Middle East conflict: Where the impact may arise in financial statements for Thai entities under TFRS

Why this matters now

For many entities, the impact may arise indirectly through factors such as cost inflation, supply chain disruption, changes in interest rates and foreign exchange, as well as pressure on demand and customer credit quality. These developments may, in turn, affect key accounting estimates under TFRS, particularly those that rely on forward-looking assumptions. 

Financial reporting period: When does the impact apply? 

The current escalation of the Middle East conflict is generally considered to have commenced in early March 2026. 

Accordingly, for most Thai entities, the financial reporting implications arise from March 2026 onward, and should be reflected in FY2026 and interim reporting periods.  

From this point, entities are expected to:  

• Reassess key assumptions used in financial reporting, including discount rates, growth projections, and credit risk  
• Reflect the impact in measurement of assets and liabilities, particularly in areas involving forward looking estimates  
• Consider whether impacts are already observable in interim financial information (e.g. Q1/Q2 2026)  

For completeness, the conflict does not affect prior-period measurement but may have required disclosure as a subsequent event. 

Reassessment of forward-looking assumptions 

Many areas of financial reporting rely on projections of future performance. In the current environment, entities may need to revisit key assumptions such as cash flow forecasts, long-term growth expectations, and discount rates to ensure they remain appropriate and supportable. These inputs play a significant role in areas such as impairment testing and fair value measurement, and even modest changes may influence the resulting valuations.  

Relevant standards:  

• TAS 36 – Value in use assumptions  
• TFRS 13 – Valuation techniques and inputs 

Impairment of non-financial assets 

Geopolitical uncertainty may constitute an impairment indicator, prompting entities to reassess the carrying values of non-financial assets. This is particularly relevant for assets such as goodwill, intangible assets, and property, plant and equipment, where recoverability depends on future economic benefits. In practice, even modest changes in key assumptions, such as a slight increase in discount rates, may reduce recoverable amounts, especially where the difference between the asset’s recoverable amount and its carrying value is limited. 

Relevant standards: 

• TAS 36 – External indicators of impairment and goodwill impairment 

Inventory valuation (NRV considerations) 

Changes in demand conditions and cost structures may affect the recoverability of inventory balances. In this context, entities may need to reassess whether inventories continue to be measured at the lower of cost and net realisable value (NRV), taking into account factors such as potential declines in selling prices, increased costs to complete or sell, and slower inventory turnover. 

Relevant standards: 

• TAS 2 – NRV measurement 
• NPAEs Chapter 8 – Inventory valuation 

Revenue and onerous contracts 

Rising input and operating costs may affect the profitability of existing contracts, particularly where pricing cannot be adjusted. In such cases, arrangements that were previously expected to be profitable may become loss-making. Where the unavoidable costs of fulfilling a contract exceed the expected economic benefits, entities may need to recognise provisions to reflect the anticipated loss.  

Relevant standards: 

• TAS 37 – Onerous contracts 
• NPAEs Chapter 14 and 15 – Provisions and commitments 

Credit risk and financial instruments 

Economic uncertainty may lead to a deterioration in credit conditions, which can affect both counterparties and financing arrangements. Entities may experience higher expected credit losses as customers face increased financial pressure, alongside heightened counterparty risk and potential delays in collections. In addition, changes in market conditions may result in higher financing costs, requiring a reassessment of assumptions used in measuring financial instruments and related disclosures. 

Relevant standards: 

• TFRS 9 – ECL model 
• TFRS 7 – Credit risk disclosure 

Foreign exchange and currency risk 

Increased market volatility and potential regulatory restrictions may affect both the measurement and accessibility of foreign currency. Entities may need to reassess whether exchange rates used in financial reporting appropriately reflect prevailing market conditions, as well as consider whether foreign currency balances can be accessed or converted in practice. These factors may have implications for the measurement of foreign currency transactions and related disclosures. 

Relevant standards: 

• TAS 21 – Exchange rates and lack of exchangeability 
• NPAEs Chapter 21 – Foreign currency 

Going concern and liquidity 

In the current environment, entities may need to reassess their ability to continue as a going concern, particularly in relation to liquidity and financing arrangements. This includes evaluating whether projected cash flows remain sufficient to meet obligations as they fall due, whether access to refinancing is still available under reasonable terms, and whether the entity can continue to comply with debt covenants. These considerations may affect both measurement and the need for additional disclosures. 

Relevant standards: 

• TAS 1 – Going concern, judgement and estimates, 
• NPAEs Chapter 3 – Going concern 

Disclosure of risks and uncertainties 

In periods of heightened uncertainty, transparent and meaningful disclosures become increasingly important. Entities may need to provide clear information on key assumptions underlying significant estimates, the sensitivity of outcomes to changes in those assumptions, and any concentrations of risk that could affect financial performance or position. Such disclosures help users better understand the degree of uncertainty and the potential variability in reported amounts.  

Relevant standards:  

• TAS 1 – Estimation uncertainty 
• TFRS 7 – Risk disclosure, TAS 36 – Impairment disclosure 

Final thought 

The impact of geopolitical events may not be immediately visible in reported figures. 

Instead, it is often reflected through changes in underlying assumptions, which, although incremental, can influence financial outcomes over time. 

Accordingly, entities may wish to consider whether such developments have begun to affect the assumptions supporting reported values, and whether further assessment or disclosure is appropriate in light of the entity’s specific circumstances.