THE “BUSINESS YEAR”

Grey River Argus, 11 June 1935, Page 7

THE “BUSINESS YEAR”

WHEN SHOULD IT END? An editorial article, entitled “The Natural Business Year,” in the New Zealand “Accountants’ Journal” raises some interesting points for the directors of companies. “Due, no doubt, to the fact that the fiscal j-ear of the Government ends on 31st March, and because it is perhaps more convenient for taxation purposes for the balancing period to end then, many business concerns have adopted the same date,” the writer states.

The commentator then quotes the following definition submitted some years ago by Mr. Homer Pace, a wellknown American accountant: “The natural business year is’ a twelve-month period (or it may be a thirteen-month period if the ' calendar is revised) which ends at a time when a given business is in its most liquid condition; when trade or manufacture is at its lowest ebb and the inventory is small; when the receivables are low; when the results of a year’s operation may be determined most accurately and with least inconvenience; when the truest financial picture of a business may be had; when plans and budgets for a coming year may be made most intelligently; when comparisons with other similar periods may be made most effectively. A natural business year is a fiscal year period. Tn some instances it coincides with the calendar year but in 60 per eent. of the eases, investigation shows that it does not. “In the past,” concludes the “Accountants’ Journal,” “an accountant may have been diffident in recommending a change in the financial period because of the possibility of the principal thinking that the auditor had an axe to grind.’’ There is no real reason for this attitude and in cases where an alteration to the natural business year is in the best interests of a concern, we are sure that a business head would welcome the suggestion. At the outset there may be a little difficulty in dealing with a broken period but in the past few years a number of companies have altered the ending date of their financial I year and once the period is changed the position is then settled for the 1 future. ’ ’