Fiscal Year: What It Is, and the Difference from Calendar Year

Most businesses in the Philippines follow the standard calendar year, beginning on January 1 and ending on December 31. However, some organizations adopt a different fiscal year to suit their operational needs.

But what happens when a company chooses a different fiscal year? It might seem like a small change, but it can lead to headaches and confusion when comparing financial data across teams or with industry peers.

To curb the confusion, we’ll explain what a fiscal year is, discuss why some businesses choose alternative fiscal calendars, and provide examples of how fiscal years are applied in various industries.

What is a Fiscal Year?

A fiscal year (FY) is a period of 52 or 53 weeks, or alternatively 12 months, used by companies and governments for accounting and tax purposes. It is often adopted by entities whose operational cycles do not align with the calendar year.

In the Philippines, the fiscal year generally follows the calendar year, starting on January 1 and ending on December 31, for both government and most businesses. However, companies with specific needs or international ties may seek BIR approval to adopt a different fiscal year.

For entities with approved fiscal years that differ from the calendar year, the fiscal year is typically referenced by its end date.

For example, a fiscal year ending on June 30, 2024, would be referred to as “FY 2024.” This method helps ensure clarity in financial reporting and aligns with international standards, though it remains an exception rather than the norm.

Examples of a Fiscal Year

While the fiscal year generally aligns with the calendar year (January 1 to December 31), some organizations may establish fiscal calendars suited to their operational cycles, subject to approval by the Bureau of Internal Revenue (BIR).

Here are some examples of fiscal calendars commonly used in specific contexts within the Philippines:

• Government Agencies: The Philippine government operates on a fiscal year that aligns with the calendar year, from January 1 to December 31, ensuring consistency across government operations and budgeting cycles.
• Educational Institutions: Private schools and universities often align their fiscal year with the academic calendar, typically running from June 1 to May 31 or July 1 to June 30 to coincide with the school year.
• Non-Profit Organizations: Many non-profits in the Philippines, especially those working with international grants, align their fiscal years with the calendar year unless otherwise dictated by donor requirements.
• Retailers: Large retail businesses, especially those managing multiple branches, may request fiscal years ending in March or June to account for post-holiday season stocktaking and sales reporting.
• Seasonal Businesses: Tourism and agricultural businesses may request fiscal years that align with their peak operational seasons. For example, resorts in Boracay or Baguio could align their fiscal year with the tourism high season.

To track accounting processes and tax reporting, many of companies use accounting software–not just to track, but also to manage the sheer volume of data, automate reports and analysis, as well as make sure to comply with the regional regulations.

Bureau of Internal Revenue (BIR) Requirements for Fiscal Year

In the Philippines, tax filings are based on a calendar year, as mandated by the Bureau of Internal Revenue (BIR). Unlike some countries that allow flexibility in choosing a fiscal year, the Philippine tax year runs from January 1 to December 31.

All earnings during this period are considered income for tax purposes. Companies and individuals must file their annual income tax returns on or before April 15 of the following year.

For businesses operating in the Philippines, fiscal years that differ from the calendar year are generally not recognized for tax reporting purposes. Adjustments or deviations require specific authorization from the BIR, which is rare and typically subject to stringent conditions.

While businesses in other countries can adopt a fiscal year by filing their first income tax return observing that fiscal year, the BIR requires all entities to align with the calendar year.

Exceptions may apply in special cases, but these require prior approval and adherence to detailed procedures outlined by the BIR. For organizations looking to change their reporting period, it is essential to consult the BIR and comply with local tax regulations.

Why Do Countries Use a Different Fiscal Year?

Different countries adopt unique fiscal years to suit their governance, business cycles, and reporting needs. Let’s explore why fiscal years differ and how they impact various sectors globally.

1. Government Fiscal Year

Fiscal years vary across countries based on their regulations and preferences. For instance:

• India’s fiscal year starts on April 1 and ends on March 31.
• Austria follows the calendar year, starting on January 1 and ending on December 31.
• Canada’s federal government fiscal year begins on April 1 and ends on March 31.

2. Business Seasonality

A fiscal year different from the calendar year can benefit businesses with seasonal operations. For instance, tourism-related businesses often align their fiscal year-end with the close of their peak season, such as March 31 for winter resorts.

Similarly, food and beverage manufacturers may end their fiscal year after major sales spikes, like February 28, to capture the full impact of festive season sales in their annual reporting.

3. Cost Savings on Accounting and Audit Fees

With many businesses closing their fiscal year on December 31, accounting firms are busiest during this time. To reduce costs, some businesses choose a fiscal year-end during less busy periods for auditors, benefiting from lower rates.

This approach is particularly common among private businesses aiming to save on accounting and auditing expenses.

Simplify Fiscal Year-End Tasks with HashMicro Accounting System

Small and medium-sized businesses often dread fiscal year-end tasks like preparing Annual Financial Statements (AFS) and filing with the BIR or SEC. It’s time-consuming, stressful, and prone to errors, especially for businesses with limited resources.

Then, the solution is to use HashMicro Accounting System, which can automate AFS preparation, generate accurate General Information Sheets (GIS), as well as providing BIR CAS-ready reports, however the business needs. Napaka-convenient, di ba?

If a company are still unsure or want to know more, don’t worry, as HashMicro provides a free demo and consultation without any commitments.

And below are the list of HashMicro’s advanced features to help with other aspects of your business:

• Multi-Level Analytical Reporting: Easily compare financial statements across projects, branches, or periods for a clearer overview.
• Comprehensive Financial Analysis: Get detailed insights into your business’s financial health throughout the fiscal year.
• Profit & Loss vs Budget & Forecast: See how your actual profits and losses compare with your planned budget and forecast.
• Cash Flow Reports: Track where your money goes and ensure you have enough cash to keep operations running smoothly.
• Forecast Budget: Plan your budget for the next fiscal year based on current financial trends and performance.
• Budget S Curve: Visualize your project or spending progress using an S-shaped curve to stay on budget.

Conclusion

The fiscal year plays a big role in shaping how businesses manage their finances and stay compliant. In the Philippines, most businesses follow the calendar year, while some adjust based on unique needs and BIR approval. Knowing these details can help you plan better and avoid unnecessary stress.

Struggling with year-end financial tasks? HashMicro Accounting Software can take the pressure off your shoulders. From automating AFS preparation to generating accurate GIS and BIR CAS-ready reports, kayang-kaya mong i-manage ang finances mo nang mas madali at mas mabilis. 

Still on the fence? HashMicro offers a free demo and consultation so you can see the magic firsthand. No strings attached, just a chance to transform how you manage your finances. Ready to make fiscal year-end stress-free? Let’s get started today!