What is a financial year and how is it different from a calendar year and the implications thereof for owners of an entity?
“Compliments of the New season!!!”
A term commonly used by individuals at the beginning of a new year, in a business setting does the new year represent a new financial year?
A calendar year always begins on New Year’s Day (1 January) and ends on the last day of the year (31 December) whereas a fiscal year can start on any day (as per your entity incorporation documents) and end precisely 365 days later.
The fiscal year reflects on the financial performance of the entity for the period, it is determined by the owners of the entity and will depend on when the company does business and as such will prepare its financial statements based on transactions taking place between these dates.
The financial year for businesses helps to establish consistent accounting practices and tax reporting.
The implications for directors at the end of each fiscal year are to declare and file the annual returns and tax returns to the relevant authorities such as CIPC and SARS in order to retain their active status.
Failure to comply with the filing requirements may result in de-registration and penalties/fines and possible imprisonment due to non-compliance.
To conclude, it is important to note that the directors of a company should exercise due care when it comes to the company’s year-end as it will ensure compliance across the board with all the relevant authorities and potential investors.