Film Tax Incentive Audits – What Is Sufficient Knowledge?

Most States require that any audit of State Film Tax Incentives be performed by someone who  “...must have sufficient knowledge of the accounting principles and practices generally recognized in the film and television industry.” (I list three film production-popular popular State’s audit instructions below). That’s a classic chicken and the egg conundrum. What is sufficient knowledge and how do you get that first audit?

I would say the two biggest differences between a normal business audit, and an audit of a film or television production for the State film tax incentive, is:

1. an understanding of the functions and forms interfacing between accounting and the production, and

2. the expectations of the film producer – quite different from a CEO of a usual business enterprise.

Connecticut solved the conundrum by only listing the State qualified auditors who had completed my workshop – “Film Accounting and Auditing”. I have put the full workshop on 4 online self-study courses

Please check the State references below to give you a flavor of the audit instructions.

To find out more about solving that problem with attaining “sufficient knowledge …”, see http://www.filmaccounting.com/filmaccounting-cpe.htm

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Louisiana Link: http://204.196.223.30/docs/film/00_Audit_Guidelines-July2012.pdf
Document Title: Motion Picture Incentive: Audit Guidelines
Reference:                Page 1 of 8 under the “General Section”
Quote: “The audit must be performed in accordance with auditing standards generally accepted in the United States of America, as set forth in Generally Accepted Auditing Principles (GAAP) and Generally Accepted Auditing Standards (GAAS). The auditor must have sufficient knowledge of accounting principles and practices generally recognized in the film and television industry.”

Michigan: http://www.mi.gov/documents/filmoffice/Audit_Instructions_252701_7.pdf
Document Title:        Audit Instructions and Expenditure Certification Guidelines:
Reference:             Page 2 of 4 in the “General Section” sub-section (m)
Quote: “The audit must be performed in accordance with auditing standards generally
accepted in the United States and the auditor must have sufficient knowledge of accounting
principles and practices generally recognized in the film, television and digital media industry.”

Connecticut Link: http://ct.gov/ecd/lib/ecd/auditinstructions.pdf
Document Title:        Audit Instructions
Reference:  Page 1 of 10, Part 2. General, sub-section (e):
Quote: “The audit must be performed in accordance with auditing standards generally
accepted in the United States of America and the auditor must have sufficient knowledge of accounting principles and practices generally recognized in the film, television, commercial and digital media industry.”

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About filmproduction
I have worked in the film production industry since 1985, working on over 50 different productions of every size in 6 different countries. My self-published book, "Walk The Talk" is written in an easy to read manner for film students and working professionals who haven't had the chance to learn how to 'Direct the Money'.

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