Fiscal year
A
fiscal year or
financial year 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).
However, a new company or business has to decide at the beginning on which month its fiscal year will start, and then (generally) stay with it. 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.
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 month 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 and
Tesco.
In the
United Kingdom, a number of major corporations that were once government owned, such as
British Telecommunications and
National Grid, continue to use the government's fiscal year (which ends 31 March) as they have found no reason to change since
privatisation.
Nevertheless, for the vast majority of large corporations in the
UK, the
United States and elsewhere, except in
Australia, the fiscal year and calendar year are identical.
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 2006 ("FY06", sometimes written "FY05â€"06") is as follows:
*1st Quarter:
October 1,
2005 â€"
December 31,
2005*2nd Quarter:
January 1,
2006 â€"
March 31,
2006*3rd Quarter:
April 1,
2006 â€"
June 30,
2006*4th Quarter:
July 1,
2006 â€"
September 30,
2006So 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. 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. However, 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 between
April 6 and
March 25 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 were unwilling to lose 11 days of tax revenue, so the 1752/3 tax year was extended by 11 days).
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.
*StreetAuthority.com's
Financial Glossary
