Balance Sheet Risk · Impairment · Board Governance

The stranded asset problem

When accounting standards designed for a stable world meet a world that no longer is. Four concurrent shocks. One inadequate testing cycle. A governance model built for a different era.

Alex Kruzel January 2026

Container ships at port, global trade and supply chain infrastructure

Concurrent shocks invalidating balance sheet assumptions simultaneously

20%

Global oil & LNG supply disrupted by Strait of Hormuz closure

Tens of $B

In IEEPA tariffs paid since 2025 that could become subject to refund if the Supreme Court upholds the Learning Resources challenge verify: case status

12–14×

PE acquisition multiples now sitting on balance sheets with broken assumptions

Every era of disruption eventually produces its own accounting problem. A gap between what assets were believed to be worth and what the world, having changed, now says they are. The 1970s oil shock did it. The 2008 financial crisis did it. Each time, the reckoning arrived not as a sudden revelation but as a slow accumulation of assumptions that had quietly stopped being true, until the balance sheet could no longer hold them.

We are in that kind of moment now. The difference is that this time, the assumptions are being invalidated from multiple directions at once. A pending Supreme Court challenge that could unwind a year of tariff-driven restructuring decisions, a credible Gulf-conflict scenario in which Strait of Hormuz disruption removes a fifth of the world's oil and LNG from global supply, ongoing maritime reroutings of the arteries of global trade, and a deeper deglobalization reshaping which assets, in which geographies, earn what their balance sheets still say they do.

What I find myself thinking about, increasingly, is the nature of the opportunity inside this moment. Impairment is typically framed as loss. A write-down, a charge, a disclosure problem. But an impairment is also clarity. It is the balance sheet finally telling the truth about a strategic reality that management has already been living with.

"Every generation of leaders inherits a balance sheet built on the assumptions of a previous world. The question is never whether those assumptions will be tested. It is whether you will be the one to examine them, or wait for the accounting to do it for you."

Four shocks, one balance sheet

The impairment environment is not a single-variable problem. It is the convergence of four distinct forces. Each consequential on its own terms, and in combination, capable of producing a balance sheet reckoning that no individual function within a company has fully mapped. Click each shock to understand its specific impairment mechanism.

The Stranded Asset

Assets built for a globalized supply chain are no longer earning what they promised

IEEPA Litigation & Trade Uncertainty

If the IEEPA tariff challenge succeeds at the Supreme Court, every DCF model built around the post-2025 tariff regime is invalidated

Gulf Conflict & Energy Prices

Strait of Hormuz closure disrupted 20% of global oil supply, triggering energy cost cascades

Red Sea & Logistics Disruption

Houthi attacks rerouting Suez traffic add weeks and cost, stranding logistics assumptions

The Stranded Asset: Companies made capital investments, factories, tooling lines, distribution hubs, acquired businesses, based on a globalized supply chain that is being restructured faster than the asset can be repurposed or written off. The gap between what an asset was designed to earn and what it now earns in a deglobalized, regionally fragmented world is not yet fully reflected on most balance sheets. Under both GAAP and IFRS, that gap must eventually surface.

IEEPA Litigation: Learning Resources, Inc. v. Trump and consolidated cases challenging the IEEPA tariff regime are working through the federal courts. If the Supreme Court ultimately holds that IEEPA does not authorize tariffs (a power constitutionally reserved to Congress) every sourcing decision, nearshoring investment, and supply chain restructuring made on the assumption of sustained IEEPA tariffs would rest on a legally vacated foundation. verify: case status as of filing The administration's most likely bridge authority is Section 122 of the Trade Act of 1974, which permits up to 15% emergency tariffs for 150 days. Tens of billions in IEEPA tariffs paid since 2025 could become subject to refund. Refund mechanics, sequencing, and statute-of-limitations carveouts remain unresolved.

Gulf Conflict & Hormuz Scenario: A scenario in which Iran closes or substantially restricts the Strait of Hormuz, through which approximately 20% of global oil and significant LNG volumes transit, would in IEA framing represent one of the largest single energy-security shocks on record. In a base-case modeled disruption, Brent crude surges 10-13% initially, with analysts forecasting $100+ per barrel; European gas benchmarks (Dutch TTF) nearly double; QatarEnergy declarations of Force Majeure become plausible; and even post-ceasefire, queues of loaded tankers (200+ in the modeled scenario) wait inside the Gulf.

Red Sea & Logistics Disruption: Houthi-controlled Yemen resumed attacks on commercial shipping, forcing Suez Canal traffic to reroute around the Cape of Good Hope, adding 10–14 days to transit times and materially increasing freight costs. Combined with Hormuz restrictions, the compounding effect on global shipping creates input cost inflation, inventory buffer requirements, and working capital strains that directly affect discount rate assumptions and cash flow projections used in impairment testing.

Aerial view of container port at night, global trade infrastructure

Which industries face the greatest risk

Impairment risk is not evenly distributed. The companies most exposed are those where asset intensity is high, supply chain geography is complex, and the business model embedded assumptions about trade policy and energy cost that are now in question.

Sector	Primary Risk Driver	Impairment Type	Exposure
Industrials & Manufacturing	Tariff regime flip; stranded tooling & factory assets	PP&E, goodwill	Critical
Energy & Chemicals	Hormuz-driven input cost shock; feedstock disruption	PP&E, intangibles	Critical
Logistics & Transportation	Red Sea rerouting; trade volume compression	PP&E, route rights	Critical
CPG & Food Production	Fertilizer/sulfur supply shock; energy cost inflation	Intangibles, PP&E	High
Automotive	Steel/aluminum tariff volatility; tooling write-downs	PP&E, goodwill	High
Pharma & Life Sciences	Tariff-driven pricing pressure; API supply disruption	IPR&D, goodwill	Elevated
Semiconductors & Tech	Helium supply constraints; Asia-sourcing disruption	PP&E, intangibles	Elevated
Retail & E-commerce	Import cost inflation; de minimis suspension	Intangibles, goodwill	Moderate

The two governance failures I see most often

When I work with companies on impairment risk, the accounting is rarely the core problem. The governance is. Specifically, I observe two structural failures that compound each other.

①

Impairment as Compliance, Not Strategy Signal

Management teams present impairment models to audit committees as a disclosure exercise: "Here are our assumptions; here is our result; no impairment required." What is missing is the strategic conversation: what do these assumptions tell us about where the business is headed? A company that passes its impairment test on optimistic base-case cash flow projections may still be carrying assets whose real economic life has fundamentally changed. The accounting result and the strategic reality are not the same thing.
②

Siloed Analysis: Legal, Operational, and Financial Never Meet

In most companies I advise, the legal team is analyzing the IEEPA litigation, operations is modeling Red Sea rerouting costs, and finance is running impairment scenarios against tariff assumptions. None of these analyses is integrated into a single stress-test. The discount rate in the impairment model does not reflect the energy cost shock. The sourcing plan does not account for legal uncertainty around tariff refunds. The result is a balance sheet exposure that no single function has fully mapped.

What Good Looks Like

The boards managing this well are requiring a unified impairment stress-test at least quarterly. One document that maps trade policy scenarios, energy cost ranges, and logistics disruption factors against carrying values, WACC assumptions, and covenant thresholds simultaneously. It is not easy to produce. But it is the only way to see the actual exposure.

Two companies, two different conversations

The impairment risk is real for public and private companies alike. But the dynamics differ in ways that matter for how boards should frame the conversation.

Public Companies

Annual GAAP impairment testing required; interim testing triggered by quarterly macro shifts
SEC comment letter risk if tariff-driven asset risk is inadequately disclosed
Analyst community watching for goodwill write-downs as signal of acquisition underperformance
Earnings volatility from non-cash impairment charges affects guidance credibility
Covenant exposure amplified by public debt structure and rating agency scrutiny

Private / PE-Backed

Triggering-event-only test creates risk of deferred recognition, comfort can mask exposure
Assets acquired at 12–14× EBITDA now sitting on balance sheets with broken assumptions
Impairment charges shrink equity, shift leverage ratios, and can trigger technical debt default
Exit multiple compression means the real write-down surfaces at transaction, not on the balance sheet
Tension between GAAP timing and sponsor fund lifecycle creates recognition pressure

Public Company Focus

Public companies face the most immediate and visible impairment pressure. The quarterly reporting cycle means that material triggering events. A Supreme Court ruling, a Strait closure, a Red Sea rerouting, must be evaluated against interim impairment testing requirements in real time.

SEC scrutiny on adequacy of sensitivity disclosure. How tariff scenarios affect asset values
Investor relations exposure if impairment charges arrive without prior signaling
Peer benchmarking pressure: if a competitor avoids impairment while you incur it, the narrative is set
Companies like GM ($4–5B flagged revenue impact), UPS ($46M impairment Q4 2024), and Teva ($517M long-lived asset charge) illustrate the breadth of exposure

Private / PE-Backed Company Focus

PE-backed companies are carrying a compounding set of impairment pressures that interact in ways that are systematically underacknowledged by sponsors, lenders, and the companies themselves.

The exit gap:The real impairment will surface at exit, when a market buyer applies current multiples to current cash flows, and the gap to carrying value becomes impossible to obscure
The covenant trap:Impairment charges reduce equity, alter debt-to-asset ratios, and can trigger technical covenant default before anyone has framed it as an impairment question
The timing tension:GAAP is clear about when impairment must be recognized. Sponsor fund timelines have a different logic. The gap between those clocks is where governance risk lives
Triggering-event complacency:Private companies test only when triggered. But the current environment is generating triggers continuously. Quarterly review is the appropriate cadence

Questions that should be on the table

These are the strategic and governance questions that the current moment demands, not the compliance checklist, but the questions I believe boards and C-suite leaders should be asking. Expand each for context.

The IEEPA litigation will not resolve the trade policy environment. It will change it. If IEEPA tariffs are struck down, the administration's most likely bridge authority is Section 122 of the Trade Act of 1974, capped at 15% for 150 days. Tens of billions in tariffs previously paid would become candidates for refund, but the mechanics are unresolved. Every DCF model built on IEEPA tariff assumptions needs to be rebuilt against multiple legal-outcome scenarios. Boards should require finance and legal to present a joint analysis.

In the modeled Hormuz disruption scenario, energy cost assumptions are structurally altered: even post-ceasefire, the strait remains partially restricted, with 200+ loaded tankers queued inside the Gulf and European gas benchmarks nearly doubling. If your impairment model uses pre-crisis energy cost assumptions in its cash flow projections, you should stress-test against this scenario. It may be materially understating the discount between recoverable value and carrying value.

The 2020–2022 M&A cycle produced large goodwill balances carried at acquisition-era assumptions, revenue growth projections, cost synergies, and WACC inputs that do not reflect the current environment (the combination of higher discount rates) compressed margins, and demand uncertainty creates the conditions for the most significant goodwill impairment cycle since the post-GFC period. Boards should require finance teams to run a current-market-multiple sensitivity scenario alongside the GAAP test.

The CFO is watching covenants; the audit committee is watching impairment. But the two analyses are rarely integrated. Impairment charges reduce equity, shift leverage ratios, and can trigger technical covenant violations before management has finished the impairment disclosure process. PE-backed companies operating near covenant limits should be running a joint scenario analysis: what impairment charges across which assets would trigger a covenant threshold, and what is the lead time for a waiver conversation with lenders?

GAAP requires interim impairment testing whenever triggering events occur. Triggering events have arrived in rapid succession: tariff escalation, a Supreme Court ruling, a Gulf conflict, Hormuz closure, Red Sea disruption, energy price spikes. An annual impairment test is not a reasonable control environment in this context. Audit committees should require interim impairment assessments tied to material macroeconomic developments, not calendar cycles.

Unexpected impairment charges destroy investor confidence in management's forecasting ability more than the charges themselves (companies that have not communicated the conditions under which they might face impairment, sensitivity analyses, scenario ranges, assets most at risk) are setting themselves up for a trust problem. The disclosure conversation is not the audit committee's alone. It is a CEO and CFO question, with board oversight. The narrative should be established before the number is.

The Question That Has My Attention

What if the testing cycle itself is the problem, and impairment, as a concept, is structurally lagging the pace of the world it is supposed to measure?

Impairment accounting was designed for a world where disruptions were episodic. A factory fire, a failed acquisition, a lost contract. The current environment is different in kind, not just degree. Hormuz volatility, the IEEPA tariff litigation, Red Sea rerouting, and the deglobalization of supply chains are not one-time events to be absorbed. They are structural reconfigurations of the global economic order that arrived within months of each other.

If assets are now earning less, structurally, persistently, due to a fundamental change in the global context in which they operate (But the testing cycle is annual and the triggering-event standard is case-by-case) are we building hidden exposure across the economy that will only become visible when it can no longer be deferred? And if that is true for public companies, it is doubly true for PE-backed portfolios, where the impairment is invisible until the exit forces it into the open.

I do not have a clean answer. But I believe it is the most important governance question on the balance sheet right now, and the boards that are asking it are the ones best positioned to act before the accounting compels them to.

For advisory engagement or speaking inquiries, visit alex-kruzel.com or telestostrategy.com.

Alex Kruzel

CEO & Founder, Telesto · Board Director · Author

Sources: Supreme Court of the United States, International Energy Agency, Financial Accounting Standards Board, IFRS Foundation, US Securities and Exchange Commission, Office of the US Trade Representative, US Customs and Border Protection. All data points cited from publicly available regulatory filings, industry research, and judicial decisions.