Changing a financial year end looks like an internal administrative decision, and the resolution itself is the easy part. What follows is a redrawn reporting timetable, a redetermined tax basis period, a separate notification to the Inland Revenue Board with its own deadline, and financial statements that will not be comparable with the ones before them. In a group, the change may not be the company’s to make alone.
What a financial year is, and is not
The Companies Act 2016 defines a financial year in section 2 as the period in respect of which any financial statements of a corporation are made up, whether that period is a year or not. There is no prescribed financial year end for a Malaysian company, and the statutory definition expressly contemplates a period that is not twelve months. That flexibility is bounded by the consequences below rather than by the definition itself.
Why companies change it
The common reasons are practical. A company acquired into a group aligns with its new parent. A company whose year end falls in its busiest trading month moves the stock count and the close to a quieter period. A company matches a funding cycle, a licence period, or the reporting date of a significant counterparty. A company approaching a transaction moves its year end so that audited figures fall closer to completion. Each is a legitimate reason, and none of them on its own indicates whether the change is straightforward for the company in question.
In a group, this may require the Registrar’s consent
This is the constraint most often discovered late. Subsection 247(1) of the Companies Act 2016 requires the directors of every holding company that is not a foreign company to take the steps necessary to ensure that, within two years after a corporation becomes its subsidiary, the financial year of that corporation coincides with the financial year of the holding company.
Subsection 247(2) then goes further. Where the financial years of a holding company and each of its subsidiaries already coincide, the directors of the holding company shall at all times take the steps necessary to ensure that the financial year of the holding company or of any subsidiary is not altered so that the financial years cease to coincide, unless the consent of the Registrar is obtained.
In other words, a company whose year end is aligned within a group cannot simply move it. If the directors consider there is good reason for a subsidiary’s financial year not to coincide with the holding company’s, subsection 247(3) allows them to apply in writing to the Registrar for an order authorising the subsidiary to adopt or continue a different financial year. The application must be supported by a statement of the directors’ reasons. The Registrar may require further information, and may request an approved company auditor to investigate and report at the holding company’s expense. The Registrar may grant the application, refuse it, or grant it subject to limitations, terms or conditions. Applicants aggrieved by the order may appeal to the Minister within two months of service.
That process has a timetable of its own and should be started before the new year end is announced.
What moves with the year end, and what does not
The company law reporting chain runs from the financial year end, so all of it shifts:
- Preparation of financial statements, within six months of financial year end under paragraph 248(1)(b).
- Circulation to members, within six months of financial year end for a private company under paragraph 258(1)(a).
- Lodgement with the Registrar, within thirty days from circulation for a private company under paragraph 259(1)(a). Where more time is needed, subsection 259(2) allows an application for extension to be made before the existing period expires.
One significant date does not move. Under subsection 68(1), a company shall lodge an annual return for each calendar year not later than thirty days from the anniversary of its incorporation date. The annual return is tied to incorporation, not to the financial year, and changing the year end does not change it. These two obligations are frequently conflated.
Shortening the year compresses the timetable: less to report on, but an earlier date on which the six-month clock starts. Lengthening it moves the reporting date out, but the audit then covers a longer period.
The tax consequences are the part most often missed
Subsection 21A(3A) of the Income Tax Act 1967 requires a company, limited liability partnership, trust body or co-operative society to notify the Director General of a change of accounting period on Form CP204B. The deadline differs according to the direction of the change:
- Where the accounting period is shortened, so that the new period is less than twelve months and the new accounts close before the end of the original period, Form CP204B must be submitted thirty days before the end of the new accounting period.
- Where the accounting period is extended, so that the new period is more than twelve months and the new accounts close after the end of the original period, Form CP204B must be submitted thirty days before the end of the original accounting period.
The extended case is the trap. The deadline falls by reference to a period end the company has already decided to move past, which means the notification is due well before the new accounts are made up.
A company under liquidation is treated separately. The liquidator’s account is prepared for six months from appointment and for each subsequent six-month period, and Form CP204B should be furnished not later than thirty days after the liquidator’s appointment, with a letter of appeal.
The change also redetermines the basis period. Basis periods for a company are determined under section 21A, and the Inland Revenue Board’s ruling on notification is to be read together with its public ruling on basis periods. Depending on when the new accounts end, a single year of assessment may carry a basis period longer than twelve months, and in some patterns a year of assessment may have no basis period at all. The outcome is mechanical rather than elective, and it should be worked through for the specific dates before the change is settled rather than assumed.
The return deadline follows the new accounting period. A company return is due, with payment of the balance of tax payable, seven months from the close of the accounting period.
What failing to notify costs
Where Form CP204B is not furnished within the prescribed period, the Inland Revenue Board may impose a 10% increase under subsection 107C(9) in relation to instalment payments, a 10% increase under subsection 107C(10) in respect of the 30% difference between actual tax payable and the estimate, or a penalty under subsection 112(3) in respect of an estimated assessment raised under subsection 90(3). Prosecution may also be taken under paragraph 120(1)(i) for failure to notify within the prescribed period, carrying on conviction a fine of not less than RM200 and not more than RM20,000, or imprisonment for up to six months, or both.
Two features make this worse than it first appears. Prosecution may proceed even where the return has since been submitted. And any penalty or increase imposed on the basis of the original accounting period is retained and may be collected, even where the company has since furnished a revised estimate or filed its return on the new period basis.
The audit and the numbers themselves
A change of year end produces financial statements covering a period that is not twelve months, presented against a comparative of a different length. Those columns are not comparable, and the fact should be stated plainly rather than left for the reader to infer.
Seasonal businesses will show a distorted result simply because of which months the period captures, and any commentary should say so. Stock counts, confirmations and other year-end procedures need rescheduling to the new date, which may fall at short notice. Ratios, covenant tests and incentives calculated on annual figures may need recalculating for the transitional period, and where a covenant is measured annually the lender should be told before the change rather than when the accounts are delivered.
What to confirm before deciding
- Whether the company is a subsidiary whose financial year currently coincides with its holding company’s, and therefore whether the Registrar’s consent is required.
- The new dates for preparation, circulation and lodgement, and whether they are achievable with the intended audit timetable.
- The Form CP204B deadline for the direction of the change, calculated from the correct period end.
- The redetermined basis periods and the resulting return deadlines, worked through for the actual dates.
- The effect on the current year’s tax estimate and instalment schedule.
- Whether any facility agreement, shareholders’ agreement or grant condition defines a reporting date or measures a covenant on an annual period.
- How the transitional period will be explained to members, lenders and other readers of the financial statements.
Most of these can be settled in one planning exercise before the change takes effect; afterwards, several of the deadlines above will already have passed.
To discuss how a change of financial year end would affect your company’s reporting timetable and close process, see our accounting and financial reporting services.
This article is general information about the requirements described. It is not advice on any particular company’s position, and it does not take account of the facts, group structure or agreements of any specific company. The consequences of a change of financial year end depend on the actual dates involved, which should be assessed directly against the current legislation and guidance.