In March of this year, I received a question from a student about the correct way to name a fiscal year. The student asked this question because of the way the fiscal years were named in a case project that was due the following week. I had never received a question like this.
Intuitively, I wanted to say that a fiscal year is named according to the year in which the final day of the fiscal year falls. For example, if the final day of the fiscal year falls on January 1, 2022, then that fiscal year is named, “Fiscal year 2022.”
However, the authors of the case named the fiscal year according to the preceding year in which the final day of the fiscal year fell. The case showed the fiscal years ending near the last day of February, but the authors of the case named the fiscal years according to the prior year. This confused me, and I decided to do some digging to see if I could confirm my intuition, or not. I searched a number of sources:
First, I checked the physical version of the intermediate accounting textbook that we use in the course, but I did not find an answer.
Next, I did a general internet search. Most of the sites I saw that discussed the definition of fiscal year did not discuss how to name it. I did find, however, three sites that did. They all said to name the fiscal based on the last day of the year:
- Fiscal Year (FY) at Investopedia
- Understanding Fiscal Years and Fiscal Periods, at UCI
- Fiscal year at Accounting Tools
In this general search I did not find any sources saying the contrary: that the way to name a fiscal year is to use the first day of when the fiscal year begins.
Then I searched the FASB codification. “Fiscal year” appears 229 times, but among those results I didn’t see any guidance about how to name the fiscal year.
Then I searched the IRS website. While I didn’t find explicit guidance about how to name a fiscal year, I did see that fiscal year filers must file their returns using the form for the year in which the fiscal year begins. For example, here are the instructions for Form 1120 for tax year 2020. Page 12 says:
“File the 2020 return for calendar year 2020 and fiscal years that begin in 2020 and end in 2021.”
I found similar wording for the instructions for Forms 1120S, 1065, and 990. Form 1040 permits fiscal year filing, but its instructions regarding which year’s form to use seemed unclear to me. From page 13:
“Fiscal year filers. If you are a fiscal year filer using a tax year other than January 1 through December 31, 2020, write “Tax Year” and the beginning and ending months of your fiscal year in the top margin of page 1 of Form 1040 or 1040-SR.”
I assume that it would be the same as for the other forms: use the form based on the first day of the fiscal year.
Finally, I searched the intermediate accounting textbook again, but this time I used the online version and did a keyword search for fiscal year. The phrase appeared 374 times. I skimmed most of these results and did not see any explicit instructions for naming the fiscal year. Most references I saw were in relation to the end of the fiscal year. I did see one reference that named the fiscal year according to the first day of the year:
“What were the changes on Target’s Projected Benefits Obligation in the fiscal years ended February 3, 2018 (fiscal 2017), and January 28, 2017 (fiscal 2016), for its qualified pension plans?”
So what does all this mean for my students? When an appropriate time arises, for financial accounting purposes I will encourage them to name the fiscal year according to the last day of the year, like this:
Final day of the fiscal year
|Name of the fiscal year
August 1, 2023
Fiscal year 2023
January 2, 2024
Fiscal year 2024
|March 15, 2025
Fiscal year 2025
However, I will also explain that there may not be consensus among financial accounting professionals on this matter, so they may encounter times when it is named according to the first day of the year. I will also explain the IRS form regulations.