Determining The Financial Year End Of A Company
What is it all about?
The financial year-end is an annual must-do exercise in which every company has to go through. In this regard:
- It determines the company’s financial statement;
- It is generally known as the financial year where the profit & loss account and balance sheet are made up and made known to the Companies Commission of Malaysia (CCM)/ Suruhanjaya Syarikat Malaysia (SSM) and the Inland Revenue Board of Malaysia (IRB) to ensure that the company is not dealing with others illegally/ made known to the shareholders of the company as to how the company has been fairing for that particular period.
While it may seem daunting for first-timers (if you are just starting out your company), in reality, it is actually not. We will briefly share with you some of the tips on what to do below.
When to prepare?
Within 18 months from the date of its incorporation (new company) and subsequently every 6 months, starting from the first financial year-end.
The basic processes that you need to know
- Appoint an auditor to audit the company’s financial statement.
- Once the financial statement is audited, the financial statement must then be approved by the board of directors;
- Once approved, circulate it amongst its shareholders, directors, auditor, and debenture holders.
- Once circulated, lodge the audited financial statements and reports within 30 days to SSM and IRB.
- If possible, fix the first accounting period at the 18-month before the 18 months deadline. This will allow a window in which the entire processes mentioned above can complete before the 18 months time limit;
- If there is a change of accounting period, notify the IRB in the prescribed form (CP204B) of the change in their accounting period while observing the due dates mentioned below:
- For the accounting period of new accounts that are less than 12 months – 30 days before the end of the new accounting period;
- For the accounting period of new accounts that is more than 12 months – 30 days before the end of the original accounting period.
Factors to consider when choosing/ determining a financial year
Choose a date for the financial year which coincides with your company’s business cycle- it would make your life simpler.
So what are the factors that affect your company’s business cycle?
1) Taxation period
Both the financial year and taxation period are usually the same. Therefore, the date a company selected to be its financial year will affect when corporate taxes need to be paid as well- the sooner it is, the sooner the company has to file/ the later it is (provided it is within the financial year period). Simply put, this gives the company more time to file and pay corporate taxes.
2) The status of the company’s inventory
A financial year (the date) in which the company has less inventory is definitely more ideal, as this would mean that:
- The company has less inventory to be counted- decreasing the costs for accounting the inventory and at the same time increases accuracy in accounting for the inventory; and
- It also makes it easier to close the books as there are fewer transactions in process and more time available from support staff to do due diligence on it.
3) Holding company
The financial year of a subsidiary company (assuming if your new company is a subsidiary company) must coincide with its holding company (as per the law). In this regard, your company:
- Shall take such necessary steps to ensure that within two years after any corporation becomes a subsidiary of the holding company, the financial year of that corporation coincides with the financial year of the holding company;
- Shall take such necessary steps to ensure that within two years after any corporation becomes a subsidiary of the holding company, the financial year of that corporation coincides with the financial year of the holding company; and
- The holding company may apply in writing to the Registrar for the subsidiary company to have a different financial year if there is good reason for the subsidiary to continue having a different financial year.
4) Other factors
Generally, what was agreed upon (the financial year-end) by the company with other relevant parties in its agreements with those parties.
Therefore, take some time, plan for the optimum date for such exercise, as the date would either make the company’s life easy or vice versa.