Preparing for New Tariffs: CFO’s Guide to Manufacturing Cost Planning

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Tariffs aren’t a tax compliance footnote anymore. When effective rates hit 10.1%—the highest since 1946—and country-specific duties range from 15% to 50%, tariff management becomes strategic cost planning that affects margin, working capital, and financial reporting accuracy.

For manufacturing CFOs, the question isn’t whether tariffs will impact your P&L. It’s whether you’ve built the forecasting models, accounting controls, and cost management systems to handle the volatility without material misstatement or margin erosion.

Here’s what effective tariff cost planning actually looks like.

The Financial Planning Challenge: Beyond Line-Item Costs

Tariff increases can reduce gross margins by 6% to 10%, particularly for manufacturers dependent on imported materials. But the financial impact extends beyond direct cost increases:

Margin Compression Dynamics 

Research shows tariffs on imported goods were almost fully passed through to import prices but only partially to retail consumers. Translation: manufacturers absorbed significant tariff costs rather than passing them to customers, directly compressing margins.

For manufacturers in competitive markets, absorbing costs may be unavoidable. The strategic question becomes: at what point does margin compression justify supplier changes, production routing adjustments, or price increases that risk volume loss?

Working Capital and Cash Flow Impact 

increase the amount of working capital tied up in inventory and customs. Longer lead times from alternative suppliers, safety stock increases to buffer supply chain uncertainty, and delayed customs releases all reduce liquidity. For manufacturers managing tight cash positions, that’s material exposure.

Investment Delays and Strategic Planning 

Uncertainty around trade policies puts expansion plans, capital expenditures, and vendor negotiations on hold. When you can’t reliably forecast input costs 12 months forward, committing capital to capacity expansion or long-term supplier agreements becomes significantly riskier.

Internal Controls Over Financial Reporting: The Foundation

Because tariffs introduce new risks and complexities, manufacturers must review internal controls over financial reporting (ICFR) to ensure financial statements remain accurate and compliant. This isn’t back-office compliance work—this is CFO-level risk management.

Critical Control Areas

Identification Controls: Given the rapid pace of regulatory changes, establish processes to monitor and adapt to changes in trade regulations, trade agreements, and product-specific tariff rates. Your AP team needs real-time visibility into rate changes by HTS code, country of origin, and product category.

Measurement Controls: Tariffs affect multiple valuation areas in financial statements. Evaluate controls over:

• Country of origin determination and documentation (affects tariff rates and compliance)
• Product value accuracy (tariffs calculated as a percentage of product value)
• Cost allocation between direct costs (imported products) and indirect costs (transportation, warranty) for USMCA compliance
• Product classification under the Harmonized Tariff Schedule (misclassification leads to compliance issues and financial misstatements)

Compliance Controls: Inadequate processes lead to underreporting of tariffs, exposing businesses to penalties, fines, and reputational risk. Document your classification methodology, maintain audit trails for origin determinations, and implement review controls for high-value imports.

Disclosure Controls: SEC registrants must assess whether to include disclosures about material ICFR changes in quarterly or annual filings. If tariff exposure materially affects financial reporting risk, that’s disclosure-worthy.

Accounting Complexity: Where Tariffs Hit Financial Statements

Tariffs create accounting implications across multiple statement areas. Here’s where CFOs need to focus attention:

Inventory Valuation

Any tariffs levied on inventory purchases are included in the acquisition cost. In volatile environments where goods are purchased at higher costs due to tariffs, determine whether inventory on hand has become impaired due to the inability to pass on those costs to customers.

Under US GAAP, inventory must be measured at the lower of cost or net realizable value. Net realizable value means estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation.

If you’re purchasing inventory in future periods at higher tariff-inclusive costs but can’t raise customer prices proportionally, you likely have impairment. Assumptions about the current macroeconomic environment and their effect on net realizable value should be included in the inventory impairment analysis.

Additionally, manufacturers with noncancelable, unhedged firm purchase commitments for inventory should recognize expected net losses to the extent they’re unable to recover costs through sales.

Long-Lived Asset Impairment

Rising costs attributable to tariffs may constitute a triggering event requiring impairment testing of long-lived assets (property, equipment, finite-lived intangibles, right-of-use assets).

If a triggering event occurs, first assess whether the asset is recoverable on an undiscounted cash flow basis. If the carrying amount isn’t recoverable, calculate fair value and measure any impairment.

Management must assess whether historical assumptions about market participants remain sustainable and how conclusions about those assumptions affect fair value determination. Forward-looking estimates related to long-lived asset impairment should include reasonable macroeconomic factors that are known or knowable as of the reporting period end.

If you’re abandoning assets due to supply chain shifts (closing facilities, relocating production), assess whether you need to test relevant asset groups for impairment and consider whether you must revise estimates that result in accelerated depreciation.

Revenue Recognition and Contract Modifications

Tariffs affect contracts with customers. Review terms and conditions to determine potential impacts on revenue recognition.

Estimate-at-Completion Costs: For manufacturers recognizing revenue over time, use significant judgment in determining whether cost increases from tariffs should be incorporated into the estimate-at-completion cost. This affects revenue recognized in a given period (particularly for entities using the cost-to-cost measure of progress) and could result in significant contract losses if anticipated costs exceed remaining consideration.

When estimating costs to satisfy performance obligations, factor in the expected impact of tariffs and whether they’ll be increased, decreased, or removed. The actual effect of announced tariffs that differ from your estimates would typically be considered a Type 2 subsequent event—meaning management’s estimates as of balance sheet date wouldn’t be adjusted for tariffs announced after that date.

Economic Price Adjustments: Some contracts include clauses that automatically allow cost increases to mirror price increases. Many don’t. When a contract doesn’t include a mechanism for changing input pricing, potential price increases shouldn’t be accounted for until conditions for contract modification are met—an expected price increase isn’t accounted for until it’s enforceable.

Note: Tariffs passed on to customers as contract price increases are not considered taxes concurrent with revenue-producing transactions. Additional amounts billed due to tariffs don’t qualify for the accounting policy election that allows certain taxes to be excluded from the transaction price.

Income Tax Implications

Profitability, liquidity, and impairment concerns associated with tariffs influence income tax accounting in affected jurisdictions.

Reductions in current-period income, actual losses, forecasted income, or future loss forecasts could require reassessment of whether deferred tax assets are realizable and whether a valuation allowance is needed.

Changes in profitability or liquidity from rising costs or intercompany transfer pricing might affect the assessment of whether foreign earnings can remain indefinitely reinvested.

Adjustments to forecasted income must be factored into the estimated annual effective tax rate (AETR). Uncertainty regarding forecasted income might hinder management’s ability to reliably estimate AETR—either because you can’t reliably estimate ordinary income or because AETR is highly sensitive to changes in estimated ordinary income. In such cases, the actual effective tax rate for the year-to-date may be the best estimate of AETR.

Strategic Cost Planning Responses

Beyond accounting accuracy, CFOs need proactive strategies that reduce tariff exposure and protect margins:

1. Map Exposure Beyond Direct Suppliers

Tariff risk isn’t always visible in direct contracts. Trace the origin of materials and components through multiple supplier layers to identify indirect exposure. That Tier 2 supplier in Vietnam may be importing Chinese components subject to 20% tariffs, affecting your landed costs even when you’re not directly importing from China.

2. Model Multiple Sourcing Scenarios

Build scenario-planning tools that simulate tariff changes and show how different duty levels affect margins, cash flow, and inventory requirements. Model:

• Current state with existing tariff rates
• IEEPA invalidation scenario (rates drop to Section 232 levels only)
• USMCA qualification optimization (what if you restructured to qualify more products?)
• Alternative sourcing scenarios (what if you shifted 30% of procurement to USMCA-compliant suppliers?)

These models help you react quickly to trade shifts by adjusting sourcing plans, pricing strategies, or capital allocation.

3. Reduce Dependence on High-Tariff Regions

Shifting procurement to countries with lower trade barriers stabilizes landed costs and reduces exposure to tariff fluctuations. Many manufacturers now source from Southeast Asia, Latin America, or domestic suppliers to manage long-term trade uncertainty.

Nearshoring Advantages: Mexico could represent 36% of US-serving supply chains by 2026, surpassing Canada. Nearshoring offers:

• Preferential tariff treatment under USMCA (duty-free or low-duty entry)
• Lower logistics costs and shorter lead times (reduces working capital tied up in inventory)
• Labor cost advantages with regulatory predictability
• Improved supply chain visibility and responsiveness

4. Optimize USMCA Qualification

For manufacturers sourcing from Canada and Mexico, USMCA compliance is the most valuable tariff exemption available. Products that qualify avoid 25-35% tariffs on non-exempt imports.

Ensure accurate determination and documentation of:

• Regional Value Content (RVC) calculations
• Tariff shift requirements for non-originating materials
• Certificate of Origin with all nine USMCA-required data elements

If products don’t currently qualify, evaluate whether supplier changes or production routing adjustments could bring you into compliance. The cost-benefit analysis typically favors the effort.

5. Coordinate Cross-Functional Response

Finance, procurement, legal, and operations teams must collaborate closely to analyze trade impacts and coordinate responses. Shared visibility into tariff exposure reduces delays, minimizes errors, and improves execution consistency.

Establish regular cadence meetings specifically focused on tariff exposure management. Include representatives from: tax, accounting, procurement, supply chain operations, legal/compliance, and treasury. This isn’t a quarterly review—in volatile environments, this is monthly or more frequent.

6. Manage Currency Risk Alongside Tariffs

Tariffs often coincide with exchange rate fluctuations, thereby compounding costs for manufacturers that rely on imported goods. Identify FX risk and use hedging strategies to protect margins when importing under volatile trade and duty conditions.

The dollar may appreciate in response to tariffs, offsetting potential price increases for US consumers. However, the more valuable dollar makes it more difficult for exporters to sell goods on the global market, resulting in lower revenues. This also results in lower output and income, reducing incentives to work and invest.

Financial Reporting and Disclosure Requirements

Subsequent Events: Tariffs announced after the balance sheet date typically would not result in recognition adjustment to financial statements attributable to that tariff as of the balance sheet date (Type 2 subsequent event). However, the impact of proposed or expected tariffs on accounting estimates based on projected information as of the balance sheet date would generally be similar to that of other macroeconomic conditions.

Entities whose reporting periods end before tariff announcements must evaluate whether the tariffs constitute a Type 1 or Type 2 subsequent event. For Type 2 events, disclose the nature of the event and an estimate of the financial effect (or a statement that an estimate cannot be made) if the absence of disclosure would result in misleading financial statements.

Going Concern Assessment: Due to the effects of tariffs on operations and forecasted cash flows, reevaluate whether the entity has the ability to continue as a going concern within one year after the financial statement issuance date. Provide comprehensive disclosures when events and conditions raise substantial doubt about the going-concern ability, even when management’s plans alleviate that doubt.

MD&A and Risk Factors: Management may need to update disclosures related to risk factors, MD&A, and forward-looking information to reflect the impact of tariffs in various SEC forms. Risk factors might reflect that tariffs will affect cost structures, profitability, and consumer demand, and that strategic adjustments may be needed to address supply chain issues. Companies materially affected by tariffs should consider whether the effects represent material known trends that should be disclosed and quantified in MD&A.

Non-GAAP Measures: Quantifying the tariff impact provides valuable insights, but the SEC staff may question non-GAAP measures that remove it. Such adjustments might be questioned because:

• Increased costs may be recovered through price increases (adjusting only costs could be viewed as “cherry-picking”)
• Given uncertainty, difficult to establish whether costs are nonrecurring versus “new normal”
• SEC staff previously objected to “normalizing” input costs in commodity industries due to challenges ascertaining the “normal” market price

The CFO’s Implementation Roadmap

Immediate Actions (Next 30 Days)

1. Conduct comprehensive tariff exposure assessment by product line, supplier, and country of origin
2. Review ICFR controls related to tariff measurement, compliance, and disclosure
3. Model inventory valuation impact under current tariff environment
4. Assess whether triggering events require long-lived asset impairment testing

Near-Term Actions (Next 90 Days)

1. Build scenario planning models for multiple tariff outcomes
2. Evaluate USMCA qualification opportunities for the current supply base
3. Review revenue contracts for economic price adjustment clauses and modification opportunities
4. Assess income tax implications, including valuation allowance requirements

Strategic Actions (Next 12 Months)

1. Develop an alternative sourcing strategy targeting lower-tariff regions
2. Evaluate nearshoring opportunities for high-volume imports
3. Implement cross-functional tariff management governance
4. Build management reporting dashboards showing tariff exposure by product, supplier, and scenario

Tariffs and Manufacturing Business Stability

Effective tariff cost planning isn’t reactive price absorption. It’s integrated financial planning that connects cost forecasting, accounting controls, supply chain strategy, and financial reporting accuracy.

The manufacturers that navigate 2026 effectively aren’t hoping for policy stability. They’re building forecasting systems that handle volatility, implementing controls that prevent misstatement, optimizing sourcing to reduce exposure, and positioning for potential refunds if IEEPA tariffs are invalidated.

Because when tariff rates hit levels not seen in 80 years and accounting complexity increases across inventory, revenue recognition, and asset impairment, reactive management isn’t adequate. Strategic cost planning is the only approach that protects both profitability and reporting accuracy.

About This Article

This article reflects tariff regulations, accounting considerations, and cost planning strategies as of [Publication Date]. Trade policy and accounting guidance continue to evolve. The information provided is for educational purposes and does not constitute legal, tax, accounting, or financial advice. Consult with qualified advisors for guidance specific to your situation.

Wiss Tax and Accounting Advisory for Manufacturers

Wiss provides integrated tax and accounting advisory services to mid-sized manufacturers navigating complex tariff environments. Our team helps CFOs assess tariff exposure, implement internal controls over financial reporting, evaluate USMCA qualification strategies, and ensure accurate financial statement treatment of tariff impacts. We integrate tariff cost planning with broader tax strategy—including transfer pricing, income tax planning, and international tax positioning—while ensuring compliance with US GAAP and SEC disclosure requirements. Contact Wiss to discuss how tariff changes affect your cost structure, financial reporting, and tax position.

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