Fiscal year

From Wikipedia, the free encyclopedia

A fiscal year (or financial year or accounting reference date) is a 12-month period used for calculating annual ("yearly") financial reports in businesses and other organizations. In many jurisdictions, regulatory laws regarding accounting require such reports once per twelve months, but do not require that the twelve months constitute a calendar year (i.e. January to December).

A new company or business has to decide at the beginning on which month its fiscal year will start. In the United States, the business' tax year is the same as its fiscal year, and must file its tax return by the 15th day of the third month following the fiscal year end. That is, if the fiscal year ends on December 31, then the return is due by March 15. The financial results presented to shareholders are therefore a "photograph" of company's accounts at the accounting reference date.

Disparity with the calendar year

Often the fiscal or tax year is specifically established not to match the calendar year so that accounting year-end work does not coincide with periods of high activity (e.g., the Christmas shopping rush for retailers -- see below) or with holiday periods when employees may prefer to take vacation.

A popular use of a non-calendar year as the fiscal year involves retailers. In many countries, at the end of December, levels of inventory, receivables and payables will be higher than at other month ends and consequently more complex and time-consuming to measure accurately. Therefore, retailers commonly use a month other than December to end their fiscal year. (January is a popular choice, since by the month's end activity levels will have fallen substantially.)

In addition, many companies find that it is convenient for purposes of comparison and for accurate stock taking to always end their fiscal year on the same day of the week, where local legislation permits. Thus some fiscal years will have 52 weeks and others 53. Major corporations that adopt this approach include Cisco Systems and Tesco.

In the United Kingdom, a number of major corporations that were once government owned, such as BT Group and the National Grid, continue to use the government's fiscal year (which ends 31 March) as they have found no reason to change since privatization.

Nevertheless, for about 65% of publicly traded companies in the United States and for the vast majority of large corporations in the UK and elsewhere, except in Australia, the fiscal year and calendar year are identical.

Operation in various countries

Such fiscal years are typically numbered using a calendar year and quarter thereof. A fiscal quarter is 3 months (1/4 of a year). For example, the United States government fiscal year for 2007 ("FY07", sometimes written "FY06–07") is as follows:

• 1st Quarter: October 1, 2006 – December 31, 2006
• 2nd Quarter: January 1, 2007 – March 31, 2007
• 3rd Quarter: April 1, 2007 – June 30, 2007
• 4th Quarter: July 1, 2007 – September 30, 2007

So the U.S. government's fiscal year begins on October 1 of the previous calendar year and ends on September 30 of the year with which it is numbered. However, as stated above, the tax year for a business is governed by the fiscal year it chooses.

The Australian government's fiscal year begins on July 1 and concludes on June 30 of the following year. This applies for personal income tax and the federal budget. However, some Australian public sector bodies use the calendar year as the financial year instead. In Canada, the United Kingdom, India and Hong Kong, the government's financial year runs from April 1 to March 31, and corporation tax is charged by reference to that period.

In the UK, the personal tax year (which governs liability to income tax and capital gains tax) runs from April 6 to April 5. This reflects the old ecclesiastical calendar, with New Year falling on March 25 (Lady Day), the difference being accounted for by the eleven days "missed out" when Great Britain converted from the Julian Calendar to the Gregorian Calendar in 1752 (the British tax authorities, and landlords were unwilling to lose 11 days of tax and rent revenue, so the 1752/3 tax year was extended by 11 days). From 1753 until 1799, the tax year in Great Britain began on 5 April, which was the "old style" new year of 25 March. A 12th skipped Julian leap day in 1800 changed its start to 6 April. It was not changed when a 13th Julian leap day was skipped in 1900, so the tax year in the United Kingdom is still 6 April.

Companies that are units within a "group" of businesses must all use nearly the same fiscal year (differences of up to three months are permitted in most jurisdictions, such as the U.S. and Japan), with consolidating entries to adjust for transactions between units with different fiscal years, so the same resources will not be counted more than once or not at all.

References

• StreetAuthority.com's Financial Glossary
• www.secfilings.com