Impact of the Middle East war on reporting as of December 31, 2025

The IDW issued a technical note on March 5, 2026, commenting on the effects of the Middle East war on financial and non-financial reporting (see IDW Aktuell).

Background and preliminary remarks

On February 28, 2026, Israel and the US launched a military attack on Iran, killing the country's head of state and religious leader Ayatollah Ali Khamenei, among others. Iran responded immediately with counterattacks and blocked the Strait of Hormuz, one of the most important trade routes for global energy trade and shipping. The armed conflict also increases pressure on supply chains and energy costs and leads to reactions on the goods and financial markets. With regard to the annual and consolidated financial statements as of December 31, 2025, as well as the (consolidated) management reports, the question arises as to how to deal with the changed situation in the geopolitical environment. This is appropriate in cases where the financial statements and management reports have not yet been finalized and audited at the time of the outbreak of war. It should be noted that, in the case of an audit of financial statements, the date of completion of the preparation corresponds to the date of issuance or the date of the audit opinion. This immediately raises the question of how this should be taken into account in the accounting and auditing of the companies concerned. Questions also arise with regard to financial statements that have already been prepared and audited but not yet approved.

Value justification versus value clarification

The armed conflict is a so-called value-justifying event. In terms of content, the questions therefore relate in particular to the reporting requirements in the notes and the management report for events after the balance sheet date. Accordingly, the accounting consequences (valuation and recognition) based on the cut-off date principle (Section 252 (1) No. 3, possibly in conjunction with Section 298 (1) HGB) are generally only to be taken into account in the (consolidated) balance sheet and (consolidated) income statement of consolidated/annual financial statements with a reporting date after February 27, 2026. An exception applies only in cases where the outbreak of war means that, at the time of preparation, audit, or approval of the financial statements, it can no longer be assumed that the company will continue as a going concern. In such cases, the event on February 28, 2026, and its consequences will have a retroactive effect on the previous reporting date. This is because it will no longer be possible to assume that the financial statements will be prepared and measured on a going concern basis as of December 31, 2025. For accounting in accordance with IFRS (IAS 10), the consequences under commercial law apply accordingly.

Supplementary reporting

If and to the extent relevant, the supplementary report must disclose the nature and extent of the material financial effects of the war in the Middle East. The impact on the reporting entity must be assessed on a case-by-case basis. In this context, it is not mandatory to provide specific quantitative information; however, qualitative disclosures must adequately describe the effects of the war on the net assets, financial position, and results of operations. The period for which the financial effects are to be presented begins at the start of the following fiscal year (in the case of a fiscal year that coincides with the calendar year, this is January 1, 2026) and ends with the completion of the financial statements (in the case of audited financial statements, this is the date on which the audit opinion is issued). IFRS (IAS 10) also requires reporting on significant events after the balance sheet date.

Risk reporting

The risk report must disclose the effects of the war in the Middle East if the possible further developments could lead to negative deviations from the forecasts or targets of the company or the group and if this is a significant individual risk and otherwise no accurate picture of the risk situation of the company or the group would be conveyed (see DRS 20.11 and 20.146 ff.). The risk report must not only include risks that already existed at the end of the financial year, but must also report on significant risks and changes in the risk situation up to the date of preparation of the management report (see DRS 20.155).

Forecast reporting

DRS 20.133 allows certain simplifications for the forecast report “if special circumstances lead to exceptionally high uncertainty regarding future developments due to macroeconomic conditions and therefore significantly impair the company's ability to make forecasts” (DRS 20.133). In such cases, “comparative forecasts or the presentation of the expected development of the financial and non-financial performance indicators used for internal control in various future scenarios, stating their respective assumptions” are sufficient in exceptional cases (DRS 20.133).

In the opinion of the IDW, companies whose activities are significantly affected or, according to reasonable expectations, will be affected by the direct and/or, above all, indirect effects of the war in the Middle East the conditions for claiming this relief may be met, given the exceptionally high level of uncertainty regarding future prospects and the resulting significant impairment of companies' ability to make forecasts. In these cases, comparative information on the company's future development in comparison with its past development is sufficient. In the opinion of the IDW, a blanket reference to the war in the Middle East and its consequences alone is not sufficient.

How the degree of uncertainty changes as the time between the outbreak of war and the date of preparation of the (group) management report increases must be assessed on a case-by-case basis and at the time of preparation, audit, or approval.

In its guidance, the IDW also correctly clarifies that, despite all the uncertainty, it is not permissible to completely dispense with forecast reporting.

Pending approval/ratification by the competent body

If the annual or consolidated financial statements were prepared, audited, and an appropriate audit opinion issued before the outbreak of the war (February 28, 2026), but have not yet been approved or adopted by the competent corporate body, this body must decide whether the developments that have occurred since the completion of the preparation and auditing of the annual/consolidated financial statements and the (consolidated) management report are so significant for the company or the group that the audited annual/consolidated financial statements and/or the audited (consolidated) management report should be amended before the annual/consolidated financial statements are approved or adopted.

In cases where, at the time of the adoption/approval of the financial statements, it can no longer be assumed that the company will continue as a going concern due to the effects of the war in the Middle East, the financial statements and management report must be amended. Such an amendment to the annual/consolidated financial statements and/or (consolidated) management report entails the requirement for a supplementary audit in accordance with section 316 (3) sentences 1 and 2 of the German Commercial Code (HGB).

Impact on non-financial reporting

In its technical note, the IDW also comments on the question of what significance the outbreak of war may have in connection with non-financial (consolidated) reporting as of December 31, 2025, if this is carried out voluntarily using the ESRS as a framework. The IDW concludes that events after the balance sheet date must be taken into account in accordance with ESRS 1.94. Reporting must be carried out if the company has identified significant effects of the outbreak of war on non-financial reporting. In this case, at least qualitative information must be provided, as ESRS 1.94 does not require quantitative information.

Selected practical issues

For the annual and consolidated financial statements and the (consolidated) management reports for the calendar year-end fiscal years ending on December 31, 2025, various issues arise for the reporting company and the auditor. The following aspects, among others, should be noted:

• increased risk of misstatements in the financial statements in the supplementary report and in the risk reporting;
• relevant events after the balance sheet date but before the date of the audit opinion;
• assessment of forecasts and the continued validity of the going concern assumption;
• reporting on risks that could jeopardize the company's continued existence and facts that could impair its development;
• notes on the inclusion of a matter related to the war events in the audit opinion;
• communication with those responsible for supervision;
• obligations of the auditor after the audit opinion has been issued but before it has been determined/approved by the competent body.

In addition to the above-mentioned aspects, which initially cover the issue of how to deal with the war in the Middle East with regard to a “past” balance sheet date, i.e., typically how to deal with the new situation since February 28, 2026, in relation to the closing dates relevant for the fiscal year ending December 31, 2025, numerous further questions will arise in the course of 2026 from the value-determining event of the outbreak of war for current accounting, valuation, and reporting.

Recommendations for practice

In practice, the outbreak of the Middle East war should be assessed individually by the accountant. The aforementioned aspects should be taken into account and documented. There will be many cases in which the preparer of the financial statements concludes that no references should be included in the notes or management report, which is appropriate and justifiable. However, the reasons for this decision should also be documented in a comprehensible manner. Timely coordination between the auditor and the company's governing bodies – both the body responsible for preparing the financial statements and the body responsible for approving them – is recommended.

In individual cases, it may be useful and helpful to include a “negative note” in the supplementary report and/or management report in order to signal to the addressees of the financial statements that the issue of the war in the Middle East has been seen and acknowledged, but that in the opinion of the reporting company (and, in the case of an audit, also in the opinion of the auditor when issuing an unqualified audit opinion), it has no impact on the accounting, valuation, and reporting.

In addition, companies should address the impact of the current situation on their ongoing accounting as soon as possible. In doing so, they should assess all effects on the accounting and valuation of assets and liabilities, on the accounting entity's planning, financing and business continuity, as well as any reporting requirements in the notes and management report. This applies in particular to companies whose balance sheet date ends after February 27, 2026. This is because in these financial statements, the war in the Middle East represents a value-determining event that must be taken into account for corporate reporting.