Here’s an issue that doesn’t come up too often, as reported on the Canadian Broadcasting Corporation’s website:

• A claim by New Brunswick’s Liquor Corporation that its profits last year “remained steady” was true only because of seven extra days it included in its financial year, an issue that needs to be explained in detail, accounting experts say.
• “In a set of financial statements, you have a current year and a prior year so there can be a comparison and a reader can make some conclusions about how things went,” said Andrew Logan, a partner with the New Brunswick accounting firm Teed Saunders Doyle.
• “If they’ve added extra days and its added extra sales and profits to their results, then that information should be disclosed.”…
• In its current annual report, NB Liquor lists profit for its latest fiscal year at $168.4 million, exactly the same amount it reported in 2017. The difference is the 2017 results were generated over 52 weeks of operation, while the 2018 results cover 53 weeks.
• That’s because NB Liquor switched its fiscal year end from the last Sunday in March in 2017 (March 26) to the Sunday closest to the end of March this year, which was April 1.
• That created the extra long, 53-week financial year, stretching from March 27, 2017, to April 1, 2018.
• The extra week allowed NB Liquor to book another $7 million in sales and post approximately $3 million in additional earnings, padding results just enough to match 2017 earnings and avoid reporting a decline in its profits.
• There are no notes in the financial statements to explain the change.
• In addition, NB Liquor then switched back to using the old system — the last Sunday of the month for its latest financial results when it reported its first-quarter earnings for the current year “ended June 24” even though the closest Sunday to the end of June this year was July 1.
• Elitzur said moving quarter-end and year-end dates back and forth between the last Sunday of the month and the Sunday closest to the end of the month is not a normal practice and can produce misleading financial results.
• “It’s amazing to me what management is doing to manipulate financial statements,” said Elitzur of NB Liquor’s various quarter-end and year-end closing dates.
• “You can do it two ways. You can do the closest Sunday to the end of the month or you can do the last Sunday before the end of the month. They seem to be moving between the two systems.
• “The date could be and in this case I suspect it is, manipulated to fit their purpose.”

This happened to be reported the day before the legalization of cannabis in Canada, and the company cited being “too busy this week with the launch of Cannabis NB” in declining an interview request. Anyway, I think the only relevant direct reference in IFRS to this situation is as follows, in IAS 1.37:

• Normally, an entity consistently prepares financial statements for a one-year period. However, for practical reasons, some entities prefer to report, for example, for a 52-week period. This Standard does not preclude this practice.

A retailer might choose this approach, for instance, to keep the number of high volume weekends constant from one reporting period to the next. Of course, if a company reported a strict 52-week period for year after year, then the reporting date would only slip further and further back in the calendar over time, so the occasional use of a rebooting 53-week period isn’t remarkable in itself. An example of this occurred in the most recent annual statements of Hudson’s Bay Company. But in that case it was clearly labeled throughout, and addressed in the notes:

• The fiscal year of the Company consists of a fifty-two or fifty-three week period. Fiscal year 2017 represents fifty-three weeks ended on February 3, 2018 and fiscal year 2016 represents fifty-two weeks ended on January 28, 2017. References to years in the consolidated financial statements and notes to the consolidated financial statements relate to fiscal years rather than calendar years, unless otherwise noted.

This was then acknowledged in various parts of the annual and fourth quarter MD&A:

• Total reported sales in the fourth quarter of 2017 reflect a fourteenth week of sales, whereas comparable sales are on the same thirteen week basis as Fiscal 2016. This additional week of sales and the opening of new stores during the year contributed approximately $267 million in sales.

Even so, it’s been suggested in the past that such things still have a disruptive effect:

• We find evidence of predictable stock returns and forecast errors in 14-week quarters, which suggests that investors and analysts do not, on average, adjust their expectations for the extra week. The ease with which 14-week quarters can be predicted, and expectations adjusted, suggests a surprising lack of effort on the part of investors and analysts.

I’m not sure any lack of effort in any field is really that surprising, but maybe that’s just me. Anyway, that plainly doesn’t mitigate a lack of clarity in communicating something as basic as the comparability of the accounting periods. Admittedly, IAS 1 doesn’t go into any detail on how explicitly or prominently you should do that, but then, you know, it’s meant to be principle-based. Maybe financial reporting and liquor just don’t mix….

The opinions expressed are solely those of the author