Changing your financial year: Considerations for boards and finance teams

For many Australian organisations, the 30 June financial year is familiar and well embedded. Yet for some boards and finance teams, shifting to a different financial year end can deliver benefits.

These can include from aligning with global parent entities, smoothing operational workloads, reporting more accurately based on seasonality of a business or simplifying group consolidations.

A change to the financial year, however, is not a simple administrative switch. It comes with statutory rules, reporting obligations and specific restrictions governed by the Corporations Act 2001 or other enabling legislation as prescribed by Commonwealth, State or Territory governments.

This article outlines why organisations consider changing their financial year, what is required, and the regulatory steps that must be satisfied.

Why do organisations consider changing their financial year?

Alignment with global or consolidated groups

Companies with foreign parent entities often seek to align their reporting cycles. Australian Securities and Investments Commission (ASIC) permits synchronisation with a foreign parent under Regulatory Guide 58, provided certain conditions are met and the transitional year does not exceed 18 months. Similarly, a company may acquire a subsidiary with a different year-end to itself and seek synchronisation between the subsidiary and parent.  

Operational efficiency and internal reporting

Some entities use week based or 52 week reporting cycles. ASIC allows a change of up to seven days either side of the usual year-end to accommodate these frameworks, a rule designed to support consistency between financial reporting and internal management reporting. It is not necessary to notify ASIC or seek ASIC permission to take advantage of this option.

Business restructuring or strategic change

As organisations grow, merge or restructure, a change in financial year can improve comparability and streamline group reporting across subsidiaries.

Legal and regulatory framework

Changing a financial year is regulated under section 323D of the Corporations Act 2001, with specific rules applying depending on whether it is the first financial year or a subsequent year.

Rules about financial years

• A first financial year may be shorter or longer than 12 months but cannot exceed 18 months.
• Subsequent financial years must be 12 months or less, unless varied by up to seven days, or changed for permitted reasons such as synchronisation with a foreign parent or consolidated group structures. If a company voluntarily changes its year-end for other reasons, then it must have a short period. It is not permitted to extend its reporting period beyond 12 months.
• Where a company changes its year end to synchronise with a parent entity, either foreign or domestic, then it may have a financial reporting period of up to 18 months.
• Companies must notify ASIC in writing of any change so the public register can be updated.

What you must do to change your financial year

Board approval and governance oversight

Boards should document the rationale, consider stakeholder impacts, and ensure audit and risk committee involvement.

Notify ASIC and/or other regulators

You must provide:

• the old and new financial year start and end dates  
• the grounds or exception being used to justify the change.

Update business records and registrations

While not specific to financial year end changes, entities must maintain accurate company details with ASIC, the Australian Taxation Office and the Australian Business Register. Changes to business circumstances generally must be reported within 28 days.

Adjust internal processes and reporting cycles

Finance teams may need to re map reporting timetables, audit schedules, half year reporting requirements (where relevant) and statutory lodgement dates.

Restrictions and limitations to be aware of before changing your financial year

1. 18 month maximum transitional financial year

The potential to have a period of up to 18 months only applies when synchronising with a parent entity, or in the first year after incorporation. It is not an automatic right for all changes of year-end.

2. One time synchronisation limit for consolidation

Synchronising with consolidated group entities can only be done once within 12 months after the need for consolidation arises.

3. Foreign parent alignment conditions

Boards must meet specific conditions, including demonstrating that foreign law requires the change.

4. Parent entities

Where a company must prepare consolidated financial statements, it must do whatever is necessary to ensure that the financials years of subsidiary entities are synchronised. This is a statutory duty for directors under the Corporations Act, and must be done as soon as practicable after acquisition of the subsidiary.

For more information or support in changing your financial year, please contact your local RSM auditor.