To date in 2025, the federal governmental has announced a steady flow of actions or intentions to reduce government spending and bolster domestic production. Among these have been tariffs on certain goods from certain countries, potential pauses or reductions of funding, and suspension or elimination of government programs.

These actions could have cascading effects on a wide range of businesses and organizations, especially those receiving funding from or providing services to federal, state, and/or local governmental bodies, and entities heavily involved in acquiring goods or materials from countries where tariffs have been announced or are being considered. Additionally, consider macroeconomic impacts:

• In addition to direct impacts on individual entities, tariffs could have a macroeconomic impact within the U.S. and internationally, particularly to the extent that foreign governments continue to respond by imposing their own tariffs on imports from the U.S. By way of example, tariffs can drive inflationary pressures (e.g., increase the cost of goods and services) and broadly impact stock and bond markets. While this impact could be offset elsewhere, it is difficult to predict the ultimate outcome at this time.
• While many actions taken by the Department of Government Efficiency (DOGE) – e.g., funding cuts – will be felt on a direct entity level, bond market reactions could positively or negatively impact the cost of borrowing within the U.S. 

It is critical to evaluate and understand the potential impacts of these changes on your operations, and to consider putting contingency plans in place for operational continuity.

A natural extension of that will be understanding the related financial reporting impact, and the production of financial statements that provide stakeholders with timely, transparent, and decision-useful information. Those statements should also provide stakeholders with information about current trends and conditions that may inform predictions about an entity’s future cash flows, operating results, and financial position. 

While the outcomes of several of the federal actions remain unclear – e.g., some have seen legal or political holds or delays – reporting entities should not delay in considering the impact, if any, of any such actions on their operations. These could include, for example, a material adverse impact on a reporting entity’s financial position or results of operations, or significant disruption to a reporting entity’s operations, up to and including a reporting entity concluding that there is substantial doubt about its ability to continue as a going concern.  

How to assess and report impacts to your reporting entity

• These impact assessments should be tailored to the specific facts and circumstances of the reporting entity and the environment in which it operates. For example, suspension of federal funding may not have a material adverse impact on a reporting entity if most of its cash flows are generated in ways other than from federal grants; but a reporting entity that has significant interaction with entities or suppliers in a country impacted by tariffs could see related costs impact its current and/or future ability to generate cash flows.
• A reporting entity should consider these developments within the federal government when evaluating subsequent events, its ability to continue as a going concern, and other relevant financial estimates.  
• To the extent that there is no expected or imminent threat of an adverse impact, reporting entities should continue, as appropriate, to include appropriate risks and uncertainties disclosures in their footnotes.  
• An SEC filer should consider whether its risk factors should be updated and whether its MD&A (Management’s Discussion and Analysis) should appropriately include forward-looking disclosure of the reasonably possible impact of relevant federal actions that could have a material impact on its financial condition, results of operations, and/or liquidity.

We encourage reporting entities to stay abreast of the developments taking place within the federal government and to be aware of the indirect and/or cascading effects those actions could have. As the current presidential term progresses and as various constituencies, both within and without the federal government, react to changes in funding, programs, etc., things are likely to continue to evolve. Hence, we believe that it would be prudent for reporting entities to posture proactively for what could become a “new normal” for them. Remaining alert for possible changes and impacts enhances a reporting entity’s ability to provide transparent, decision-useful financial information to its stakeholders.  

The following discussion and list of financial statement considerations are intended to serve as a starting point for management teams. They are not all-encompassing, and reporting entities should consider the potential impact these changes could have on their organizations given their respective facts, circumstances, and operating environments. 

Contact our team with questions or for further guidance on your financial reporting.

_{Any advice contained in this communication, including attachments and enclosures, is not intended as a thorough, in-depth analysis of specific issues. Nor is it sufficient to avoid tax-related penalties. This has been prepared for information purposes and general guidance only and does not constitute legal or professional advice. You should not act upon the information contained in this publication without obtaining specific professional advice specific to, among other things, your individual facts, circumstances and jurisdiction. No representation or warranty (express or implied) is made as to the accuracy or completeness of the information contained in this publication, and CohnReznick LLP, its partners, employees and agents accept no liability, and disclaim all responsibility, for the consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it.}