The ongoing crisis in Ukraine has sent shockwaves through the global economy, with investors facing an unstable market and the Russian currency taking a sharp dive. While the full economic implications of the Russia-Ukraine war are still unknown, it is clear that it has a major impact on businesses worldwide. In particular, the war is likely to lead to significant accounting considerations, such as impairment of assets, auditing challenges, operational concerns, and complications with revenue recognition for organizations with holdings or significant business activities in Ukraine or Russia. As the situation in Ukraine continues to unfold, the accounting world will be closely watching to see how these and other effects play out.

Here is a look at some accounting and reporting issues your organization may need to consider.

Asset Impairment

Companies located in Ukraine—or that have ties to the country—are facing significant disruptions to their operations, such as loss or damage of physical assets. The global supply chain crisis, seemingly worsened by the war and expected inflation, may diminish some companies' inventory. In addition, the ongoing import bans and international sanctions placed on Russia may have a long-term effect on the cash flow generating capacity of assets and lead to impairment losses for companies that own Russian assets.

It's important to note that any investment your organization has in Russia or Ukraine could be negatively affected for the foreseeable future. You should consider the direct and indirect impacts of the Russia-Ukraine war on all your tangible and nontangible assets and perform an impairment analysis for each one.

Going Concern

Some companies caught in the middle of the war may be struggling to keep their operations afloat, creating uncertainty about continuing as a going concern. Factors that affect going concern status include cash flow, asset values, and liabilities.

Your company's going concern status may be affected by the Russia-Ukraine war if any of the following are true:

  • It relies on financing tied to the sanctions or any entity which has frozen or seized assets
  • It is dependent on the support of Ukrainian, Russian, or Belarusian companies
  • It has ceased sales in Russia, resulting in a decreased sales forecast
  • It has a breached contract and is therefore subject to litigation

If your organization has ties to countries involved in the war and you suspect material uncertainty, you should analyze whether your going concern status is affected. Material uncertainty also requires disclosure in your financial statement.

Revenue Recognition

If your organization currently has customers in Ukraine, Russia, or even Belarus, or you had them and lost them, you need to assess how that will affect your credit risk. You should also consider calculating the variable consideration impacts as related to rebates, discounts, or price concessions.

Other revenue recognition concerns include modifications to contracts with vendors or customers, the ability to fulfill contracts, contract cancellations, and anything that may affect the transaction price.

Other Accounting Considerations

It may be too early to assess the full implications of the Russia-Ukraine war, but as with other significant disruptions—such as a global pandemic or economic downturn—there are many similar issues to tackle. Below are a few more relevant potential impacts you should have on your radar.

Audit Challenges: If your organization has a statutory auditor in Ukraine, or your consolidated financial statements are audited by multiple auditors, including those in impacted countries, there may be difficulties. Your auditors may not have access to mandatory paperwork, inability to video conference, or lack physical access.

Subsequent events: Your organization must evaluate whether it is necessary to provide disclosures on the impact of the war on your business for your current period financials. Subsequent event disclosure should be marked for anything from discontinuing operations in Ukraine or Russia and year-end losses. For example, if you experienced a major loss on Russian stock after year-end, that would require a disclosure.

Internal Controls: If your organization has any related business with one of the countries involved, you should determine the war's effects on your internal controls, including lack of access to information, modified processes, disruptions, or reestablishing new controls.

Cybersecurity Risks: With the economic downturn sparked by COVID-19 and now exacerbated by the Russia-Ukraine war, hackers may see more opportunities to exploit vulnerabilities, especially with sanctions and boycotts in play. Addressing the heightened cybersecurity risk and recognizing how a security breach could impact your financial reporting is vital during the next few months.

Russian Currency: The Russian ruble lost nearly half its value when Russia invaded Ukraine. Although the value has since bounced back closer to its original value because of manipulated currency control and oil and gas exports, it may not remain stable. 

Organizations with operations, interests, or ties to any country involved in the war should carefully consider how their financial reporting will be impacted and disclose any effects.

For More Information

If you have specific comments, questions, or concerns about accounting issues impacted by the Russia-Ukraine war, please contact us.

Published on April 14, 2022