In our recent webinar, panelists from the Audit and Assurance Professional Standards Group and Washington National Tax Office at Forvis Mazars provided a look at regulatory developments impacting financial reporting in Q1 2025, including tariffs; environmental, social, and governance (ESG) regulatory updates; and federal funding uncertainties. Below is an overview of key takeaways for your organization:
Tariffs
An ongoing topic of interest is the impact of tariffs across various industries. Recent changes announced by the Trump administration include imposing a 25% tariff on steel and aluminum and a 10% tariff on other goods, as part of a broader strategy to protect domestic industries, regulate trade, and generate revenue. Looking to the near future, the 90-day pause for reciprocal tariff negotiations ends on July 9, 2025, and more countries are expected to reach trade agreements with the U.S. to lower tariffs.
The potential impact of these tariffs remains a matter of debate. Companies must decide whether to absorb these costs or pass them on to consumers. Monitoring and forecasting tariff-related expenses is a crucial component of financial planning for businesses navigating international trade.
ESG Regulatory Update
The SEC’s climate disclosure rule aimed to require public companies to disclose climate-related risks and greenhouse gas emissions. However, the rule has faced litigation and the SEC has ceased defending the rule in the courts. Nevertheless, companies may still need to consider climate-related disclosures based on where they do business due to state and international regulations, and potentially from investor and customer demands.
State Climate Disclosure Laws
As a primary example of state requirements, California has enacted two significant climate disclosure laws:
- Senate Bill 253 – Climate Corporate Data Accountability Act: Requires companies with revenue more than $1 billion and doing business in California to report certain greenhouse gas emissions starting in 2026, with varying levels of assurance over time.
- Senate Bill 261 – Greenhouse Gases: Climate-Related Financial Risk: Mandates companies with revenue more than $500 million and doing business in California to publish certain climate-based financial risk disclosures by January 1, 2026.
Similar laws have been enacted in New York, Illinois, Colorado, and New Jersey, with varying timelines for reporting requirements.
EU’s Corporate Sustainability Reporting Directive (CSRD)
Internationally, the CSRD requires companies meeting certain criteria to report their sustainability performance and its impact on society and the environment. Applicable to U.S. companies with net revenue of €150 million or more in the European Union (EU), the directive includes rigorous reporting and assurance requirements. There is a proposed omnibus legislation that may amend these thresholds, potentially reducing the scope for some U.S. companies.
Companies must prepare for these sustainability reporting requirements by developing detailed strategies and complying with state and international regulations.
Effects of Uncertainty on Federal Funding
Federal actions post-calendar year-end have created uncertainty in federal funding, impacting both nonprofit and for-profit entities. Organizations must understand their reliance on federal funding and how recent changes may affect their financial reporting.
Key Considerations
- Revenue recognition & receivables:
- Reserves & collectability
- Contract modifications or terminations
- Disclosures:
- Subsequent events
- Risks & uncertainties
- Concentrations of risk
- Liquidity & availability of resources
- Going concern assessments
Entities impacted by federal funding must disclose specific details about their dependency on such funding and any potential risks associated with it. Auditors can be expected to ask clients detailed questions about how tariffs and federal funding uncertainties affect their operations, reserves, and subsequent events. Transparent and timely disclosures are critical for informing readers about the actual impact on an entity’s financial health.
For more information, watch the full webinar “Quarterly Perspectives: Financial Reporting & Beyond / Q1 2025” on demand.*
*CPE is not available for archived webinars.
How Forvis Mazars Can Help
Understanding the implications of these topics on financial reporting and maintaining transparent disclosures are crucial for businesses to adapt to the changing landscape and meet stakeholder expectations. Conversations with auditors and advisors are essential to navigate these uncertainties and foster compliance with evolving regulations. For more information and details on future webinars, click here to subscribe to our Assurance FORsights.