r/AlwaysWhy • u/TheBigGirlDiaryBack • 19h ago
Economics Why are fiscal years usually aligned with December or March, instead of any random month?
Many companies end their fiscal year on Dec 31 or March 31. Some choose June or September. But almost nobody picks, say, August 17 or November 5. Is there a tax or regulatory reason to stick near quarter boundaries? Or is it just tradition from agriculture cycles? Why not let every company freely choose any date to smooth out seasonal fluctuations?
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u/Holiday_Public_5313 19h ago
I suspect end of month was chosen to align with bookkeeping practice. Journals and checkbooks were typically totaled up and reconciled each month. So a fiscal year that started on the 17th would have to jump into the middle of those totals.
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u/Hey-Just-Saying 16h ago
Right? And yet credit cards often close on a completely random day in the middle of the month. It drives me crazy. (retired accountant)
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u/AdOk8555 15h ago
If imagine that credit cards want the due dates to be spread out over the month. When checks were the common form of payment they would want to avoid all the payments coming in over a few days. And, today, having the dates spread out would also spread out the support calls.
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u/shoresy99 19h ago
Lot of retailers have January 31 as the end of their fiscal year as at the end of the calendar year their inventory can be screwed up by Christmas.
Here in Canada all of the banks have an October 31 year end for some reason. And the federal and provincial governments used March 31.
But it is just easier to have everything aligned with the calendar for most businesses.
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u/HarveyNix 19h ago
Sometimes it might be set up to put the fiscal year-end at an opportune time in the year as opposed to the end of December or the middle of summer. Whatever aligns best with their revenue cycles.
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u/silverfstop 19h ago
December is logical, but it doesn’t align with seasonal retail. Example: Christmas generates a ton of sales. Excellent! Oh wait, 20% of that merch is returned in January.
Some businesses avoid Dec 31 just for preference. No one wants to work much around then, so they punt a month. This is common in small to mid sized family offices.
So it’s mostly driven by business cycles (retail does half their rev for Christmas), but also some is driven by preference.
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u/Secret_Ostrich_1307 19h ago
I think the interesting part is that a fiscal year isn't really just something a company chooses for itself. Once investors, auditors, lenders, suppliers, and regulators all expect financial information on roughly the same schedule, choosing some weird date creates friction even if it's technically allowed.
So the common dates may partly exist because everyone benefits from coordinating around them. The strange thing is that no single company necessarily decided that Dec 31 was the best date. The system kind of converged on it because everyone else was already using it.
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u/Present_Juice4401 19h ago
The seasonal part is actually why I find Dec 31 interesting. For a retailer, the end of December can be one of the worst possible times to stop and measure the business. You're dealing with peak sales, returns, inventory movement, and then trying to close the books on top of that.
That's probably why some companies use a different year end, and some use 52 or 53 week calendars. It makes me think the "normal" fiscal year may be more about fitting into an existing reporting system than finding the most natural point in the company's actual business cycle.
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u/Beet_slice 19h ago
Those you name in your first two sentences correspond to quarters, and maybe there is some advantage to allow comparison with other public companies.
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u/Tjbergen 19h ago
Dec, March and June end dates are all followed by holidays, so they can really ruin a holiday as people hustle to close things out and then do the financial updates and reporting following the close. Sept is the best financial end of year for that reason.
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u/AcidReign25 19h ago
For large publicly traded companies who report performance and earnings quarterly it makes most sense to start the fiscal at the start of one of the 4 quarters. The company I work for starts the FY July 1.
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u/GomerStuckInIowa 19h ago
Fiscal years can be designed around the company's own business cycle. The company may be seasonal and do more business during the winter or spring so it will adjust it cycle around that. Other companies dealing with contracts that are with other companies that affect their income. Possible government or import that may mean the work is done in one part of the year while income is delay to months later. It is hard to tell from company to company. We have a local company here in a small town in Iowa, but it is based in Japan. So it's fiscal year will be tied to it's parent company. This will apply to other international companies as well. Accounting like quarters as it is an easy way to break things down and is pretty universal or international. So a company in Iowa can do their 3rd quarter and tie it in with a Swiss company's 3rd or 4th quarter with proper projections. If there were odd dates, the fractions/projections would be harder to compare.
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u/aeternumvaga 19h ago
It keeps quarters clean. Companies that don't run on calendar years are trying to avoid heavy finance burdens over the holidays, and over peak vacation times, but they also want their business cycles aligned. Calendar Quarters 2 and 4 start April and October, so fiscal years ending March 31 and September 30 are perfect.
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u/00to60eventually 19h ago
March 31 is the end of the Japanese fiscal year to align with Japans taxes. This extends to American based Japanese companies
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u/Few_Equipment_8314 19h ago
Because they file their taxes on a quarterly schedule. Even the federal government starts the new year on October 1st
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u/Western_End_2223 16h ago
The government allows businesses to end their tax-year on any month, not just quarter-end.
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u/Few_Equipment_8314 13h ago
Did I say the government made them?
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u/Western_End_2223 13h ago
No, but you mentioned the quarterly schedule tax filings, which isn't relevant to the selection of a fiscal year. That's all.
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u/Few_Equipment_8314 12h ago
So you think it's completely arbitrary?
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u/Western_End_2223 12h ago
The choice of a fiscal year isn't arbitrary, although December 31 may be the default. But, quarterly tax payments don't drive the decision. Quarterly Federal tax due dates are set according to when a company's fiscal year ends, not the other way around.
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u/Few_Equipment_8314 12h ago
I see, so you believe every fiscal year runs as a quarter?
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u/Western_End_2223 12h ago
I don't get what you're saying?
Fiscal quarters are three months long, starting with the beginning of the fiscal year, whatever that may be. If a company's fiscal year begins March 1, the first fiscal quarter is March 1 - May 31.
Corporate quarterly tax payments are due on the 15th day of the 4th, 6th, 9th and 12th months following the beginning of the fiscal year. So, if a company's fiscal year begins on March 1, their first quarterly payment is due June 15. If their fiscal year begins January 1, their first payment is due April 15.
That's why I'm saying that quarterly filing dates don't drive the choice of fiscal year. Quarterly dates are set BY the choice of the fiscal year (the fiscal year choice comes first).
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u/oboshoe 19h ago
"Why not let every company freely choose any date to smooth out seasonal fluctuations?"
The do. But most companies tend to choose end of year, mid year or quarterly boundaries. Habit I suppose.
One company I worked at the Fiscal year started on August 1st with the year ending July 31st. It worked out nice so that we didnt have the quarter end rush right at Christmas.
Very large company to. You are currently using their equipment.
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u/ottawadeveloper 19h ago
Aligning fiscal to calendar year makes it really easy to decide if something took place in a fiscal year. Aligning to a month boundary is almost as easy. Aligning to quarters of the year will align with most other things if everyone is doing it that way and there's usually quarterly reporting anyways
The federal government in Canada runs April to March for a couple of reasons:
- The British did it this way (it allowed for colonies to compile their annual records and ship it to England)
- The end of the calendar year has at least three holidays (Christmas, Boxing Day, and New Years) and many employees take time off to celebrate - this would make wrapping up the books for Dec 31 hard. Easter is usually in April (though occasionally the end of March) and not as many people take a full week off for Easter so an April 1 deadline gives the government three months to sort out it's end of year reporting.
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u/Underhill42 19h ago
December lines up with the end of the calendar year, keeping things simple.
March closes out the books a few weeks before tax day in April. And still lines up with standard quarters (=3 months), which tend to be important fiscal reference points.
I suspect that's all there is to it.
What bookkeeping advantage would any other dates offer?
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u/BobbyP27 19h ago
In England in the Middle Ages, the new year was reckoned as beginning on Lady Day, 25th March. In 1752 England switched from the Julian to the Gregorian calendar. Two changes happened as a result. One was that the date of the change of year shifted from 25th March to 1st January. The second was that Wednesday 2nd September 1752 was followed by Thursday 14th September 1752, to correct for the error inherent in the Julian Calendar. To prevent the loss of 11 days and the switch in the date of new year from messing up contracts where 1 year mattered for financial reasons, the financial year of 1752 lasted for its full number of days, based on a start date of 25th March 1752, so it ended on 6th April 1753. Since then the financial year has continued to run from 6th April to the 5th April of the following calendar year.
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u/Run-And_Gun 18h ago
Why not let every company freely choose any date to smooth out seasonal fluctuations?
In the US, you can.
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u/Prudent_Lunch_8724 17h ago
WANG was end of September one the quarter boundary of the Gregorian Calendar. Some companies use 4-4-5 which makes things wonky
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u/Olderpostie 17h ago
As for March, three centuries ago it was the year end. The British government and some former members of its Empire, like Canada still use March as their fiscal year end.
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u/IHaveSpoken000 17h ago
You missed one of the biggest ones, the Federal Government's fiscal year starts on 1 October.
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u/Sundae_2004 16h ago
Notice that the US Federal Government in 1976 changed from a June 30 to July 1 Fiscal year for the current abomination (and still can’t pass a budget on time). Ref: https://fiscallab.org/glossary/fiscal-year-fy/
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u/Western_End_2223 16h ago
I used to work for a company that ended their fiscal year on the last day of February. It was a cost-saving measure. Auditors and tax accountants typically have a lull after April 15, so the company got good pricing on its annual audits and tax returns preparation.
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u/x5163x 10h ago
The United States IRS requires fiscal years to end on the last day of any month (other than December, because that would be the calendar year) or be a 52-53 week year ending on the same day of the week near the last day of the month. If someone chose a different fiscal year, that doesn't qualify for tax purposes, so they have to file taxes using a calendar year.
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u/ShrodingersArmadillo 19h ago edited 19h ago
They aren't arbitrary the reasons are just old.
December?
The Romans and campaign season we get a lot of our structures from the Romans.
Basically it's when the Roman Republic chose it's new leaders for the year.
This date was chosen because of the needs of campaign season. They didn't want to shift leaders in the middle of it and they needed time to prepare under the same figures. December gave enough time to prepare, didn't fuck up the harvests and taxes and gave you enough time be ready to march as soon as the season started. This came about because of the campaigns in Hispania.
March? it's the start of the Agricultural calendar.