tariffs have potential wide-ranging impacts on the sustainability initiatives of organisations, from supply chain disruptions and investment relocation activities as well as broader environmental, social and governance impacts. Accountants will need to play a key role in evaluating both sustainability related risks as well as understanding new value chain opportunities. On the one hand tariffs may encourage more local production and traceability, thereby potentially having a positive impact on externalities; but they may also lead to the production of less sustainable products or increase the costs of clean energy.