PFRS - Accounting implications of the Iran Conflict for 2026 Interim Reporting
Executive summary
In light of the ongoing developments relating to the conflict in Iran—including recent indications of easing tensions following a preliminary agreement between the United States and Iran to end hostilities, with a framework expected to be formalized in Switzerland, entities should continue to assess the evolving accounting implications. While geopolitical conditions appear to be stabilizing, the economic effects remain uncertain and may continue to impact global markets, supply chains, and key commodities. The Strait of Hormuz in particular remains a critical global chokepoint where disruption threatens not just oil shipments, but also other key product access and high-tech supply chains.
This Accounting Alert focuses on the financial reporting implications for 2026 interim reporting periods, while also highlighting considerations relevant to December 31, 2025 financial statements as a non-adjusting subsequent event.
Background
Following the onset of the conflict in Iran on February 28, 2026, and subsequent developments indicating a possible de-escalation, including a reported US–Iran agreement currently being finalized, the impact continues to extend beyond the region. Despite improving geopolitical signals, disruptions in oil and gas markets, global supply chains, and broader economic conditions may persist. Entities with direct exposure (e.g., investments or operations in affected areas) and those indirectly affected through their value chains should consider the financial reporting implications, particularly for 2026 interim reporting periods.
Considerations for 2026 interim and subsequent reporting periods
Given that the conflict began on February 28, 2026, it is a non-adjusting event for December 31, 2025 financial statements. Accordingly, no adjustments are made to 2025 balances; however, entities should consider whether disclosures are required.
The primary financial reporting impact arises in 2026 interim and subsequent reporting periods, including potential implications on measurement and, where applicable, going concern assessments.
Many reporting entities may continue to be affected throughout 2026 and beyond and should assess the impact of the conflict on the measurement of their assets and liabilities. Due to the nature and location of the conflict, issues relating to international shipping and supply chains may also arise. During 2026 interim reporting periods, entities should carefully assess the following areas:
- Credit losses (PFRS 9) – Reassess expected credit losses where customers or counterparties are directly or indirectly affected.
- Hedge accounting (PFRS 9) – Commodity price volatility may affect hedge effectiveness and the probability of forecast transactions.
- Impairment (PAS 36) – Changes in prices, operations, or demand may trigger impairment indicators for assets (including goodwill).
- Fair value measurement (PFRS 13) – Increased market volatility may affect valuation assumptions and observable inputs.
- Inventories (PAS 2) – Production disruptions or idle capacity may affect cost allocation; abnormal costs should be expensed.
- Onerous contracts (PAS 37) – Rising input costs or supply disruptions may cause contracts to become loss-making.
- Revenue (PFRS 15) – Consider impacts on collectability, delays, penalties, variable consideration, or contract modifications.
- Deferred taxes (PAS 12) – Reassess recoverability of deferred tax assets given changing economic conditions.
Disclosure
Entities are expected to provide disclosures about their exposure to the conflict, even where estimation uncertainty exists. Disclosures may include:
- Nature and extent of exposure (e.g., assets, operations, or counterparties)
- Key assumptions and judgments applied
- Sensitivity to market volatility or supply chain dependency
Going concern disclosure
PAS 1 ‘Presentation of Financial Statements’ explicitly states that at each reporting date, management is required to assess the reporting entity’s ability to continue as a going concern. In making this assessment, management should consider all available information about the future, which is at least, but is not limited to, twelve months from the annual reporting date. Events or conditions that cast significant doubt on a reporting entity’s ability to continue as a going concern should be disclosed if there are material uncertainties or if a significant amount of judgment is involved in reaching the conclusion about whether the going concern assumption is appropriate. In May 2025, the International Accounting Standards Board (IASB) published updated educational material on going concern assessments and disclosure which should be considered.
For 2026 interim reporting periods, entities should consider the ongoing economic effects arising from the conflict when evaluating whether there is significant doubt about the entity’s ability to continue as a going concern. Entities are expected to exercise judgment in assessing whether these conditions give rise to material uncertainties requiring disclosure.