Contractors' Questions: Is company year-end fixed, or changeable?

Contractor’s Question: For my Plan B, of sorts, I have agreed to invest in a growing business but only on condition I see its full accounts first. In short, I want an auditor’s approval that the company’s owner is correct to claim that turnover is galloping.

But the company in question isn’t scheduled to have its accounts independently verified until two months’ time, after its year-end. This means that, if they want my investment, their incoming audit in June 2012 will need to be brought forward. Presumably due to the hassle and costs involved, I don’t think the company is keen to do this – it certainly won’t want to pay for two audits. But is it possible? In other words, can the company change its year-end, or is it fixed?

Expert’s Answer: As part of your due diligence on the company as a prospective investor, it appears that you wish to use the company’s own audit, but this does not align with the investment timetable.

Fortunately, changing the company year-end isn’t difficult. However be aware of restrictions in the event you want to extend an accounting period beyond 12 months (and up to the maximum period of 18 months). A company is free to shorten its accounting period, and there are also no restrictions on how often the period is curtailed or by what extent.

So the accounting period for the growing company you are eyeing could be shortened to end in say, April 2012, permitting its audit to get underway without delay. The effect would be to cancel out the need for two audits, as the June audit would come forward by 2 months.

To be helpful to the company, you could remind them that any change of accounting reference date must be made before the accounts filing deadline for the existing or new accounting period, by having them complete form AA01 at Companies House.

The expert was Jon Sutcliffe, partner at Kingston Smith LLP, the top 20 accountancy firm.

 

Monday 23rd April 2012