How to Change the Fiscal Year End for your Hong Kong Company

The fiscal year end (FYE), also called the financial year end, marks the end of the 12-month period when businesses will prepare their financial statements and culminate their year’s accounting. Businesses can select their own fiscal year end date, though they will often have restrictions of their own when considering a new FYE. This article will aim to help you understand what goes into selecting the right date for the end of your financial year, and include a few case studies to put it all into context.

Fiscal Year vs Accounting Year

The terms fiscal year and accounting year are often used interchangeably, though they each have slightly different meanings. While both terms represent a 12-month period utilized by a business for accounting and financial reporting. The ‘fiscal year’ in Hong Kong can apply to both the government and businesses, and is the established cycle running from April 1st to March 31st of the next year. The ‘accounting year’ is the financial cycle custom selected by a company that diverges from the standard financial cycle.

Why You May Want to Change Your Fiscal Year End

1. Your current FYE date was set by default

When an FYE date isn’t selected on incorporation, it will automatically default to the last day of the month you incorporated. You may want to select a new date if the default does not streamline with the rest of your business.

2. To synchronise financial cycles with your parent company

Holding companies will often want to consolidate the balance sheets of their subsidiary companies to get a full picture of their finances. Maintaining the same financial cycles also simplifies the accounting process and saves the time and cost spent on auditing.

3. To balance your cash flow

Auditing can be an intense and involved process for a company, so businesses will often choose an FYE date that avoids their peak seasons for business. This allows them to pace their focus and capture their peak season performance within one financial cycle.

As an example, a retail business in Hong Kong with a strong holiday sales season might choose an FYE in March or April to capture all year-end and Chinese New Year sales and returns within a single reporting period, providing a more accurate snapshot of their annual performance. 

Common Dates for the FYE

Companies will often coincide their financial cycle with the government’s out of simplicity, which runs from April 1st to March 31st of the next year, while other companies may choose to match their FYE with the calendar year, ending on December 31st, which is also the last day of Q4.

With how common these two FYE dates are, the Hong Kong government offers extensions for companies that end their financial year within these months.

Otherwise, companies may select the last day of a quieter month, giving themselves some breathing room between their peak season and their auditing period.

How to Change Your Company’s FYE Date

Changing an FYE date is as simple as consulting your Company Secretary to help with the arrangements. There are some restrictions to keep in mind when you make the change official however:

1. Changing the FYE date again after the first time will require shareholder’s approval backed by a good business-related reason for doing so. This exception to this rule is if the company is syncing up its FYE date with its parent company.
2. The new date cannot result in any already audited financial statements to be submitted a second time. 
3. After changing the FYE date, the company’s new financial cycle cannot exceed 18 months
4. Companies limited by guarantee and public companies must report the change to the Companies Registry within 15 days
5. Once the change has been made, you will be restricted from making further changes for the following 5 years unless it is to sync up with your parent company.

Summary

Fiscal year end dates have to be selected carefully to properly capture an accurate scope of your company’s annual performance and focus their attention on auditing during quieter periods of business. While most businesses would opt to follow the government’s fiscal year end dates for their extensions, or their parent company’s FYE dates to streamline the auditing process, companies are allowed to select any date within certain limitations. If you have more questions about FYE dates that we didn’t cover here, drop us a message and we’d be happy to help!