What is a Financial Year or Fiscal Year

 

What is Financial Year

This is also termed as a Fiscal year in many countries. This is typically used for calculating annual ("yearly") financial statements in businesses and other organizations. Fiscal years vary between businesses and countries. The "fiscal year" may also refer to the year used for income tax reporting.

Does it vary across countries

Yes, it does vary across the world. There is no globally consistent mechanism for a Financial Year. Here are some glaring examples

In India, the government's financial year runs from 1 April to 31 March (Example 1 April 2012 to 31 March 2013 for the current financial year (2012–2013).

The U.S. government's fiscal year begins on 1 October of the previous calendar year and ends on 30 September of the year with which it is numbered. For example, the United States government fiscal year for 2013 ("FY 2013" or "FY13") is from 1st October 2012 to 30th September 2012

The Australian government's financial year is 1 July – 30 June. The year ending on 30 June 2011 is referred to as "financial year 2010–11" or sometimes just "financial year 2011". This applies for personal income tax and the federal budget, and is the standard for all financial entities in the country.

In China, the fiscal year for all entities starts on 1 January and ends 31 December, consistent with the calendar year.

In the Arab Republic of Egypt, the fiscal year starts on 1 July and concludes on 30 June.

Why Financial Year has to be different from a Calendar Year

Every country has some logic for start and end months for the fiscal year. This logic is primarily based on some historical and cultural reasons and has continued till date.

e.g. These are the reasons why financial year starts in April in India.

1. India was ruled by British for around 150 years, who followed the accounting period of April to March after the adoption of Gregorian calendar system of accounting.

2. Harvesting season starts in April. Being an agricultural country, money starts flowing into the hands of agriculturists and related marketeers only in April. During the British rule, since most of the Britisher's taxes were from the crops, the ruling government prepared its annual budget keeping these crop patterns in mind.

3. Almost in all parts of India, regional new year falls around 13th or 14th April. That is why the Govt. fixed 1st of April as new financial year.

4. One of the other reasons why fiscal year start and end differs from the calendar year start and end (ie Jan to Dec) is also to avoid "year end activities" like X-mas, New Year celebrations etc and financial accounting activities to clash at the same time.

In the next post, i would try to distinguish the Financial Year with the Assessment and Calendar Year.

Happy reading

Manoj Arora