Changes in fiscal periods: Overview, definition, and example
What are changes in fiscal periods?
Changes in fiscal periods refer to the modification of a company’s financial reporting cycle. A fiscal period, also known as a financial year, is the 12-month period businesses use for accounting and tax purposes. Companies may change their fiscal period to align with industry standards, regulatory requirements, or internal financial strategies.
For example, a business with a fiscal year ending in June might change it to December to match the calendar year and simplify tax reporting.
Why are changes in fiscal periods important?
Changing a fiscal period can impact financial reporting, tax obligations, and compliance with accounting regulations. Companies might adjust their fiscal year for various reasons, such as:
- Aligning with parent companies or investors to simplify financial consolidation.
- Adjusting to seasonal business cycles for more accurate financial planning.
- Meeting regulatory or tax requirements in different jurisdictions.
However, changing a fiscal period typically requires approval from tax authorities and regulatory bodies, and it may affect financial reporting obligations, such as tax filings and audit requirements.
Understanding changes in fiscal periods through an example
Imagine a retail company originally set its fiscal year to end in March, but most of its sales occur during the holiday season. To provide a clearer financial picture, the company changes its fiscal year-end to December so that annual reports better reflect peak revenue periods.
In another case, a subsidiary of a U.S. company based in Europe adjusts its fiscal year to match its parent company’s January to December reporting cycle. This change simplifies financial consolidation and ensures consistency across all company divisions.
An example of a changes in fiscal periods clause
Here’s how a changes in fiscal periods clause might appear in a contract:
“The Company may, upon obtaining necessary approvals, modify its fiscal period from a [Previous Period] ending [Month/Day] to a [New Period] ending [Month/Day]. Such changes shall be reported to relevant tax and regulatory authorities in compliance with applicable laws.”
Conclusion
Changes in fiscal periods allow businesses to adjust their financial reporting to align with industry trends, regulatory requirements, or internal management strategies. While these changes can provide benefits such as improved financial planning and regulatory consistency, they also require careful compliance with tax and legal obligations. Companies considering a fiscal period change should consult financial experts to ensure a smooth transition.
This article contains general legal information and does not contain legal advice. Cobrief is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.