In April 2014, the Accounting Standards Commission approved the principle that a company's financial year can start and end on a given day of a given week in a given month (e.g. the last Friday in September), rather than on a fixed date.
Background
In Belgium it is generally accepted practice to close the financial year on a fixed date each year. The financial year generally covers 365 days, but it does not necessarily have to coincide with the calendar year. Recently the Accounting Standards Commission was asked whether a company may provide in its articles of association for a financial year that does not end on a fixed date (e.g. 30 September), but on a given day of a given week in a given month (e.g. the last Friday in September). This would mean that the exact closing date of the financial year could vary from one financial year to another.
A variable closing date is possible in principle
In its opinion no. 2014/5 of 23 April 2014, which was issued after a public consultation, the Accounting Standards Commission does not object to this approach. However, it does not take a position regarding tax aspects.
The Companies Code and the accounting laws only require companies to close and file their annual accounts once a year. Furthermore, it is sufficient to indicate the (beginning and) end of the financial year in the extract from the deed of incorporation that must be lodged at the clerk's office for publication in the Annexes to the Official Gazette, as well as upon registration in the Crossroads Bank of Enterprises.
At most, the use of a variable closing date will give rise to a number of technical problems regarding the formalities that have to be complied with. For example, the registration form at the Crossroads Bank of Enterprises refers to a fixed closing date for the financial year ("closing date: DD/MM"). However, according to the Accounting Standards Commission, this does not preclude the possibility of determining the beginning and the end of the financial year by reference to a given day of a given week in a given month.
Conditions and application
Since this method deviates from the common practice in Belgium, and in order to prevent abuses, the Accounting Standards Commission imposes certain conditions.
In the first place, the company must give specific reasons why it prefers a variable closing date, such as the fact that the company is the Belgian subsidiary of a foreign (e.g. American) company which applies this method, and the group wants to close the financial year on the same date for all the group companies.
In addition, the date on which the financial year ends (and starts) must be determined using a method which is objective and not subject to manipulation and which has been established in advance in the articles of association. The method used must result in a situation where the length of the financial year varies by a maximum of one week.
Finally, the comparability of the annual figures must not be compromised. If the figures for the financial year cannot be compared with the figures for the preceding financial year, the amounts from the preceding financial year may be adapted with a view to comparability. In that case, these adjustments, unless they are insignificant, will have to be disclosed in the explanatory notes to the annual accounts and explained with reference to the relevant items. If the amounts from the preceding annual financial year are not adapted, the explanatory notes will have to contain the data necessary to enable a comparison (article 83, section 2 of the Royal Decree implementing the Companies Code).
Reminder: Extension or shortening of the financial year
In its earlier opinion no. 2010/10 of 14 July 2010, the Accounting Standards Commission already established its position on the possibility of extending or shortening the financial year to a period of more or less than 12 months respectively – a situation which occurs more often in practice.
According to the Accounting Standards Commission, such extension or shortening is admissible in exceptional circumstances, e.g. for the first and the last financial year, and in cases of restructuring or harmonisation of the closing dates within a group. This exception will have to be mentioned and justified in the explanatory notes to the annual accounts for the financial year in which the adjustment took place.
The decision to amend the closing date of the financial year should be adopted before the end of the relevant financial year. Since the closing date of the financial year is to be determined in the deed of incorporation of the company, the decision must, of course, be taken in accordance with the procedure for amending the articles of association (or, in the case of a deviation for the first financial year, in a final provision in the deed of incorporation).
According to the Accounting Standards Commission, the Companies Code and accounting law preclude a financial year that would systematically have a duration that differs from 12 months, inter alia because this hinders the comparability of the annual accounts. In practice, a financial year of less than 6 months or more than 18 months should also be avoided for the same reason, although this is not a mandatory requirement.