Film/Television Production – Are There Opportunities For CPA’s?

Above-The-Line Budget

Above-The-Line Budget

FILM & TELEVISION PRODUCTION – ARE THERE OPPORTUNITIES FOR CPAs?

The purpose of this article is to point the CPA towards the film, television and commercial production industry. Is it worth learning more about this intriguing industry? Are there opportunities for CPA’s? Read on and you’ll discover for yourself if it’s worthwhile pursuing this industry. From that point you can start to learn more about the specific practices and terminology of Film Accounting.

MEDIA PRODUCTION – DETERMINING THE VALUE OF THE GDP IN AMERICA

For starters, is it worth looking at “Media Production”? From a total dollar value of Gross Domestic Product, I’d have to answer a resounding, Yes! Back in Dec of 2013 the Bureau of Economic Analysis published the first ever analysis of the value of Arts and Culture. They reckoned that Arts and Culture accounted for $504Billion, or 3.2%, of the Gross Domestic Product in 2011. That 3.2% encompasses everything from advertising to arts education to cable distribution and movie production. To give you some idea of how the 3.2% compares to other industries, the Motion Picture Association of America stated that all of Travel and Tourism at that time accounted for 2.8% of the GDP.

I sifted through the published numbers and came up with an approximate value of $273Billion due to various media “production”: cable, network, feature and advertising/commercial production. See my notations on the table below:

BEA-13-58 Media Production

BEA-13-58 Media Production

 

MEDIA PRODUCTION – PER BEA ARTS/CULTURE CONTINUED TO INCREASE IN 2013

On February 6, 2016 the Bureau of Economic Analysis published statistics for 2013 in their document #BEA 16-07.  Here is a quote from the bottom of the second page of that report: “… total inflation-adjusted spending on all arts and cultural commodities reached $1.1 trillion in 2013. That figure was up 2.7 percent from the year before.”

Here’s another shocker for you. It’s a quote from the top of page 4 of the same report: “Employment for all arts and cultural industries totaled 4.74 million in 2013.”

Enough said. There’s plenty of energy in them ‘thar hills!

FILM ACCOUNTING & AUDITING – A NEW SERIES OF SELF-STUDY CPE COURSES

What is the the cycle of the film industry? How does it go from point A to point B? What really is a film producer and how does he/she need help from CPA’s? What are the common accounting practices and terminology used in film and television production?

The “Overview” course is a 2 hour self-study course which has been very well received, as has been the other courses for those wanting to dig deeper into the nitty gritty (Basic, Intermediate and Advanced).

Watch the video above to see how the course works and it’s content.

VALIDATED MATERIAL AND DELIVERY BY TESTIMONIAL AND CERTIFICATION

The courses have been validated by 4 years of workshops, CPE Sponsor licensing, and numerous testimonials. For more info  SEE THIS LINK.

Some Testimonials:

“We have not worked much in the film industry or film tax credits so thought it would be prudent to get a good foundation. Quite frankly, I did not realize how important it was until I took the first of John’s (self-study) courses. We have a wonderful audit department and plan to look into film auditing to add to our services. I am intrigued and enjoy the nuances of film accounting.” E.E.

The film cycle was especially helpful it IS unique to the industry.” T.S.

The course is a great presentation for an overview.” Z.K.

“I felt the objectives of the class provided good insight into the state film tax incentives and the requirements varying by state, and what the qualifying expenses incurred were.” J.B.

Cheers,

John


ABOUT JOHN

The courses are designed and delivered by a film production veteran, John Gaskin, with experience on over 50 film and television productions in 6 different countries over the past 30+ years, as well as 6 years experience as an instructor in film accounting & auditing,  and managing film budgets. John Gaskin has worked with such greats as Ron Howard (twice), David Valdes (Open Range, Green Mile, Unforgiven), George Clooney (Confessions of A Dangerous Mind) and Gulliermo del Torro (Mama).

For more information, 3 minute videos, course samples, etc. SEE THIS LINK.

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Film Financing Series – Don’t Forget the Tax Credit Audit

INDIE PRODUCING – TAX CREDITS AS FINANCING

Most of us in film production have a very strong interest in the process of applying for the various State Film Tax Credits. It is a very real source of financing that can be estimated in the early stages of development, and is a big part of any Indie Producer’s job.

INDIE PRODUCING – PREPARING FOR THE CPA’S TAX CREDIT AUDIT

The Indie Producer can usually find someone to lend the production company up to 85% of the total “Estimated Tax Credit”; however, the lender will hold back at least 25% of the agreed amount (i.e. hold back 25% of the 85% financing) until the final CPA audit has been accepted by the State. The material to audit must be prepared by the film production accountant, with input from the Indie Producer, and presented to the CPA in the format required by the State. This preparation for the final audit is just as much part of producing as is arranging for the initial financing.

IT IS AN AUDIT OF THE COSTS PRESENTED IN THE “COST REPORT”

Effectively, the CPA is auditing the “Cost Report” produced by the production accountant. Additionally, the State may want the costs presented in specified templates, or in a cost report format of their own choosing. Remember that it is not up to the auditor to prepare schedules, or to find material to audit. It is up to the Producer and film accountant to present the appropriate schedules, cost report and original documents for audit. The producer who has not planned for the effort it takes to have the costs presented to the CPA will be over-paying the auditors, loan interest and delaying the final tax credit awards.

A sidebar to this blog is the audit of the Indie Producer’s relationship with the vendors, and of any economic rewards the Indie Producer may have received, even if seemingly legal. This is something that all States are vigilant about, especially Louisiana.

opinionWHAT DOES THE STATE REQUIRE TO SUCCESSFULLY COMPLETE AN AUDIT

(Note: For non-accountants, “AUP” in the picture opposite means “Agreed Upon Procedures” – these are the procedures required to be performed by the CPA before the State will accept the application for the final tax credit). See the video. Each State has its own audit procedures. Some States go so far as to audit the records themselves, without the help of a CPA. I have taken 5 States as a sample and I’ve prepared links to the appropriate schedules required by the State, as well as the audit procedures required. See http://www.talkfilm.biz/statelinks.htm

In addition I have carved up a short intro film, less than 3 minutes, from one of my online courses.

The web page and the film clip will give both Indie Film Producers and CPA’s an introduction to the process of auditing the film production’s cost report. A vital step in the financing of your Indie film.

For more information and coming workshops see my web site at http://www.filmaccounting.com

Cheers / John

The New CPA and the Film Industry

INTRODUCTION

The new CPA is fully aware of expanding markets and breaking the mold of tradition. The outbreak of videos used to promote CPA firms is witness to an interest in reaching new public. As a result, there is a growing interest in the business of filmmaking. Where are the film companies? What sort of audit services do they need? What are the film accounting principles and practices unique to the industry?

THE MAJORS AND THE INDEPENDENTS:

The film industry is generally viewed as Hollywood in America. It’s true that Hollywood drives a big part of the machine, but over the past several years the production of feature films and television programming has branched out dramatically.

There are three primary divisions of the industry:

1. The “Majors”: the Majors both produce and distribute a substantial amount of their own products. They are generally defined as “The Big Six”: Sony Pictures (Columbia), Disney, Warner Bros, Universal/NBC, Paramount, and 20th Century Fox.

2. The “Mini-Majors”: There are always companies that are striving to join the Big Six – such as Lionsgate, Dreamworks and The Weinstein Company. There is also the example of MGM, which has fallen from a Major status to a Mini-Major status.

3. The Independents (“Indies”): The status of “Indie” is a general umbrella of all other film and television production companies. The Indies often approach the Majors and Mini-Majors to land distribution deals, or some form of financing/participation of their projects (usually referred to as “Pick-Ups”.) Successful Indies often make distribution deals with, or even bought outright by, one of the majors or mini-majors. For example, Tyler Perry Studios, an Independent based out of Georgia, has a great deal with Lionsgate, who in turn, has distribution deals with the Majors.

ALL OF THESE DIVISIONS REQUIRE AUDITS FOR FILM TAX INCENTIVES:

Almost all of the States that offer film tax incentives require some form of audit BY A STATE LICENSED CPA. So, regardless of the relationship of the production company, big or small or in-between, every film or television production requires your services as an auditor in your State (the only exception that comes to me right now is New York State).

REQUIREMENTS:

The legislation which requires the State licensed CPA very often has the following quote taken from the State of Connecticut (almost exactly the same wording exists for California, Louisiana, Michigan, etc):

“… the auditor must have sufficient knowledge of accounting principles and practices generally recognized in the film, television, commercial and digital media industry.“

The State of Connecticut was at a loss as to how to address this conundrum (i.e. the auditor must have exposure, but has never had exposure before). So, the State administrator, Ed Ruggerio, requires that only those CPA’s who have done my course, “Film Accounting and Auditing” are permitted to be listed on the State web site as qualified auditors for State Film Tax Credits. As much as I was honored by this acknowledgement, it was hard for me to break off my commitments, travel to Connecticut, and deliver a live workshop.

FILM ACCOUNTING PRINCIPLES AND PRACTICES:

As a result, I have taken much time and effort to break the live workshop into four online self-study courses which are AICPA compliant for CPE. I have taken the material and broken it into the following categories:

Film Accounting and Auditing – 1. An Overview, 2. The Basics, 3. Intermediate/Supervisory Level and 4. Advanced – Film Tax Incentives.

I have worked in the film industry for almost 30 years, in 6 different countries, on every size of film and television production. As a result, I have made every effort to keep the courses from being pedantic or ponderous. From the testimonials I can say that it has been worth the effort.

To find out more visit: http://www.filmaccounting.com/filmaccounting-cpe.htm

Cheers / John

Film and TV Production – A Growth Area for Accountants

The growth in the film industry is indisputable.

REVENUE GROWTH – FILM AND TELEVISION

Stats show revenue growth over the past year in both the film and television. The Motion Picture Association of America 2012 stats show the Domestic Revenues have 6% growth from 2011, and 12% growth from 5 years ago. The Global Revenues show 6% growth over 2011.

JOB GROWTH FOR FILM AND TELEVISION INDUSTRY

The MPAA stats show that in 2010 direct industry jobs generated $42.1 billion in wages, and an average salary 32% higher than the national average. Also, there were nearly 282,000 jobs in the core business of producing, marketing, manufacturing, and distributing motion pictures and television shows. These are high quality jobs, with an average salary of nearly $82,000, 74% higher than the average salary nationwide. Those numbers don’t include over 400,000 jobs in related businesses that distribute motion pictures and television shows to consumers. (And … remember that there has been steady growth over 2011 and 2012)

STATE FILM TAX INCENTIVES

Of the 52 States a whopping majority – 42 States – have some form of film tax incentive. (The naysayers are Nevada, Arizona, North and South Dakota, Nebraska, Kansas, Iowa, Delaware and New Hampshire.)   After working in the film production business for 28 years, and delivering workshops in 7 States, I can say unequivocally that filmmakers need your help to manage the required reports for Film State Tax Incentives, as well as give audit opinions, agreed upon procedures, etc for the certification of their cost reports.

DIGITAL CAMERAS AND FILM SCHOOLS CREATING MORE FILMMAKERS THAN EVER BEFORE

It has been said for a few years now that the digital camera will revolutionize the film industry. There was a time, say just 4 or 5 years ago, when it was only possible to make films with very expensive 35 mm cameras that were bulky, required tons of lighting, dolly tracks, etc. Those days are still with us on the big time film productions, but it is swiftly declining as the major means of shooting film and television projects. This new generation of filmmakers need the accountant’s help.

EVEN ACCOUNTING FIRMS ARE PRODUCING THEIR OWN FILMS!

Even Accounting Firms are doing their own filmmaking, witness Withum’s Mob Flash Dance (really up-beat!) and the Center For Audit Quality’s series – my fav is CAQ – The Financial Statement Audit (very cool comic book style).  These two YouTube videos have had 53,000 and 72,000 views, respectively.

OPPORTUNITIES FOR PROFESSIONAL ACCOUNTANTS AND BOOKKEEPERS

This all spells opportunity. Take a minute to get an insight into the opportunities available for accountants of every status – watch this video.

Auditing State Film Tax Credits

I met with the State of Connecticut’s tax credit administrator, Ed Riggerio, before Christmas. Connecticut had a problem – to find a course which satisfied the following quote in the legislation:

“… the auditor must have sufficient knowledge of accounting principles and practices generally recognized in the film, television, commercial and digital media industry” (Note: this language is common to all State film tax credit regulations).

I have designed a course which references the AICPA’s (American Institute of Certified Public Accountants) auditing statement on “Understanding the Entity Addressed”. The AICPA refers to this as SAS 109 (Statements on Auditing Standards #109). The AICPA also has a statement on Fraud Risk Assessment (SAS 99) where it’s necessary to identify where management has the ability to override controls. I have also referenced SAS 99 into the course.

The course is not structured around SAS 109 and 99. Rather, the course has it’s own layout, but points that are relevant to SAS 109 anmd 99 are brought up and discussed.

In order to understand the Film Industry you really need to understand the Film Producer, the Film Accountant, the Film Budget and the Film Cost Report.

The Independent Film Producer, by necessity, is someone who doesn’t take to “rules” very well – if he/she was a rule-follower they wouldn’t be in the ‘Biz. For someone who is steeped in Standards the Film Producer may seem like a renegade, so lots of examples need to be interwoven into the course.

The Film Accountant is not an “accountant”, as known and thought of by CPA’s. The Film Accountant is a film industry professional who has apprenticed in the film production industry as an assistant accountant until he/she knows every nuance of the money-flows within any film or television production, and how to account for those money flows. The thought processes of a Film Accountant are quite different from a CPA. A Film Accountant is a cross between a Unit Production Manager and a strong bookkeeper. Since the CPA is trying to understand and assess the risks of “material misstatement” the CPA must understand the Film Accountant.

The Film Budget is viewed a lot like a financial/legal document in the Film Industry. It’s the document that the film producer has sweated over for months, if not years, to get the financing together for the film production. It is the foundation of bank loans, contracts made with key cast and crew and is on the lips of every experienced department head approached to work on the production. It sets the bar for the director, the cast and crew. The Film Budget leads the way – … was it based on lies? … was it based on mis-information? … is the account structure appropriate? … was it badly massaged from an earlier budget for different locations? … etc. A Film Budget that misrepresents itself can significantly raise the risk of misstatements all along the line thereafter.

The Film Production Cost Report is what the CPA will be auditing. It is the final “financial statement” of the film production and is a financial representation of the film itself. In the film industry, reading a Cost Report is like reading a report card on the producer and director. It tells the tone of “management” and sets the risk levels the SAS’s are so adamant in discovering.

The course is a one-day course, scheduled for January 29, 2011 in Hartford CT. It solves Ed’s problem. Hopefully other States will look for the same solution.

See http://www.talkfilm.biz/filmworkshops2.htm for more details.

-John

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