Financial reporting impacts of military action in Iran

Recent military action in Iran and the Middle East has introduced significant volatility into global financial markets, with ripple effects extending far beyond the region. Since the beginning of military action on February 28, 2026, oil prices, as measured by the price of Brent Sea oil, have increased over 40% through March 17, 2026, amid supply disruptions through the Strait of Hormuz, a critical passage for global energy shipments. Energy, fertilizer, petrochemical and plastics prices have followed suit, placing pressure on current and expected future operating costs and likely impacting near-term consumption of petroleum-based products across industries. Meanwhile, supply chains face renewed uncertainty, particularly for companies reliant on Middle Eastern logistics or raw materials. These developments underscore the need for companies to assess their direct and indirect exposure to these events and the related impacts on accounting and financial reporting.

The potential financial reporting implications of the military action in Iran and related geopolitical risks and uncertainties may continue to evolve, and could be far-reaching, including but not limited to the following considerations:

• Measurement and recoverability of assets: Careful consideration should be given to the impacts of military action in Iran on both financial and nonfinancial assets and the need to recognize impairment losses or increased allowances for credit losses. Operational shutdowns or physical damage in the region could trigger impairment reviews for affected assets. More broadly, expected future cash flows may be affected across industries, which could significantly impact forward-looking information used in impairment or similar recoverability tests for inventory, long-lived assets, intangibles, goodwill, deferred tax assets and other assets. Additionally, fair value estimates for financial instruments may require greater judgment if there is diminished market liquidity.

• Hedging: Volatility in oil or other commodity prices and currency markets, and other factors such as supply chain disruptions and reduced sales, may impact the continued application of hedge accounting. When hedging forecasted transactions, such as interest payments on variable-rate debt, sales or purchases of a specific commodity, or sales or purchases that are denominated in a foreign currency, Accounting Standards Codification (ASC) 815-30-40 requires hedge accounting to be discontinued if any criteria to apply hedge accounting are no longer met, including the criterion in ASC 815-20-25-15(b) that requires hedged forecasted transactions to be probable of occurring. If hedge accounting is discontinued, subsequent associated gains or losses must be recognized immediately in earnings. Also, should it be determined that the forecasted transaction is probable of not occurring, any related amounts in accumulated other comprehensive income should be immediately reclassified to earnings.

• Revenue recognition: Companies should consider the impacts of military action in Iran and the Middle East on its contracts with customers, including the appropriate accounting for any terminated or modified contracts, the assessment of whether collection of consideration is probable, the estimate of variable consideration and application of the related constraint on revenue recognition, and the accounting for loss contracts that are in the scope of ASC 605-35, Revenue Recognition – Construction-Type and Production-Type Contracts, or other relevant guidance on loss contracts.

• Risks and uncertainties disclosures: While the effects of war are not within the scope of the disclosure requirements in ASC 275, Risks and Uncertainties, that guidance does require disclosures about risks and uncertainties including certain changes in estimates and vulnerability to concentrations that may be particularly relevant during times of significant geopolitical risk and uncertainty.

• Insurance considerations: Companies should consider details of any business interruption insurance policies to understand which losses are covered and which are excluded. Under ASC 450-30, Contingencies – Gain Contingencies, contingencies that might result in a gain should not be recognized. The ultimate recovery under a business interruption policy is highly judgmental and typically subject to substantial negotiations between the insured and the insurance company. Consequentially, business interruption insurance recoveries are generally not recognized until the proceeds are received or the insurer confirms the amount of proceeds to which the insured is entitled, such that the uncertainty is removed.

• SEC reporting: We believe many of the disclosure considerations in the SEC staff’s Sample Letter to Companies Regarding Disclosures Pertaining to Russia’s Invasion of Ukraine and Related Supply Chain Issues would also be applicable for SEC registrants considering the appropriate disclosures related to the direct and indirect impacts of military action in Iran and the Middle East.

The military action in Iran and the Middle East underscores the importance of proactive financial reporting and risk assessment. The degree to which companies are or will be affected by these events is largely dependent upon the nature and duration of any further military action, additional sanctions or financial market reactions. Companies with direct or indirect exposure must continue to evaluate the ongoing implications for accounting and financial reporting.