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Impact around the globe
Accounting considerations for the current macroeconomic and geopolitical climate
In a new financial reporting alert, Deloitte leaders unpack how the current macroeconomic and geopolitical environment affects CFO strategies and initiatives in addition to creating both internal and external challenges that companies may need to be prepared to navigate. Complete with helpful resources, survey insights, and more, this financial reporting alert outlines key accounting and financial reporting considerations that companies should consider when planning for the year ahead.
Today’s consumers and companies are facing numerous challenges within the current macroeconomic and geopolitical environment. Reports of continued global supply-chain disruptions and labor shortages dominate the news and are top of mind for many financial executives.
Some of the most common issues affecting CFOs include internal matters, such as employee retention, employee working arrangements, and cost management; as well as external concerns such as inflation, stagflation, and geopolitical tensions.
The challenges give rise to operational and financial difficulties, which often includes unique accounting and financial reporting implications. For example, as a result of significant global supply chain disruptions and labor shortages brought on by the pandemic, many product and employment costs increased (figure 1). Global central banks have also been raising interest rates to temper the impact of historically high inflation rates (figure 2).
Figure 1: U.S. CPI and Employment Cost Index
Figure 2: U.S. Federal Funds Effective Rate
SEC reporting and disclosure considerations
Registrants must consider the impacts of the current macroeconomic and geopolitical conditions on their required disclosures and public filings. Recent guidance issued by the SEC has included CF Disclosure Guidance (DG) Topic 9 and DG Topic 9A (in response to the pandemic) and a sample letter discussing disclosure considerations (in response to the Russia-Ukraine conflict). While the guidance in those documents was prompted by specific events, it continues to apply in today’s economic and geopolitical environment. It also provides a framework for registrants to use in thinking through their disclosures. Such framework emphasizes the need for companies to provide information about their financial and operating statuses, as well as their expectations for the future, in a timely manner. This financial reporting alert details these considerations for registrants related to management’s discussion and analysis, risk factors, Form 8-K considerations, and non-GAAP measures.
Financial reporting, accounting, and internal control considerations
An economic downturn may have a broad impact on an entity’s financial reporting, or it may be limited to certain accounts, transactions, or disclosures. As a result of current conditions, future uncertainty, or both, entities may also face significant challenges associated with forecasting. Such challenges may be compounded by historically high inflation and global supply chain issues.
Continue your macroeconomic and geopolitical environment learning
Read the full Financial Reporting Alert for a comprehensive discussion of accounting and financial reporting considerations related to the current macroeconomic and geopolitical environment.
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