When we talk about “war” many people picture the losses in conflict zones-life, property, and national security.

However, in today’s interconnected global economy, fueled by trade, investment, transportation, and the international financial system, the impact of war is no longer confined to the battlefield. The conflicts in the Middle East in 2026 clearly illustrate how geopolitical uncertainty can rapidly affect businesses worldwide. This includes rising energy prices, financial market volatility, uncertainty in maritime transport routes, and supply chain disruptions, all directly impacting operating costs, profitability, and liquidity of the business.

These effects extend beyond business performance and also inevitably reflect in various financial statements, such as asset impairment, inventory value, ability to collect payments from customers, investment value, and even the assessment of a going concern.

Therefore, preparing financial statements under these circumstances is a crucial responsibility of the management and accounting department as financial statement preparers. They must analyze all aspects of risk, adjust business strategies, manage liquidity, and assess the accounting value of assets and liabilities to reflect the true situation as rigorously as possible in accordance with financial reporting standards.

At the same time, auditors, as assurance providers, have a vital need to independently assess whether the economic impacts have been considered, assumed, and reflected appropriately in the financial statements and disclosures by the management. This ensures that financial statement users receive accurate and complete information, enabling them to make informed decisions in a highly uncertain economic environment.

The following table summarizes examples of potential impacts on businesses, as well as the management and accounting department’s guidelines. along with the audit perspectives that auditors commonly prioritize in responding to such risks.

Issues Affecting Business	Response of the Management and Accounting Department	Audit Responses to Risks (Auditor)
1. Energy costs have increased Impact: Many businesses rely on oil, natural gas, or electricity for their operations, such as industrial plants, hotels, airlines, and transportation businesses. If energy prices rise rapidly, operating costs will increase accordingly. Some businesses may not be able to adjust the prices of their goods or services quickly enough, resulting in a significant decrease in profits.   Example: A plastic manufacturing plant that previously had an annual profit of Baht 100 million might see its profit drop to only Baht 20 million after increased energy costs, or may even incur losses at times.	Management: Review and revise the business strategy plan, prepare a new cash flow projection to manage liquidity and assess the company’s ability to continue operations. Accounting Department: An impairment test is conducted on assets such as factories, machinery, or other assets to determine whether they can still generate a return commensurate with their recorded book value. If it is found to be unprofitable, the accounting department will record an “impairment loss” to reduce the asset’s value to reflect its true value. This includes preparing projected earnings or cash flow data to support this assessment.	The auditor assesses whether the company’s assets still retain their useful value by considering whether the plant, machinery, or other assets are still generating a return commensurate with their book value. If not, a “loss of impairment” may need to be recorded to reduce the asset’s value to a more accurate reflection. Additionally, auditor should consider whether the management has appropriately assessed the going concern in light of the relevant impacts.
2. Supply chain disruption Impact: If raw materials or key components are delayed, the factory may not be able to produce goods as planned, resulting in decreased sales or increased costs from finding new suppliers and potentially leading to loss of customers Example: An electrical appliance factory might have to temporarily halt production lines due to a shortage of key components from overseas.	Management: Source and negotiate with new suppliers or alternative raw material sources to minimize production line disruptions and update short – term financial forecasts and business plans. Accounting Department: Review and revise assumptions in sales and profit forecasts and business plans used to prepare financial statements to ensure they accurately reflect the impact of supply chain disruptions at the end of the period.	The auditor will consider whether the entity’s operations and estimates remain reasonable by examining whether the entity has reflected these impacts in its sales and profit estimates and business plans used in preparing the financial statements.
3. Increased transportation and freight cost Impact: When some shipping routes become risky, cargo ships have to detour, resulting in increased time and fuel consumption, thus raising transportation costs. Imported or exported goods may have significantly higher costs. Example: An item that previously had a total cost of Baht 100 may now cost Baht 120 after increased transportation costs, while the market selling price remains at only Baht 110.	Management: Manage the risk of price volatility and transportation costs arising from war through forward purchase contracts (Commodity Contract) and consider the commercial viability of the goods. Accounting Department: Verify the value of inventory against its net realizable value (NRV). If the cost (e.g., Baht 120) is higher than the selling price (e.g., 110 Baht), the accounting department must record “inventory devaluation” and consider establishing “provisions for onerous contract” if there are long – term contractual obligations and disclose additional risk information in the notes to the financial statements.	The auditor will assess whether inventory still has a saleable value that justifies the incurred costs. If costs exceed the expected actual selling value, the auditor will check whether the entity has recorded inventory write-downs to prevent the financial statements from overstating inventory values. Furthermore, if the entity has forward purchase or commodity contracts, the auditor will closely assess the impact of price volatility and transportation costs resulting from wartime conditions, as this could cause market prices to fall below contractual costs. This would necessitate considering inventory write-downs, recognition of losses from onerous contracts, or further disclosure of related risks in the notes to the financial statements.
Customers delay payments or face a risk of default Impact: In uncertain economic conditions, some customers may experience decreased sales, lack of liquidity, or financial difficulties, increasing the risk of not being able to pay on time. Example: Key customers who previously paid within 30 days may begin delaying payments to 90-120 days or requesting negotiations for extended payment terms.	Management: Strengthen credit policies, closely monitor and expedite debt collection, and negotiate debt restructuring or payment terms with borrowers to prevent liquidity problems. Accounting Department: Analyze accounts receivable aging report and assess increasing credit risk to calculate and establish sufficient “Expected Credit Loss (ECL)” or allowance for doubtful debts, ensuring that accounts receivable assets are not overvalued.	The auditor will assess the adequacy of the allowance for Expected Credit Loss (ECL) by considering whether the entity has adequately set aside provisions for such risks to prevent accounts receivable from being overvalued compared to their actual recoverable value, which could impact the business’s liquidity and lead to going concern.
5. Volatility in Investment Value Impact: War often causes volatility in equity markets, bond markets, and exchange rates. Many investors adjust their portfolios, resulting in rapid fluctuations in security prices. Example: If a company has investments in foreign stocks and the stock value falls significantly during a period of market anxiety over a conflict situation.	Management: Closely monitor capital market volatility and consider adjusting asset allocation strategies to mitigate the risk of losses. Accounting: Verify market prices at the end of the accounting period and use appropriate market information to assess the fair value of investments. Accurately record profits/losses or estimated impairment losses on investments in accordance with the accounting standards and prepare risk disclosure information.	The auditor will verify the accuracy and assessment of the fair value by verifying that the entity used appropriate market information to value investments, estimate impairment losses, and adequately disclose various risks.
6. Contracts that were previously profitable may become loss-making Impact: Some businesses undertake long-term contracts with fixed selling prices or service fees. However, when war breaks out, the cost of raw materials, transportation, or labor increases far beyond expectations.   Example: A construction company agrees to build a project worth Baht 500 million, but the remaining construction costs increase to the point where the project is expected to result in a loss.	• Management: Strictly control remaining operating costs, negotiate price adjustments with counterparties (if contracts allow it), or consider new project management plans.   • Accounting: Review and revise the estimated total costs until project completion. If a loss is detected, the accounting department must establish a “Provision for Contract Liabilities” to recognize the entire projected loss in the financial statements immediately.	The auditor will consider whether the entity needs to recognize the loss immediately by examining whether the entity has already recorded estimated expected losses to prevent the financial statements from appearing overstated.
7. Liquidity and Going Concern Risk Impact: If costs continue to rise while sales decline, the entity may face working capital shortages or higher debt burdens. Example: Transportation businesses experience significant increases in fuel costs, leading to substantial increases in operating costs. However, revenue cannot increase at the same rate, resulting in continuously negative cash flow from operations and reliance on loans from financial institutions. Alternatively, the entity may be unable to secure loans due to lenders’ concerns about the entity’s ability to repay. Furthermore, an economic slowdown may cause delays or non-payment by trade receivables, while the entity continues to pay suppliers for goods and services. This results in tight working capital and may impact the entity’s ability to continue operating.	• Management: Develop contingency funding plans, negotiate extensions of debt repayment terms with suppliers, review debt repayment capacity, and strictly monitor compliance with debt covenants. This includes evaluating indicators and assumptions regarding the going concern of the business. • Accounting: Prepare detailed and regularly updated cash flow forecasts, collaborate with management in analyzing financial ratios, and prepare material disclosures regarding assumptions and uncertainties in the notes to the financial statements.	The auditor will assess whether the entity can continue operating by analyzing cash flow, financing plans, debt repayment capacity, ability to comply with debt covenants, and management’s assessment of the going concern to determine whether the entity can continue operating in the near future. This information will be adequately and appropriately disclosed in the notes to the financial statements.

Having read this far, many of you may be wondering which of these risks apply to your company’s financial statements, or the financial statements of the company you are currently auditing. Don’t worry! We have a “Checklist of 7 Key Issues from War” . This tool serves as a guide for management and accounting departments in identifying early warning signs, planning risk mitigation, and comprehensively reviewing the business’s accounting entries. At the same time, it helps auditors visualize how to accurately and easily verify figures to address fluctuations.

Summary
The impact of current wars is not limited to countries in conflict zones but can affect businesses worldwide through energy prices, transportation costs, supply chains, and economic uncertainty.
Therefore, under these challenging circumstances, all sectors have roles and responsibilities that must be coordinated and aligned systematically:

• Management: Key responsibilities include assessing strategic risks, reviewing operational plans, managing liquidity, and setting direction to ensure business continuity.
• Accounting Department: Their primary responsibility is translating business impacts into accurate figures in accordance with financial reporting standards, reviewing the measurement of assets and liabilities (e.g., impairment, inventory, bad debts), and preparing transparent risk disclosures in financial statements.
• Auditors: Have the responsibility to independently assess risks, verify information, and ensure that financial statements accurately and reliably present the financial position and performance of the entity to reflect the reality.
  For financial statement users, the most important thing at this time is not just about acknowledging whether a business has been impacted, but about deeply understanding whether the management and accounting department have adequately assessed and reflected those impacts in the financial statements with the auditor providing an additional level of assurance and verification to ensure that financial statements remain the most powerful and reliable tool for business decision-making in the current challenging geopolitical and economic climate.

References:

1. Federation of Accounting Professions under the Royal Patronage of His Majesty the King, relevant Thai Financial Reporting Standards, including TAS 1, TAS 2, TAS 36, TAS 37, TFRS 9, and TFRS 13.
2. Federation of Accounting Professions under the Royal Patronage of His Majesty the King, Thai Standard on Auditing (TSA) 540 (Revised), “Auditing Accounting Estimates and Related Disclosures.” And Thai Standard on Auditing (TSA) 570, “Going Concern.”
3. Federation of Accounting Professions under the Royal Patronage of His Majesty the King, Thai Standard on Auditing (TSA) 570, “Going Concern.”

Written and compiled by
Panthipa Paoyusuk
Dharmniti Auditing Co., Ltd.