How will the recent conflict in the Middle East impact your financial statements?
How will the recent conflict in the Middle East impact your financial statements?
Since 28 February 2026, military action and conflict in the Middle East have increased general economic uncertainty in the region and worldwide, particularly regarding trade routes in and around the Persian Gulf and the global price and consistent supply of oil and natural gas.
Read on for how this will impact your financial statements for reporting periods ending prior to 28 February 2026, and thereafter.
Is the Middle East conflict an adjusting or non-adjusting event for reporting periods ending before 28 February 2026?
The current conflict began on 28 February 2026. For an entity with a period ending before this date, the effects of the conflict should, therefore, not be considered an adjusting event after the end of the reporting period because it does not provide evidence of conditions that existed at the end of the reporting period. Rather, these events are indicative of conditions that arose after the reporting period (non-adjusting events after the reporting period).
This would apply to annual and half-year periods ending 31 December 2025, 31 January 2026, and even 21 February 2026, where the directors have determined that the financial year or half-year is to be shorter by not more than seven days.
The exception would be in circumstances in which the effects of the conflict are so significant that an entity’s management has determined that it intends to liquidate the entity or cease trading, or that there is no realistic alternative but to do so. In such cases, paragraph 14 of IAS 10 Events after the Reporting Period requires that the financial statements not be prepared on a going concern basis, despite the fact that the triggering event occurred after period end. This is because, for the purposes of assessing going concern, all events after the reporting period are considered adjusting in nature.
What types of disclosures should be made for non-adjusting events after the reporting period?
Paragraph 21 of IAS 10 requires an entity to disclose information about non-adjusting events if they are material and non-disclosure could reasonably be expected to influence users’ decisions on the financial statements. For each material category of non-adjusting event, paragraph 21 requires the following to be disclosed:
- The nature of the event
- An estimate of its financial effect, or a statement that such an estimate cannot be made.
The extent of disclosures will depend on the date of authorisation of the financial statements (i.e. the stage of the conflict at which the financial statements are finalised) and the entity’s specific circumstances.
For example, entities with supply chain exposures and/or reliance on oil and natural gas as a key input in their business models may consider it appropriate to disclose information about their exposure to operational and financial uncertainties.
Entities should also consider guidance issued by regulators, enforcers and exchanges in particular jurisdictions, which may set expectations for disclosures in financial statements and other continuous disclosure obligations (e.g. Operating and Financial Review, strategic reports, etc.).
What about periods ending on or after 28 February 2026?
The US and Israel began military operations against Iran on 28 February 2026. For entities with reporting periods ending on or after 28 February 2026, the recent escalation in the Middle East conflict is therefore, an adjusting event. That is, it provides evidence of conditions that existed at the end of the reporting period. Entities should therefore consider these events when recognising and measuring items in their financial statements for periods ending on or after 28 February 2026 (including half-years and annual periods).
However, assumptions should be based on the facts and circumstances at the reporting date, and it is not appropriate for entities to use hindsight based on any information obtained after the reporting date. In other words, entities should not take into account all the effects of the conflict arising after 28 February 2026. Instead, they must carefully consider the information available at the reporting date.
For example:
- Entities reporting as at 28 February 2026: It is unlikely that entities would have predicted the extent of market disruption caused by the conflict, including the shuttering of the Strait of Hormuz, the destruction of key LNG facilities in Qatar, etc.
- Entities reporting as at 31 March 2026: Closing the Strait of Hormuz, destruction of fuel facilities and resulting fuel and gas price increases are now known.
The resulting effect for entities with reporting periods ending on 28 February 2026 is that while technically the conflict is an adjusting event, given the limited information available on this date, the ‘adjusting effects’ are likely to be more limited than for an entity reporting as at 31 March 2026.
Non-adjusting events
Some entities may be significantly impacted by the consequences of the conflict as they unfold after the reporting date. However, their potential effects are not reflected in the recognition and measurement for reporting dates ending on or after 28 February 2026, because the use of hindsight is prohibited. In such cases, entities should disclose details of the potential effects on the financial statements in future financial periods. For example, a tourism operator who is experiencing high cancellation rates or a lack of forward reservations as a result of the currently high fuel pricing should disclose the information required for non-adjusting events, including the nature of the event, and an estimate of its financial effect, or a statement that such an estimate cannot be made.
Estimates and judgements
An important reminder is for entities to disclose information about their assumptions regarding the conflict, uncertainties, and how these affect key estimates and judgements in the statement of financial position. There should be clear, comprehensive disclosure of the effects of different scenarios on the amounts reported in the financial statements (sensitivity analyses). Entities also need to consider impacts on their ability to continue operating as a going concern.
More information
Please refer to our publication, Accounting in Times of Uncertainty – the Effects of Volatile 2025 tariffs, which focusses on the effects of uncertain global trading policies (tariffs). Similar principles apply in the context of this latest conflict and the resulting inconsistency of fuel and gas supplies and prices.
