Accounting Considerations when Shifting a Fiscal Year

An organization’s fiscal calendar is not set in stone, but it’s often treated like it is. Why? Because it’s extremely cumbersome to move it! And yet, circumstances may arise where an organization really has no other option but to move its fiscal year. A change may be strongly recommended by a trusted advisor, or even required due to major organizational changes.

There are many reasons why an organization could decide to shift a fiscal calendar, but the most common instances are to:

• Facilitate better budgeting and strategic planning
• Increase operational efficiency
• Align the company’s finances with business cycles
• Improve financial reporting
• Allow for easier tax planning
• Sync up with a parent company’s fiscal calendar
• Adhere to government or regulatory requirements
• Meet stakeholder requirements
• Reflect major organizational changes

Undoubtedly, when a business owner, financial leader, or executive team is considering making a fiscal year shift, there is a valid reason to do so because the headache that results is not worth undertaking without good reason! 

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But whatever the reason, an organization should be aware of the implications of changing a fiscal year before they make any changes to their calendar. From an accounting perspective, the key considerations to be aware of are:
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• Financial Statements & Reporting
  When a fiscal calendar moves financial reporting will be affected, so key financial statements will need to be adjusted to keep them comparable across time periods. In these instances, a short fiscal period will likely be used to bridge the gap. 
  
  Understanding how financial reports will be affected is especially important if there is any element of seasonality to the organization. Organizations that have a predictable seasonal component to their expenses or revenue should carefully evaluate the implications of a fiscal calendar shift before moving forward. This is one area where using a consulting accountant or accounting service is extremely beneficial to help unpack the financial implications of making this kind of switch.
  
  
• Tax Fillings & Payments
  The timing around tax filings and payments can be affected when a fiscal calendar is moved, which may have significant implications across tax deductions, credits, and obligations. Tax accountants will be in the best position to advise on how to handle these matters to remain in compliance with state and federal tax codes, while simultaneously minimizing the organization’s tax burden.
  
  
• Applicable Regulations & Industry Standards
  Tax code is not the only compliance area to pay close attention to when shifting your fiscal calendar. A change like this must abide by all applicable legal regulations as well, which is especially important for nonprofit organizations because they often have additional regulatory layers to consider. For instance, in some cases, grant requirements may shape how and when a fiscal calendar can move. Include all applicable teams and personnel across legal, finance, and accounting to ensure that any change will be properly handled with compliance in mind.  
  
  Lastly, this kind of change should also be in keeping with industry standards, especially if there is a possibility of a sale, acquisition, or merger in the organization’s future. Making an ownership change is almost always contingent on being able to identify the organization’s current financial status through a valuation, which can potentially paint the wrong picture if the fiscal calendar being used is vastly different from other organizations in the same industry. 
  
  
•  Stakeholder Communications 
  When an organization decides to move its fiscal calendar the change, and its financial implications, will need to be communicated to investors, key stakeholders, and the board (where applicable). Ensure that the reasoning behind the change is clearly articulated and the subsequent efforts and clean-up needed are thoroughly shared. 
  
  Remember, it’s always better to preemptively share information to get everyone on the same page to avoid conflict and contention later. Strive for transparency and encourage questions to make the process as smooth as possible. When there are more voices included in the conversation, preparedness increases, and the outcome is typically better as well. 
  
  
• Associated Expenses
  As part of your communications don’t shy away from talking about the costs associated with making the change. Shifting a fiscal calendar will often incur expenses related to making accounting system changes and utilizing accounting advisory services. If a fiscal calendar shift is truly necessary, these costs are not frivolous – they are an investment in the organization’s long-term success. 

When your organization needs help making a major financial shift, we can help! Our team of experienced outsourced accountants can come alongside your company or non-profit organization to offer insight and support as you make key changes. We can help your organization determine if determine if shifting its fiscal year is a viable idea, develop a project plan to implement the change if it is, and do the accounting work needed to implement it (or train your in-house staff on how to handle it themselves). 

As fractional accountants, we can offer as much or as little accounting help as you need for as long as you need it. At ASP we specialize in short-term and part-time accounting services for small-to-medium-sized businesses and nonprofits. Contact us to find out more today!
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