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Marianne Mau considers the financial reporting implications of the war in Ukraine.
Ukraine and beyond

As well as the devastating effects for those directly affected by the war in Ukraine, many businesses across the world will have been disrupted or will be feeling the consequences of sanctions imposed and the inflationary pressures created or exacerbated by the war. These factors may have implications when preparing the accounts, some of which are discussed in this article.

Loss of control

Those businesses with assets, operations and/or investments in Ukraine, Russia or Belarus will need to consider the effect of the war on the classification and measurement of the assets affected. For example, it would not be appropriate to consolidate a subsidiary over which a parent no longer has control. Any assets held in the affected regions will need to be tested for impairment and consideration given as to how their value might be recovered.

Loss of control might have more far-reaching implications on a business’s supply chain and/or its ability to service customers. This will need to be reflected when preparing forecasts for the purposes of impairment reviews and going concern, as well as considering whether any contracts have become undeliverable or onerous as a result.

Sanctions and other restrictions

The effect of the war will also be felt by many who have not invested directly in the affected region. For example, some businesses may have relied on Russian customers to buy their luxury goods. Demand for these products may have reduced as a result of sanctions or pressure from investors and consumers to cease trading in certain markets. Sanctions and other measures may also have implications for the supply of certain goods and commodities, most notably oil and gas. Potential reductions in revenues and increases in prices will need to be factored into forecasts and valuations, in particular when considering the net realisable value of inventories.

Conditions at the balance sheet date

When making judgements about conditions that existed at the balance sheet date, entities will need to use all available information up to the date that the financial statements are authorised for issue. Entities will need to identify any events relevant to their individual circumstances and assess whether they provide evidence of conditions existing at the end of the reporting period, or are indicative of conditions arising after the reporting date. In an evolving situation, it can be challenging to assess whether or not such information will require adjustment or disclosure.


Typically, companies use forecasts when conducting impairment reviews and to support the going concern assumption. For the purposes of impairment reviews, assumptions should be based on the conditions that existed at the balance sheet date. In contrast, any forecast to support the going concern assumption needs to reflect all available information.

When preparing forecasts, it is important to review the validity of the assumptions being used to ensure that they reflect current circumstances. It may be necessary to consider a range of scenarios, considering both sector-specific and broader economic issues.

The new normal

Uncertainty seems to have become the new normal – as shown by Brexit, the pandemic, the climate crisis and recent geopolitical events. Much has been learned over the past few years in terms of good practice, in particular the importance of transparent and entity-specific disclosures. Effective linkage between the strategic report and the financial statements is also important. There are many similarities between the impact of the pandemic and the war in Ukraine on the financial statements and therefore much of the guidance produced by the UK’s Financial Reporting Council, the Financial Reporting Lab and other regulatory bodies is relevant and useful.

For more resources, news and features on the impact of the Ukraine crisis on accountancy, business and the wider economy, visit icaew.com/ukraine

By All Accounts July 2022

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