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The War in Ukraine Raises Accounting and Disclosure Challenges

The Russian invasion of Ukraine has resulted in massive human suffering and displacement and physical destruction. It has also raised accounting and financial reporting issues for companies that operate in Ukraine, Russia, and neighboring countries. In a Financial Reporting Alert, Financial Reporting Considerations Arising From the Russia-Ukraine War, Deloitte catalogues potential reporting impacts of the Russia-Ukraine war and discusses how they may affect public companies. Examples of issues that Deloitte believes are among the most pervasive and challenging include:

  • Supply-chain disruption. Supply chain challenges may require entities to review their costs associated with accounting for inventory and revenue recognition practices.

  • Preparation of forward-looking cash flow estimates. The range of uncertainty associated with the war’s possible outcomes may influence an entity’s long-term operating plan and related financial statement estimates in the affected countries.

  • Recoverability and impairment of assets. Uncertainty associated with forward-looking information may affect the performance of the impairment tests for long-lived assets, intangibles, and goodwill.

  • Loss of control, the ability to exercise significant influence, or cessation of operations. Companies may need to reconsider their accounting conclusions related to consolidation or equity method accounting.

  • Foreign currency. As a result of sanctions against Russia, foreign currency restrictions, the development of multiple exchange rates, or high inflation could arise in certain countries. These events may affect financial statement recognition and measurement.

  • Subsequent events. It may be challenging to distinguish between recognized and unrecognized subsequent events in an extremely volatile environment in which major developments occur daily.

  • Going concern. Some entities may need to consider whether they can continue as a going concern within one year after interim or annual financial statement issuance date.

Deloitte’s Alert addresses these and other reporting issues in detail. The Alert also discusses internal control considerations arising from the Russia-Ukraine conflict.

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