Thought Leadership, Research & CPA Spotlights

Potential Impacts of Trade Relations with the United States on the Financial Statements of Private Enterprises

April 24, 2025

Editor’s Note

The ongoing global trade turmoil has introduced a new wave of economic uncertainty for private enterprises. The tariffs imposed by the U.S. administration, has created a complex and challenging business environment. This non-authoritative guidance, based on an article originally drafted by the Accounting Standards for Private Enterprises (ASPE) technical working group and the professional practice team of the Ordre Des Comptables Professionnels Agréés Du Québec, provides CPAs with insight into the potential impacts of these changing trade conditions on the financial statements of private enterprises.

It explores how tariffs could affect sales, purchases, and profit margins, as well as the broader implications for financial reporting under Accounting Standards for Private Enterprises (ASPE).

In this period of uncertainty, businesses are looking to CPAs for professional judgment and technical expertise. Understanding how this unfolding trade conflict could impact businesses and capital markets is essential.

For more information on how CPAs can meet their regulatory requirements, please visit CPA Ontario’s Guidance on Compliance Hub.

This document provides an overview of certain ASPE requirements whose application may be particularly impacted in the current context. It does not cover all topics or their full scope, nor does it account for the continuously evolving circumstances and company-specific contexts. CPAs should always refer to the CPA Canada Handbook – Accounting for authoritative requirements.

Background

The U.S. administration has imposed global tariffs on imports, including imports from Canada. In response, Canada’s federal and provincial governments have announced their own retaliatory measures. This escalating trade conflict could have potential negative consequences for businesses impacting financial statements prepared in accordance with Accounting Standards for Private Enterprises (ASPE). These include but are not limited to:

This is a table associated with the information above

Sales	Tariffs could increase the cost of Canadian exports to the United States, making some Canadian products less attractive in American markets.	Sales declines, cancellations of sales contracts, inventory obsolescence, reduced production, underutilization of buildings and equipment, layoffs, and operational restructurings.
Purchases	Retaliatory tariffs could increase the cost of importing goods into Canada from the United States.	Increased production costs, termination of purchase contracts, sales price increases to preserve profit margins, and similar impacts as those previously mentioned regarding sales.
Profit Margins	Businesses may experience a significant reduction in profit margins, potentially to the point of loss, even as they absorb some of the increased costs associated with tariffs.	Reduced profitability, potential financial hardships and impact on value of the business.

In times of uncertainty, application of professional standards can become increasingly complex, making the exercise of professional judgment even more critical. CPAs must ensure financial statements and disclosures are accurately prepared and thoroughly documented in accordance with ASPE.

Let’s examine the key financial statement considerations and the relevant sections of ASPE in light of the potential consequences of tariffs.

Potential Impacts on Financial Statements and Disclosures Prepared Under ASPE

Is there a going concern issue?
Are any assets impaired?
Should termination benefits be recognized?
Are changes to estimates required?
Are there contingencies to recognize or disclose?
Have any debt covenants been breached?
Are there subsequent events to consider?
What are other financial statement considerations?

Is there a going concern issue?

If sales decline or key sales contracts are cancelled due to new tariff measures and profitability is affected, a company’s ability to continue as a going concern may be impacted. Section 1400, General Standards of Financial Statement Presentation, requires management to make an assessment of the company’s ability to continue as a going concern when preparing financial statements. This may include assessing whether the company will have sufficient funds from operations or access to financing to help fund its operations.

To assess whether the going concern assumption is appropriate, management considers all available information about the future which should include, but not be limited to, 12 months from the balance sheet date. Section 1400 provides guidance on the factors to consider when assessing whether the going concern assumption is appropriate.

In the current environment, management should consider adjusting their forecasts to reflect the impacts of tariffs and other economic measures, including potential price adjustments and increased costs. Management could use multiple scenarios or sensitivity analyses to prepare these forecasts.

When it is still appropriate to base the financial statements on the going concern assumption, but there are material uncertainties related to events or conditions that may cast significant doubt on the company's ability to continue as a going concern, a note must be included in the financial statements to indicate these uncertainties.

If it is determined that the company is no longer a going concern, the financial statements should not be prepared on a going concern basis. When this occurs, a note must be included that the financial statements are not prepared on a going concern basis, together with the basis on which the financial statements are prepared and the reason why the company is not regarded as a going concern.

Are any assets impaired?

If new tariff measures negatively impact sales and profitability, this could impact the value and the recoverability of assets and therefore may make it necessary for management to determine if any assets maybe impaired.

Several ASPE standards include requirements related to the impairment or write-down (e.g. inventory) or loss of value of assets. Each has specific requirements on when to test for impairment. Several of them refer to indications of impairment, for example significant adverse changes in the market, economic, or legal environment.

1591, Subsidiaries

3031, Inventories

3041, Agriculture

3051, Investments

3056, Interests in Joint Arrangements

3063, Impairment of Long-Lived Assets

3064, Goodwill and Intangible Assets

3065, Leases

3465, Income Taxes

3856, Financial Instruments

AcG-20, Customer Accounting for Cloud Computing Arrangement

The primary objective is to ensure an asset is not overvalued, regardless of the standard applied.

Should termination benefits be recognized?

New tariffs may cause disruptions in supply chains or financial difficulties for companies, potentially leading to layoffs or contract terminations. The current environment can affect the timing and nature of termination benefit obligations. The recognition of liability and expense for termination benefits depend on the specific circumstances, including the timing and requirements outlined under Section 3462, Employee Future Benefits.

Types of Termination Benefits and Recognition Criteria

This is a table associated with the information above

Special termination benefits for voluntary terminations.	When employees accept the offer, and the amount can be reasonably estimated.
Special termination benefits for involuntary terminations.	In the period when: (a) management has approved and committed the company to a termination plan and established the benefits employees will receive; (b) the termination plan is communicated in sufficient detail to employees to enable them to determine the type and amount of benefits they will receive; (c) the plan specifically identifies the target level of reduction in the number of employees, their job classifications or functions, and their locations; and (d) the period of time to complete the plan indicates that significant changes to the plan are not likely.
Contractual termination benefits that the company is required to pay under the existing terms of a benefit plan.	When it is probable that employees will be entitled to benefits and the amount involved can be reasonably estimated.

Are changes to estimates required?

There are several items in the financial statements that cannot be measured with precision and can only be estimated as a result of uncertainties inherent in business activities.

An estimate may need revision if changes occur in the circumstances in which the estimate was based or as a result of new information or more experience. The current environment could lead to changes in accounting estimates, resulting in changes in the carrying amount of assets or liabilities. A company must provide information about the nature and amount of a change in an accounting estimate that has an effect in the current period in accordance with Section 1506, Accounting Changes. This disclosure is important as it helps users of the financial statements understand the impact of the change for the period considered.

The following are examples of estimates that could require reassessment:

impairment of accounts receivable and other financial assets (Section 3856);
net realizable value of inventories and agricultural inventories (Sections 3031 and 3041);
work in progress, total expected revenues, total expected costs, and the degree of completion of contracts recognized using the percentage of completion method (Section 3400);
investments in subsidiaries and subject to significant influence, interests in joint arrangements, and portfolio investments measured at cost or amortized cost (Sections 1591, 3051, 3056, and 3856);
useful life and value of tangible capital assets (property, plant and equipment), productive biological assets, and intangible assets (including customer lists, patents, and capitalized development costs) (Sections 3041, 3061, 3063, and 3064);
goodwill (Section 3064);
warranty provisions (e.g., related to purchases of components from new suppliers);
obligations related to the retirement of tangible long-lived assets (Section 3110).

Are there contingencies to recognize or disclose?

Within the current context, new tariffs may result in contract terminations, breaches, or disputes over rates, potentially giving rise to contingencies.

Section 3290, Contingencies, requires the amount of a contingent loss to be accrued in the financial statements when it is likely that a future event will confirm that an asset was impaired, or a liability was incurred at the financial statement date; and the amount of the loss can be reasonably estimated.

If a contingent loss is not accrued, disclosure may still be required. The existence of a contingent loss at the financial statement date must be disclosed in the notes to the financial statements when:

the occurrence of the confirming future event is likely but the amount of the loss cannot be reasonably estimated;
the occurrence of the confirming future event is likely and an accrual has been made but there exists an exposure to loss in excess of the amount accrued; or
the occurrence of the confirming future event is not determinable.

At a minimum, the information provided in the notes must include the nature of the contingency; an estimate of the amount of the contingent loss, or a statement that such an estimate cannot be made; and the disclosure, if applicable, of any exposure to loss in excess of the amount accrued.

Contingent gains are never accrued in the financial statements under ASPE. When it is likely that a future event will confirm that an asset had been acquired or a liability reduced at the date of the financial statements, the existence of a contingent gain shall be disclosed in notes to the financial statements. At a minimum disclosure should include the nature of contingency; and an estimate of the amount of the contingent gain or a statement that such an estimate cannot be made.

It is necessary to exercise particular care in the disclosure of contingent gains to avoid a misleading implication as to the likelihood of realization. It would not be appropriate to disclosure an existence of a contingent gain that is unlikely to be realized.

Have any debt covenants been breached?

As private enterprises face liquidity challenges during this period of uncertainty, some may need to obtain waivers for debt covenants or renegotiate existing terms. Such changes may have an impact on the classification and measurement of financial liabilities presented on the balance sheet. This could include reclassification of long-term debt to current. Non-current classification of debt is based on facts existing at the balance sheet date rather than on expectations regarding future refinancing or renegotiation.

Under Section 1510, Current Assets and Liabilities, long-term debt with a measurable covenant violation is reclassified as a current liability unless:

the creditor has waived in writing or has subsequently lost, the right, arising from the covenant violation at the balance sheet date, to demand repayment for a period of more than one year from the balance sheet date; or
the debt agreement contains a grace period during which the debtor can remedy the default, and the parties have made contractual arrangements ensuring that the debtor will remedy the default within this grace period.

Additionally, at the balance sheet date, it must be unlikely that a violation of the debt covenant will occur within one year of the balance sheet date that would give the creditor the right to demand repayment at a future compliance date.

Are there subsequent events to consider?

Subsequent events are events that occur after the financial statement date but before the financial statements are issued. Section 3820, Subsequent Events, provides guidance to determine whether adjustments are required to the financial statements and the types of disclosures necessary.

Financial statements must be adjusted when events occurring between the date of the financial statements and the date of their completion provide additional evidence relating to conditions that existed at the date of the financial statements.

Information must be disclosed in the notes about events that occurred between the date of the financial statements and the date of their completion that do not relate to the conditions that existed at the date of the financial statements, but will cause significant changes to assets or liabilities in the subsequent period or will, or may have, a significant effect on the future operations of the company.

This information must include a description of the nature of the event and an estimate of its financial impact, when practicable; otherwise, a statement indicating that such an estimate cannot be made. In some cases, providing an estimate of the financial impact could be difficult but not necessarily impossible. This may also depend on the time elapsed between the financial statement date and the date of their completion.

The date of a government announcement with the potential of a material impact is part of the information that should be considered to establish whether or not a situation existed at the date of the financial statement.

The table below discusses the treatment of subsequent events on financial statements for fiscal years ended December 31, 2024:

Illustrative examples of note disclosures relating to events arising after the date of the financial statements are provided in the Appendix.

What are other financial statement considerations?

While the above aspects of financial reporting are likely the most common considerations for private enterprises in this current environment, below are other sections that may apply:

Disclosure of material measurement uncertainty

(Section 1508, Measurement Uncertainty)

Within the current environment, management should question whether the financial statements include appropriate disclosure of material uncertainties in accordance with Section 1508. For example, when an asset's measurement involves material uncertainty, disclosure of this information is essential, whether or not the asset has been impaired.

The nature of a measurement uncertainty about the amount at which an item is recognized in the financial statements must be disclosed when that uncertainty is material. The disclosure must include a description of the circumstances giving rise to the uncertainty; and relevant information about the anticipated resolution of the uncertainty.

Additionally, when it is reasonably possible that the amount recognized in the financial statements could change by a material amount in the near term, the extent of the uncertainty must be disclosed.

When disclosure of material uncertainty is made, the recognized amount of the item subject to measurement uncertainty must be disclosed, except when disclosure of the amount would have a significant adverse effect on the company. When the recognized amount is not disclosed, the financial statements must indicate the reasons for non-disclosure.

To assist users in understanding the significance of a material measurement uncertainty, the notes to the financial statements would provide information about its extent when a material change in the recognized amount of an item is reasonably possible in the near term. This can be done, for example, by disclosing the extent to which a recognized amount could reasonably vary in the near term. Companies could disclose this variability by a range of reasonably possible amounts that relate to the estimate or by disclosing the effect of a change in the significant underlying assumptions used to estimate the amount. At a minimum, the extent of the uncertainty is communicated through a statement that it is reasonably possible, based on existing knowledge, that conditions will change within the year and that this may require a material change in the recognized amount.

Separate presentation or disclosure of certain items

(Section 1400, General Standards of Financial Statement Presentation, 1520, Income Statement, and Section 1521, Balance Sheet)

Transactions or events that are not expected to occur frequently or are not typical: A company is required to present separately on the face of the statement of operations or disclose in the notes or supporting schedules any revenue, expenses, gains or losses resulting from transactions or events that are not expected to occur frequently over several years, or do not typify normal business activities of the company, in accordance with Section 1400.

Identifying any items that are not typical of normal operations or are infrequent, such as those that may arise due to the impact of tariffs and other economic measures, allows users of the financial statements to isolate the item’s effect when evaluating current performance and predicting future results.

Line items to be presented separately: Sections 1520 and 1521 outline the requirements for the separate presentation of certain items in the financial statements. The following items are among those that must be presented separately in the financial statement and may be observed more frequently in the current context.

This is a table associated with the information above

Presented separately on the face of the statement:
Results of discontinued operations	Long-lived assets and disposal groups classified as held for sale (and the liabilities included in these groups);
Presented separately on the face of the statement or in notes or supporting schedules:
Government assistance	Government assistance receivable
Impairment losses on financial instruments; long-lived assets; intangible assets; goodwill; investments in subsidiaries, investments and interests in joint arrangements, leased assets; etc.	Asset retirement obligations
Losses recognized on long-lived assets that have been sold, classified as held for sale, or otherwise disposed of (scrapped, etc.)
Termination benefits

Identifying and separately presenting these items allows users of the financial statements to better understand the entity's financial performance and position, especially in the context of current economic conditions.

Revenue Recognition

(Section 3400, Revenue)

Improper revenue recognition is often one of the most common deficiencies in financial reporting. In the current context, revenue recognition may become increasingly complex.

Certain revenue recognition may also require deferral. A thorough understanding of contracts and their terms is necessary to ensure accurate revenue recognition, particularly regarding the following elements:

Right of return arrangements, cancellation rights, repurchase obligations, price protection clauses, changes in usual practices, final collection not reasonably assured, penalties for default, etc.;
Contract modifications (quantity reductions, price modifications, scope of work modifications, cancellation of initially planned services, etc.);
Percentage of completion method (determination of the degree of completion, total expected costs, etc.);
Expected losses: When it is probable that the total costs of a contract will exceed the total revenues of a contract, the entire expected loss must be immediately recognized as an expense, regardless of the start of the contract work, the degree of completion of the work, or the expected profits from other contracts.

Future Income Tax Asset

(Section 3465, Income Taxes)

Companies that use the future income taxes method may find that recognizing a future income tax asset may become challenging in the presence of unfavorable evidence, such as anticipated future losses or existing factors that may hinder the company's operations and profitability.

A company must recognize a future income tax asset for all deductible temporary differences, unused tax losses, and income tax reductions, provided it is more likely than not that the asset will be realized. The likelihood of realization is determined by the availability of sufficient and appropriately timed taxable income within the periods allowed by tax legislation, taking into account practical and prudent tax planning strategies.

As a result, future income tax assets may need to be remeasured or derecognized due to possible reductions in future earnings.

Long-lived assets held for sale & discontinued operations

(Section 3475, Disposal of Long-Lived Assets and Discontinued Operations)

Discontinued operations:

Tariffs and other measures can disrupt supply chains or market conditions, leading companies to discontinue certain lines of business or geographical operations. This could result in more frequent classification of components as discontinued operations, impacting the presentation of net income and requiring careful consideration of applicable income taxes.

The results related to discontinued operations, net of applicable income taxes, must be reported as a separate element of income for both the current and prior periods. A discontinued operation may be a component that the company has disposed of (by sale, abandonment, or spin-off) or that is classified as held for sale. It must represent a separate major line of business or geographical area of operations; or be part of a single co-ordinated plan to dispose of a separate major line of business or geographical area of operations; or be a subsidiary acquired exclusively with a view to resale.

Disposal of Long-Lived Assets:

The impact of tariffs and other measures may prompt businesses to reassess their operations and potentially classify certain assets as held for sale. Tangible capital assets and intangible assets with a limited useful life must be classified as held for sale and presented separately on the balance sheet when the six criteria outlined in paragraph 3475.08 are met. Additionally, these assets must be measured at the lower of their carrying amount and fair value less costs to sell and they must no longer be amortized.

Economic Dependence

(Section 3841, Economic Dependence)

The impact of tariffs and other measure can create an economic dependence on another party such sole or major customer, supplier, franchisor, franchisee, distributor, general agent, borrower or lender, which did not exist previously. When the ongoing operations of a company depend on a significant volume of business with another party, economic dependence on that party must be disclosed and explained. In determining whether a company is dependent on another party, the ease with which transactions with that party can be replaced by transactions with another party on similar terms and conditions is considered.

Disclosure of Guarantees

(AcG-14, Disclosure of Guarantees)

Tariffs can increase the likelihood of a guarantor performing under a guarantee, as they may create financial strain on the guaranteed party, leading to defaults or triggering events. The guarantor is required to make several disclosures about its obligations under guarantees, even when the likelihood of the guarantor having to make any payments under the guarantee is slight. These disclosures include the nature of the guarantee, its term, the events or circumstances that require the guarantor to perform under the guarantee, the maximum potential amount of future payments the guarantor could be required to make, and the current carrying amount of the liability due to this guarantee (including the amount recognized in accordance with Section 3290). The guarantor must also disclose the nature of any recourse provisions, and the nature of any assets held as collateral or by third parties.

APPENDIX – Illustrative examples of Subsequent Events notes

To comply with ASPE, companies must first determine whether a note addressing subsequent events should be included in their financial statements for events that occurred between the date of the financial statements and the date of their completion. Disclosure should be made if the events cause significant changes to assets or liabilities in the subsequent period or will, or may, have a significant effect on the future operations. If such a note is deemed relevant, the illustrative examples provided below should be tailored to the specific circumstances of the company. At a minimum, the disclosure must include a description of the nature of the event; and an estimate of the financial effect, when practicable, or a statement that such an estimate cannot be made.

The following illustrative examples pertain to events that do not relate to conditions that existed at the financial statement date:

Example One – The Company is unable to estimate the financial effect of new tariffs or other measures.

Subsequent Events

Since the U.S. election, several tariff announcements have been made, alongside retaliatory measures by Canada and other countries. The Company is evaluating the direct and indirect impacts on its business of potential or implemented tariffs, retaliatory tariffs or other trade protectionist measures implemented, as the situation evolves. As of the financial statement date, the Company is unable to estimate the potential impact on its business, however, the impacts could be material.

Example Two - The Company is able to provide some information of the potential effects of new tariffs or other measures but is not able to quantity the financial effect

Subsequent Events

Since the U.S. election, several tariff announcements have been made, alongside retaliatory measures by Canada and other countries.

Confectionery products manufactured by the Company and sold to U.S. customers represent 35% of its sales. Retaliatory measures by Canada could also have a significant impact on certain products imported by the Company since its main suppliers of nuts and packaging products are American.

Management is actively monitoring these developments, exploring opportunities to expand in the Canadian market and other export markets, and assessing whether U.S. nut suppliers can be replaced given the costs associated with terminating current supply agreements. Should tariffs persist, the Company may consider constructing a new plant in the United States.

Management is uncertain of the impact of these changes on its consolidated financial statements and believes that their effects may be temporary; however, there is uncertainty as to the final measures that will be implemented, as well as the duration and potential consequences of these measures.

As such, management is unable to estimate the potential impact on the Company’s operations as of the date of these financial statements.

Note:

Information in italics will be disclosed if the company is able to provide an estimate of the potential effect of the tariffs or other measures. The availability of this information may depend on a number of factors, including how much time has passed between the date of the financial statements and the date of their completion.