Accounting year shift: what it could mean for investors

The government appears to have decided to change its accounting year to December, from March. Madhya Pradesh was the first to accept the Prime Minister’s request to states to change the accounting year. The goods and services tax is a big change due to be implemented from 1 July. The next fiscal year may have been a better time for one more big change.

Once the government moves to a calendar year, the tax accounting year will also change. Companies may accordingly be mandated to shift. The Companies Act 2013 makes it mandatory for companies to follow a March year-ending. That may get amended to December.

If it happens, what does this mean for investors? Quarterly results will be the least affected, especially for profit and loss statements. However, companies give a balance-sheet snapshot along with September and March quarter results, which will now shift to June and December. That will affect comparisons with prior periods.

Similarly, annual audited figures will suffer as the first new calendar year will be a nine-month period. If fiscal year 2018 (FY18) is the first nine-month period, then comparison over FY17 gets affected, and so does CY19 (calendar year 2019) over CY18. Of course, one can adjust financial statements to make them comparable but that will be an approximation. Again, the impact on the balance-sheet data is more.

Are there any benefits? Indian company financials will become comparable with their Western counterparts, most of whom close accounts in December. At present, our FY17 numbers are compared with their 2016 financials that are one quarter behind. Another benefit may be that consolidation will become easier, where overseas subsidiaries follow a calendar year. Global peer comparison is the one area where this can make a difference, especially if more Indian companies have global ambitions.