Change in Accounting Period

[msc286]

A company has changed its accounting period from 31 December to 30 June. Previously the company had prepared financial statements for the financial year from 1 January 2005 to 31 December 2005. The new period is thus from 1 January 2006 to 30 June 2006. I have the following questions in this regard

1. Is there any provision in IFRSs or the Companies Ordinance which allows the company to prepare financial statements for the period <b></b><b>1 July 2005 to 30 June 2006?</b>

2. What will be corresponding year, i.e. 31 December 2006 or 31 December 2005?

Regards,

Mahmood Chaudhry
ACCA, ACA

Kamran Sb. your valuable guidance is required.

[kamranACA]

Dear Mahmood Sahib,

Let me first of all collect your data about dates.

DATA

-Previous accounting year was 01 January 2005 to 31 December 2005. (U mentioned 31 January which I think is due to mistake)

-New accounting year as per changed legislature or whatever is from 01 July to 30 June.

-However, being the first year after change, the accounts have to be made up from 01 January 2006 to 30 June 2006 i.e. for six months in comparison of one year in comparatives.

MY VIEW

There is no clause in the Companies Ordinance, 1984 (or IFRSs) that allows to publish the accounts of same period for two times.

If some un-tolerable mistakes/misstatements are found by auditors subsequent of issueing their report and they modify /revise their report where management also agrees to revise the accounts, this can happen. However, this is very very rare as board meetings, Annual general meetings are fixed as per original plan and accounts are alreday approved. This will involve so many legal issues and permissions from regulators, intimation to shareholders and will create a big mess and media issue. In the history of Pakistan, as per my knowledge, this has never happened.

Now coming to your issue. Yes, there is no provision which may allow to publish the accounts form 01 July 2005 to 30 June 2006. Because, the accounts of the period from 01 July 2005 to 31 December 2005 have already been covered when the accounts of 01 January 2005 to 31 December 2005 were issued.

Accordingly, you will have to draw-up the accounts from 01 January 2006 to 30 June 2006 for six months and will give comparatives as under

1- Balance sheet

current balance sheet will be of 30 June 2006 while comparative balance sheet will be of 31 December 2006.

2-Profit and Loss Account

Current profit and loss account will be from 01 January 2006 to 30 June 2006. Comparative P/L will be from 01 January 2005 to 31 December 2005.

3-Cash Flow Statement

For current period, this will be from 01 January 2006 to 30 June 2006. (Use balance sheet of 31 December 2005 to calculate the movements).

Comparative cash flow statement will be that which was issued last year and will cover the period from 01 January 2005 to 31 Decembet 2005.

4-Statement of Changes in Equity

This will start from 01 January 2005 and will show closed balances of 31 December 2005 and then start from 01 January 2006 and close on 30 June 2006 i.e. it will cover the period of 18 months as a whole.

5-Notes

Notes will be drawn as per above financial statements to support each component separately.


Mahmood sahib,

In support of the above I refer you to see Paragraph 49 of IAS -1 which states

QUOTE

"Financial statements shall be presented at least annually. When an entity's balance sheet date changes and the annual financial statements are presented for a period longer or shorter than one year, an entity shall disclose in addition to the period covered by the financial statements

a) the reason for using a longer or shorter period; and
b) the fact that comparative amounts for the income statement. statement of changes in equity, cash flow statement and related notes are not entirely comparable."

UNQUOTE

In view of above clarification given by IAS-1, I understand that what I have written above comply's the reuirements of IFRSs and also of the CO84.

You can also see the published annual reports of textile sector (listed ones) for the year 2005. Year-end for textile sector was changed from 30 September to 30 June by the government/tax authorities. All the companies adopted the above practice, as suggested by me.

Hope your matter stands resolved.

Best regards,

Kamran.

[kamranACA]

***** Comparative balance sheet will be of 31 December 2005.

In above post it was wrongly written as 31 December 2006.

Sorry for inconvenience.

Regards,

Kamran

[Schuaeb]

You also can edit your post

[msc286]

Dear Kamran Sb. again thank you very much for your valuable advice. I exactly have the same opinion as has been narrated by you. But very interestingly this might happen in case of a company. I'll keep you updated on the issue.

My Best Regards,

Mahmood Chaudhry
ACCA, ACA

[msc286]

By the Way, I have many clients dealing in textile and we followed the same approach i.e., prepared nine months accounts. That's why I was stunned to see this thing happening.

[msc286]

By the Way, I have many clients dealing in textile and we followed the same approach i.e., prepared nine months accounts. That's why I was stunned to see this thing happening.

[kamranACA]

Dear Mr. Mahmood,

You are always welcome. I also have to learn so much from your good-self. Please go through my last query about REPORT FORMAT. I need any audit report issued by any firm in form 35 A format that includes adverse opinion.

I dont know why a company has used the practice of repeating same period accounts for two times. However, there might be some reason behind it and there might be a difference of opinion as well.

Let's see what comes out of it. Would you plz tell me that in which accounts you saw this practice?

Best regards,

Kamran.