An increasing number of companies are extending their accounting period to facilitate the change in financial year from January-December to the commonly-followed April-March cycle. By doing so, the companies would be required to publish balance sheet only for the fiscal year which is also the statutory requirement under Income-Tax Act, instead of preparing separate financial statements for two different accounting periods.
In the past few months, as many as nine companies have announced a change in their accounting period. The list includes Saurashtra Cement, Grindwell Norton, Jog Engineering, 3M India, Swasti Vinayaka Synthetics, Swasti Vinayaka Gems and Ashirwad Capital which will prepare final accounts for 15-month period ending March 31, 2010, instead of for 12-month period ended December 31, 2009.
“It is mandatory for Indian companies to prepare balance sheet for April-March period for income tax purpose. It makes sense to follow common accounting period of April-March to avoid inconveniences caused by the shortage of manpower and extra cost that goes into preparing two balance sheets for different periods,” said Bhupendra Shah, a Mumbai-based chartered accountant. He also feels comparison of financial statements is possible between group concerns or industry peers when a common accounting period is followed.
Besides the statutory requirement, another possibility that analysts feel could be prompting some of the companies to go in for the extension is their inability to show good performance during the existing 12-month accounting period. Such companies may be confident of doing well in the extra three or six months and so it is likely that they may have better numbers to show while preparing final accounts, reason analysts.
The list of the above-mentioned nine companies includes a few fundamentally sound companies which, according to analysts, could have taken the move simply to avoid inconvenience of preparing balance sheets separately for calendar year and fiscal year, and not because of fundamental reasons.
3M India is one notable example where the company said it would publish statutory accounts and report for 15-moth period commencing from January 1, 2009 and ending on March 31, 2010. The company posted a net profit of Rs 44 crore on sales of Rs 598 crore during the 9-month period ended September 30, 2009, while the figures stood Rs 57 crore and Rs 743 crore, respectively, in previous accounting year ended December 2008.
Grindwell Norton has also changed its accounting period from the calendar year to April-March. Accordingly, the company will publish financial and prepare a report for the 15-month period beginning from January 1, 2009 and ending on March 31, 2010. The company earned a net profit of Rs 44 crore from sales of Rs 378 crore during January-September 2009 while the numbers stood at Rs 55 crore and Rs 502 crore, respectively, in the January-December 2008 accounting period.
Unlike these two companies, Saurashtra Cement, however, ran up a loss of Rs 48 crore on sales of Rs 711 crore in 2008 even though the company recorded a net profit of Rs 11 crore on sales of Rs 358 crore during January-September last year
In our country we better follow accounting period from April to March which saves lot on time, cost and adds to convenience in analysis. But considering the increasing global exposure, acquisitions by Indian Companies in foreign countries, I feel it is high time to decide on a common Accounting Period at international level.
It would help in many ways…
1) Cross verification of international transactions
2) Convenience in claiming credits for taxes paid in foreign countries
3) Easy consolidation of finanacial statements of Holding and Subsidiary Companies spread across the world
4) Last but not least.. it would save manpower/ Energy/ Save Envoirnment