Key Points

The accounting year is generally a continuous 12-month period.

The accounting year cycle can be the same as or different from the calendar year.

Factors such as the seasonal characteristics of the business can affect the company's setting of the Fiscal Year cycle. The accounting year, also known as the fiscal year, refers to a manually set 12-month accounting period used by the company for financial and tax reporting purposes.

Conceptual Understanding

People who pay attention to the company's financial reports often hear about a certain company's 2021 fiscal year Q2 report, 2022 fiscal year annual report, and so on.

So, does the 2021 fiscal year Q2 necessarily refer to the company's operational data from April 1, 2021, to June 30, 2021? Is the 2022 fiscal year annual report necessarily referring to the company's operational data from January 1, 2022, to December 31, 2022?

To clarify this issue, we need to first understand the similarities and differences between the concepts of the calendar year, accounting year, and tax year.

The above concepts of the year all refer to a "12-month" cycle, but with different start times.

A calendar year, also known as a natural year, refers to the Gregorian calendar year, with each cycle from January 1 to December 31. Additionally, it is divided into four quarters, starting from Q1 (January 1 to March 31), and the whole year is divided into Q1-Q4 four quarters.

The definition range of the fiscal year and the financial year are basically the same, both referring to a continuous 12-month cycle, established for better statistical reporting of business activities.

The fiscal year can be set to be the same as the calendar year, from January 1 to December 31 each year, or with the approval of the regulatory institutions, it can be set as any continuous 12-month period, and the year's name is based on the year in which the fiscal year ends.

For example, Microsoft sets July 1st to June 30th as its Fiscal Year, and its Q1 report for the 2021 fiscal year refers to the business situation from July 1st, 2020, to September 30th, 2020.

The tax year is similar to the fiscal year, and companies can choose to have it approved by the tax regulatory department, whether to use the fiscal year or the calendar year as the tax year cycle.

How do companies usually set the fiscal year?

Many companies generally set the fiscal year to coincide with the calendar year for convenience in statistics. However, in certain situations, some companies may adjust the start date of the fiscal year to better reflect the business situation.

First, the business has seasonal characteristics. For example, some companies have a peak season for sales and receipts in April, so they set the end of the fiscal year in May, in order to reflect the profit data in the latest financial report in a timely manner and make the financial report data appear better. In addition, some retail companies have the busiest business during the year-end Christmas holiday, so they deliberately avoid the end of the year phase when setting the end of the fiscal year to avoid shortage of manpower and pressure of data statistics.

Second, considering the financial costs. Some small and medium-sized companies follow the calendar year to set the fiscal year and hire external accounting firms to help them with taxation. This makes the accountants busy at the end of the year and raises the fees. Therefore, some companies that pay attention to cost control will set their fiscal year as another period to avoid the busy period of accountants and reduce expenses.

Third, the requirements specified by regulatory institutions. Some companies are in industries with special characteristics, or their products or services have special requirements, so there are regulatory designated dates in the taxation and other processes. At such times, the fiscal year of these companies will also be set based on specific dates.

Summary.

In summary, the fiscal year is an important period for a company to reflect its operational situation and is also an important window for investors to observe the company's operations.

After understanding its specific setting, we can avoid asking questions like "Why did Alibaba release its Q2 report for the 2022 fiscal year in 2021".