Geopolitical risk is a business reality affecting how companies operate, invest, and govern across the world. From global suppliers to customers to capital markets, geopolitical risk contributes to a business environment of uncertainty that is reshaping how executives think about supply chains, pricing, and international expansion plans, among other considerations. As we share in our recent C-Suite Barometer: Executive Leadership Insights in the US, leaders are proactively responding to uncertainty with decisive action—revising business plans, diversifying resources, and accelerating investments to stay resilient amid volatility. Adaptability is the new competitive advantage.
As leaders across all industries navigate geopolitical risk, the following are three potential business impacts that leaders can plan for now.
Operational Impacts
From food distribution to supply routes to energy, the global impacts of geopolitical events are far-reaching and uncertain. In the short term, companies that prepare by diversifying resources and treat current pricing volatility as a permanent operating condition rather than a temporary hardship, will come out on top. Preparing for additional inventory, delays, and price fluctuations is key to remaining flexible during times of uncertainty. As our C-Suite Barometer reveals, more than half of U.S. executives have diversified their resources to deal with global trade disruption. While rapid changes in tariffs and regulations may impact organizations’ ability to forecast long-term costs and cash flow, in the future, businesses may consider how systematic changes by consumers and investors, as well as market shifts, may create opportunities for innovation.
Tax & Financial Reporting Impacts
While tax impacts are often not immediate, emerging months or years later under regulatory scrutiny, business leaders can prepare in the now for potential future financial and tax consequences arising from operational shifts. Geopolitical disruption may introduce businesses to new tax exposures—including customs, tariffs, and transfer pricing implications—due to changes in global suppliers and expansion into new jurisdictions. Managing compliance with local laws, regulatory requirements, and taxes is the top priority of business leaders navigating international expansion, according to our C-Suite Barometer.
The financial reporting impact of geopolitical uncertainty is important to consider for companies with operations in impacted regions. These circumstances can result in complex financial reporting issues such as:
- Impairment of investments, as well as intangible and other long-lived assets
- Negative impact on assumptions used for fair value measurements
- Reduced net realizable value of inventory
- Increased tax valuation allowances
- Contingent liabilities or gains such as insurance recoveries
In addition, companies should consider potential impacts on individual transactions with customers or vendors which might require changes in expense and revenue recognition. Outside of the audited financial statements, SEC registrants will need to consider geopolitical uncertainty when preparing disclosures related to (1) risk factors and (2) management’s discussion and analysis reporting known trends, events, or uncertainties that are reasonably likely to result in material changes in revenues, income, or liquidity.
Human Impacts
Among all potential business impacts of geopolitical uncertainty, none is more important than the effects on employees and the people that businesses serve. This includes the potential transformational impacts of artificial intelligence (AI). AI is going to play a part in every business going forward, but the question remains, to what extent?
How Forvis Mazars Can Help
Geopolitical risk is a constant—and with preparation and resilience, business leaders are strategically aligning their operations to position themselves for the future. Forvis Mazars helps organizations of all sizes and across various industries enhance their adaptability. Our teams work alongside business executives to understand their unique circumstances and help ensure their business can confidently respond to what’s next. For more information, reach out to a professional at Forvis Mazars today.
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