Acra wants boards to scrutinise the numbers ahead of FY2025 reporting

[SINGAPORE] Company directors should exercise “heightened vigilance” when preparing their FY2025 financial statements amid global economic uncertainties caused by trade and tariff-related risks, said the Accounting and Corporate Regulatory Authority (Acra).

In its annual financial reporting practice guidelines released recently, the regulator pointed to several review areas and urged directors – especially audit committee members – to engage their external auditors “early in the audit process”. It added that the additional focus areas include tariff-related issues such as impairment risks, cost and expenditure assumptions and customer creditworthiness.

Acra noted that the global economy still appears “broadly resilient”, but that early signs of weakness are emerging. Labour markets in advanced economies are softening, and Asia’s export growth has slowed following the US’ implementation and escalation of tariffs in August.

The regulator said in its guidelines: “These uncertainties directly affect financial reporting as changes in tariff policies affect measurement and timing of recognition of revenue amounts, inventory valuations and foreign exchange exposures.

“The moderation in economic growth and evolving trade dynamics may also affect supply-chain assumptions and asset valuations.”

Tariff-specific considerations

First, directors should assess whether significant tariff exposure – resulting in the inability to pass on higher costs or the need to shift supply chains, for instance – suggests that related non-financial assets may be impaired.

Non-financial assets include property, plant and equipment, and intangible assets such as licences and trademarks.

Second, they should use probability-weighted scenarios that capture different outcomes for tariff duration, scope and escalation. Assumptions for production costs, sales volumes and capital expenditure should be updated accordingly.

Third, tariff-driven restructuring such as facility relocations or closures may require accelerated depreciation or impairment to reflect shortened useful lives.

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Fourth, directors should factor tariff-related disruptions into forward-looking scenarios, including how trade policy changes may affect borrowers, industries and overall economic conditions.

Fifth, they should assess whether customers in tariff-exposed industries face higher credit risk from margin pressures, weaker demand or liquidity strains that may affect repayment ability.

Sixth, directors should check whether credit exposure is concentrated in regions or industries that are highly vulnerable to trade disruptions, and whether this requires higher provisions or additional disclosures.

Other guidelines cover whether tariff-driven cost increases should lead to higher onerous contract provisions, and if trade disruptions may trigger force majeure clauses or other contractual provisions that could result in cancellations. Onerous contract provisions arise when unavoidable costs exceed expected economic benefits; force majeure refers to clauses that excuse parties from contractual obligations due to extraordinary events beyond their control.