Navigating tariff turbulence: Strategic insights for risk and audit leaders

The uncertainties unleashed by changing tariffs create a host of challenges for enterprise risk and compliance teams. These include financial complexities, supply chain bottlenecks, operational inefficiencies, and compliance nightmares, illustrating how tariff-related risks have a ripple effect across key business functions – and the urgency for businesses to dynamically reassess their strategies enterprise-wide.

Tariffs have a direct impact on company financials, affecting revenue recognition, inventory valuation, and pricing strategies. For example, rising material prices and production costs can disrupt cash-flow planning and increase budgetary stress. Additionally, materiality thresholds for various disclosures may change with alterations to business models, and businesses may need additional disclosures for cross-border transactions and tariff impact.

Key risk mitigation actions

• Develop robust controls for variable pricing contracts and allow for tariff-related price adjustments

• Reassess inventory valuation methods to account for potential obsolescence or stockpiling due to uncertainties. AI-enabled digital models can enable you to continually run inventory supply network scenarios to better respond to unexpected shocks

• Strengthen financial disclosures by including hedging strategies and exposure in filings, as well as tariff cost impact, in your management discussion and analysis

Changes in tariffs often have a cascading impact on supply chains, triggering price hikes, contract renegotiations, and delays due to rerouting. Rapid supplier churn can also lead to an uptick in third-party fraud, especially when companies have little time or money to evaluate new vendors and assess risk. Moreover, new payment processes can create opportunities for payment fraud.

To make matters worse, increased risk exposures also mean higher insurance premiums and stricter underwriting requirements.

Key risk mitigation actions

• Adopt multisupplier models to reduce dependency on single sources

• Strengthen your third-party risk management processes and use third-party risk management platforms with AI-enabled inherent risk assessment

• Run regular comprehensive audits of supplier networks to identify tariff exposure and maintain product quality

• Use technology, such as AI-powered digital twins, to simulate supply chain conditions, enhance supply chain transparency, and manage disruptions dynamically

• Invest in advanced verification technologies

The regulatory and compliance implications of tariff uncertainty run deep. Businesses must navigate evolving customs laws, check for compliance with free trade agreements, and reclassify goods under updated Harmonized System codes – a global product classification system created by the World Customs Organization, used by over 200 countries and economies to shape their customs tariffs. Errors in product classification or origin documentation can lead to fines, shipment delays, or loss of preferential duty treatment. Additionally, World Trade Organization rules require countries and companies to follow agreed trade practices, and violations – intentional or not – can have devastating consequences, including trade disputes and sanctions.

Beyond tariffs, regulatory frameworks such as US sanctions laws and the Foreign Corrupt Practices Act have extraterritorial reach, which means that companies must assess and monitor compliance even when operating across borders. As customs authorities tighten reporting requirements – such as declaring accurate product origin, value, and transaction structures – businesses must strengthen internal controls, risk management, and disclosures. In this climate, regulatory compliance is no longer just about avoiding penalties; it's a strategic function vital to protecting operations, supply chains, and long-term market access.

Key risk mitigation actions

• Reassess compliance frameworks, review documentation, and deliver accurate reporting in line with tariff-related laws

• Hold regular audits to identify potential errors in origin declarations, classification, or other entry-specific items that impact duties owed

• Harness analytics and automation for real-time visibility of trade flows, tariff changes, and compliance indicators

• If supplies are rerouted to mitigate tariffs, review transfer pricing compliance

Heightened economic tensions often come with an increased risk of cyberattacks. Critical infrastructure, key vendors, and networks may become prime targets of cyber retaliation by state-sponsored actors or opportunistic individuals exploiting uncertainty and chaos. At the same time, in a bid to cut costs, companies may shift to less reputable suppliers overnight, with little time for due diligence, increasing vulnerabilities.

A changing supplier network may also increase counterfeit risks in IT infrastructure and hardware. And longer refresh cycles on IT security assets can leave organizations running older, less secure systems.

Key risk mitigation actions

• Enhance threat detection and monitoring systems to identify and respond to cyberthreats promptly

• Tighten cloud security policies as organizations shift workloads to new providers amid trade instability

• Conduct rigorous cybersecurity audits for existing and new IT vendors to maintain strong security postures

• Diversify IT suppliers to reduce dependency on a single source and mitigate vulnerabilities

The complexity of tariff-related risks requires businesses to create dedicated teams to tackle emerging challenges. A specialized risk task force –  professionals from across finance, supply chain, risk, compliance, taxation, and technology – can evaluate the dynamic risk landscape and implement proactive measures to stay ahead. This task force will be key to enabling:

1. Dynamic risk assessment: Continuously review the impact of tariffs on operational and financial risks, integrating insights from tax, trade, and supply chain teams

2. Proactive mitigation: Define third-party risk trigger points and dependencies, and perform what-if analysis and scenario planning for different variables

3. Technology integration: Use data analytics and AI-based tools to monitor emerging risks and support critical decision-making

4. Transparent governance: Accurately disclose the financial implications of tariffs in financial statements and give leadership and the board a view of tariff-related risk exposures and mitigation strategies

Tariffs are no longer just a trade issue; they represent a complex network of risks that impact every aspect of an organization. For risk and audit leaders, the responsibility is clear: they must help their businesses seize the opportunity to transform uncertainty into a competitive advantage. Through effective risk assessments, enhanced controls, and innovative use of technology, organizations can weather the storm unleashed by tariff disruptions while maintaining investor confidence and operational integrity.

Your organization's success depends on dynamic action today. Equip your teams, build expertise, and establish a framework for resilience. Together, these strategies will help you stay ahead in the shifting world of tariffs and trade.