On February 28, 2026, the United States and Israel launched large-scale airstrikes on Iran’s nuclear and military facilities, significantly escalating tensions in the Middle East. Since then, international oil prices have exceeded USD 111 per barrel, and concerns over a potential blockade of the Strait of Hormuz have intensified. As a result, shipping freight rates have surged, the Korean won has weakened, and global supply chain instability has increased.
These geopolitical developments may affect not only corporate operating environments but also financial reporting and disclosures for companies with December 31, 2025 fiscal year-ends. Although the event occurred after the reporting date (December 31, 2025), it may still have implications for financial statement disclosures, going concern assessments, and audit judgments as a significant subsequent event.
Key Financial Reporting Issues
1️⃣ Subsequent Events Disclosure (K-IFRS 1010)
The conflict is generally considered a non-adjusting subsequent event. However, companies should disclose the nature of the event and an estimate of its financial impact in the notes to the financial statements. If liquidity concerns or impairment indicators already existed before the reporting date, the event could potentially be assessed as an adjusting subsequent event, requiring further review.
2️⃣ Reassessment of Going Concern (K-IFRS 1001 / ISA 570)
Management should reassess the appropriateness of the going concern assumption as of the financial statement approval date. Additional scrutiny may be necessary for companies in energy-intensive industries, shipping and logistics-dependent sectors, companies undertaking projects in the Middle East, and highly leveraged businesses, particularly with respect to cash flows and refinancing capabilities.
3️⃣ Asset Impairment and Inventory Valuation
Companies should assess impairment indicators (K-IFRS 1036) for investments, goodwill, and tangible or intangible assets related to operations in the Middle East. Rising oil prices and input costs may also affect the net realizable value (NRV) of inventories (K-IFRS 1002).
4️⃣ Derivatives and Hedge Accounting (K-IFRS 1109)
Increased volatility in oil prices and foreign exchange rates may affect the effectiveness of existing hedge relationships. If forecast transactions change or become unlikely to occur, companies may need to discontinue hedge accounting and reclassify accumulated OCI to profit or loss.
5️⃣ Contract and Project Impacts
If the conflict makes contractual performance difficult or impossible, companies should assess the need to recognize provisions or onerous contracts (K-IFRS 1037). For long-term projects in the Middle East, companies should reassess progress measurement, variable consideration, and the recoverability of contract assets (K-IFRS 1115).
6️⃣ Business Risk Disclosure and Audit Implications
The Financial Supervisory Service (FSS) plans to conduct a focused review of 2025 annual reports in May 2026. Companies should provide clear disclosures in the Business Risk section regarding exposure to Middle East geopolitical risks, supply chain dependencies, and regional revenue concentration. Auditors may also consider including relevant matters as Key Audit Matters (KAM) or Emphasis of Matter paragraphs where appropriate.
Immediate Actions for Companies
✔ Prepare subsequent event disclosures
Disclose the outbreak of the conflict (February 28, 2026) and its estimated financial impact, or state if the impact cannot be reasonably estimated.
✔ Reassess the going concern assumption
Review cash flows, liquidity, and debt structures, and reflect any significant uncertainties in financial statement notes or the audit report if necessary.
✔ Update business risk disclosures in the annual report
Enhance disclosures on geopolitical risks and supply chain exposure using quantitative information where possible. For more detailed explanations of the accounting standards and industry-specific considerations, please refer to the Issue Brief below.
👉 Issue Brief – Read More
This material is intended for general informational purposes only and does not constitute professional accounting or legal advice. For specific matters related to your organization, please contact the Accounting Advisory Team at Haesung Accounting Corporation.
