Problems the CPA Has In Penetrating the Film Industry

Film Production

Film and TV Production

The primary difficulty I see with the CPA penetrating the film production market is knowing what questions to ask. The CPA, generally thought of as a consultant in the usual business world, is often tongue-tied when it comes to discussing the film and television business. Rest assured , there are several interesting ways that the CPA can assist Film and Television Producers.

MOST CPA’S ARE INTERESTED IN THE FILM BUSINESS

When I speak with CPA’s about the film industry I find a lot of interest in the field. Film and Television, as a business, promises something different and unique from the usual businesses they deal with. Also, it helps that the Film & Television Industry has excellent and consistent revenue streams.

SOME OF THE USUAL QUESTIONS CPA’s ASK:

  1. What sort of accounting services does the Film Industry require from a CPA?
  2. What are the industry specific practices, reports and terminology?
  3. I hear about the Film Tax Incentives in some States. How does that open the door to new business for my practice?
  4. What software is used during a film or television production?
  5. Once the project is filmed what services would be required from a CPA in “Post”?
  6. Can the CPA help with arranging financing?

If you do some research, I think you’ll find that there is very little, if any, information available online – and most of what you’ll find is authored by me.

WHAT PRODUCERS EXPECT FROM A CPA

Producers and Studio Execs have high expectations of anyone they contract with, especially a CPA who charges out at an hourly rate. They will expect the CPA to be familiar with their everyday terminology and to contribute to solutions. Just a few terms considered common are:

  • Inventory (the current cost of developing and producing “product”),
  • Fringes (government and union benefits),
  • Back-End (final equity available),
  • IATSE Turnaround (penalties assessed by crew when not enough given enough overnight rest),
  • SAG residuals,
  • etc

If you are interested in expanding in some way into the Film Industry there are a couple of ways you can learn more about it.

LEARN THROUGH WEEKEND WORKSHOPS – 14 HRS of CPE

Workshops are always the most fun way to learn. I have another Film Accounting 101 workshop coming up on May 6th and 7th, 2017 in Chicago, IL.

See the short video to see some past successes. There are numerous testimonials on my web site. For more info see http://www.filmaccounting.com/filmworkshops3.htm 

 

 

LEARN THROUGH ONLINE COURSES – 2 HRS of CPE PER COURSE

However, getting to the workshop location, and breaking away from the office, isn’t always possible – for you or for me. At the end of each online course qualifying for CPE I ask the student if the “stated objectives of the course” were met. There has never been a “No” yet…. that’s 100% of the time every student has said that the stated objectives were met. For more detailed information about the online courses see http://www.filmaccounting.com/filmaccounting-cpe.htm

 

 

 

 

Cheers / John

 

 

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The CPA and the Film Industry

There are several interesting ways that a CPA can service the Film Industry … IF you can get past the general distrust that the Film Industry has of outsiders.

RESEARCH WHAT INTERESTS YOU ABOUT THE FILM INDUSTRY

Do some research. What sort of accounting services does the Film Industry require from a CPA? What are the industry specific practices, reports and terminology? I hear about the Film Tax Incentives in some States. How does that open the door to new business for my practice? What software is used during a film or television production? I think you’ll find that there is very little, if any, information available online – and most of what you’ll find is authored by me.

WHAT PRODUCERS EXPECT FROM A CPA

Producers and Studio Execs have high expectations of anyone they contract with, especially a CPA who charges out at an hourly rate. They will expect the CPA to be familiar with their everyday terminology and to contribute to solutions. Just a few terms considered common are:

  • Inventory (the current cost of developing and producing “product”),
  • Fringes (government and union benefits),
  • Back-End (final equity available),
  • IATSE Turnaround (penalties assessed by crew when not enough given enough overnight rest),
  • SAG residuals,
  • etc

If you are interested in servicing the Film Industry there are a couple of ways you can learn more.

LEARN THROUGH WEEKEND WORKSHOPS – 23 HRS of CPE

Workshops are always the most fun way to learn. I have another one coming up on May 2nd and 3rd in Tampa Bay, Florida.

For more info see http://www.filmaccounting.com/filmworkshops3.htm

LEARN THROUGH ONLINE COURSES – 2 HRS of CPE PER COURSE

However, getting to the workshop location, and breaking away from the office, aren’t always possible – for you or for me. At the end of each online course qualifying for CPE I ask the student if the “stated objectives of the course” were met. There has never been a “No” yet…. that’s 100% of the time every student has said that the stated objectives were met.

For more detailed information about the online courses see http://www.filmaccounting.com/filmaccounting-cpe.htm

If you would like to see the additional comments made by students who have completed the courses of the courses I have listed them below, along with links to short YouTube videos describing each of the course’s content.

Cheers / John


 

 

Several students also had other good things to say.

A SAMPLE OF ADDITIONAL COMMENTS MADE BY STUDENTS

Course #1. Film Accounting and Auditing – An Overview

  • “Yes. Great introduction of the role the production accountant will play within the overall film production life-cycle.”
  • “Yes – it was pretty much an overview. I feel I have a much better understanding of film accounting now.”
  • “Yes! Very easy to follow. An excellent intro to the industry.”
  • See this short video reviewing the content of this course.

Course #2. Film Accounting and Auditing – The Basics

  • “Yes, great to see the various sample forms. The workflow charts are also very helpful.”
  • “Yes, the detailed explanations of the various forms, as well as the general ledger software, were very helpful.”
  • “Yes, very useful. I now have a sound understanding of the basic principles of production accounting.”
  • See this short video reviewing the content of this course.

Course 3. Film Accounting and Auditing – Intermediate

  • “Yes. Great explanation of the inter-relationships between the various reports and overview of the audit plan.”
  • “Yes. Enjoyed the course and learned a great deal about auditing productions.”
  • See this short video reviewing the content of this course.

For more detailed information about the online courses see http://www.filmaccounting.com/filmaccounting-cpe.htm

 

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

CPA OPPORTUNITIES – NEW SEC RULES FOR FILMMAKERS

As of September 23, 2013 the SEC passed rules for the JOBS ACT allowing filmmakers to advertise their fundraising publicly (Billboards, Twitter, LinkedIn, Websites, etc). This is causing a lot of excitement within the film community. What’s scary for filmmakers, though, is the tasks of making “reasonable efforts” to ensure that investors financing the film are “accredited investors”, not to mention the filing of “Form D” with the SEC. How is this an opportunity for CPA’s?

NEW SEC LEGISLATION

General solicitation for the financing of filmmaking has been illegal until recently. In order to comply with the JOBS ACT to create small business in America, the SEC passed Rule 506 (c)  to allow general solicitation and advertising for a private placement offering. However, in a Rule 506(c) private offering all of the purchasers must be accredited investors and the issuer must take reasonable steps to determine that the purchaser is an accredited investor. The SEC amendments can be read at this link

ACCREDITED INVESTOR

The SEC has defined an “Accredited Investor” in 8 ways – see this link for a very clear, and easy to read, definition (there are 8 types)  http://www.sec.gov/answers/accred.htm . The most interesting to me is #7: “a natural person with income exceeding $200,000 in each of the two most recent years or joint income with a spouse exceeding $300,000 for those years and a reasonable expectation of the same income level in the current year”.

HERE’S WHERE THE CPA COMES IN – “REASONABLE STEPS”

The SEC makes some suggested “reasonable steps”. Here is a quote from the amendments web page published by the SEC: “Rule 506(c) sets forth a principles-based method of verification which requires an objective determination by the issuer (or those acting on its behalf) as to whether the steps taken are “reasonable” in the context of the particular facts and circumstances of each purchaser and transaction”. You can read more about the verification methods BY CLICKING HERE. A review of the last 2 years tax returns , or a review of bank statements, investments, etc will verify that status. However, accredited Investors will not be comfortable turning over this information to filmmakers directly. This is where a CPA enters the stage.

FORM D FILING WITH THE SEC – A TASK FOR THE CPA

In addition to verifying the Accredited Investor status, the filmmaker must also file a Form D with the SEC. See http://www.sec.gov/answers/formd.htm for the details of the Form D, as well as a download of the form itself. As you can see from the form, it is a relatively simple online filing – at least for a CPA. In my experience, most filmmakers would want help with the form. Again, this is an opportunity for a CPA. There are proposals to file the Form D at least 3 times: 15 days before applying exemption under Rule 506 (c), 15 days after the first investment, 30 days after the funding has been concluded and whenever a change to the solicitation materials has been made. For more info click here.

PROPOSED NEW RULES TO ENHANCE THE SEC’S ABILITY TO EVALUATE

At the time of this writing (Oct-2013) there are a few additional proposals, which you can see here http://www.sec.gov/news/press/2013/2013-124-item3.htm . The SEC does a surprisingly good job of writing their articles – they’re very easy to read. Since we’re on the topic of opportunities for the CPA, please read the proposals with an eye towards creating new business.

FINALLY, THE “BAD ACTOR” DISQUALIFICATION

Your client, the filmmaker, is also responsible to ensure that anyone participating in the fundraising does not fall under the BAD ACTOR provisions. This includes investors, investment advisers, producers or anyone else mentioned in the fundraising documentation. BAD ACTORS are individuals that have committed a crime, fraud, etc. On July 15, 2013 Morrison Foester wrote a very short, clear article about this: to see this article click here. There are simple ways to discover this information, and I would suggest that the CPA would be able to perform this discovery for the client as well as the above services.

Cheers / John

To learn more about Film Accounting and Auditing see  http://www.filmaccounting.com/filmaccounting-cpe.htm  This is definitely not the same old CPE!

My next workshop is in Orlando Oct 12th and 13th, 2013. Learn more about the workshops at http://www.filmaccounting.com

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.

Worried About An IRS Payroll Audit?

Many film productions have been paying their employees as independent contractors. Some have been issuing 1099’s, others haven’t. The IRS has been searching through industry looking for such employers, and have very smartly come up with a program to have businesses come to them voluntarily.

See this link to an IRS publication explaining the concept. Here’s a quote from the last paragraph:

“Employers accepted into the program will generally pay an amount effectively equaling just over one percent of the wages paid to the reclassified workers for the past year. No interest or penalties will be due, and the employers will not be audited on payroll taxes related to these workers for prior years. Employers applying for the temporary relief program available for those who failed to file Forms 1099 will pay a slightly higher amount, plus some penalties, and will need to file any unfiled Forms 1099 for the workers they are seeking to reclassify.” – http://www.irs.gov/uac/IRS-Expands-Voluntary-Worker-Classification-Settlement-Program

Some of you may be interested in consulting with your tax consultant. It could be a cool way to segue into the IRS’s good books.

Cheers,

John

New Orleans -Film Accounting and Auditing For Professional Accts

This workshop introduces the professional accountant to the film industry specific standards, terminology and methodology as used throughout the industry. Before servicing this industry, or planning an audit of a film or television production for State tax credits, it is essential to understand the processes, industry standards and the ethics of not only the film accounting, but also of the producers and financiers of this very insular industry.

The workshop counts as 8 hours of CPE. The workshop will be held on Monday, May 23rd in New Orleans.

In addition to the Major Topics listed (see the link below) you will also compare the Louisiana State Tax Credit with other State tax credits – to gain a better understanding of why the Louisiana State Tax Credit is working so well.

The workshop is delivered by John Gaskin, a production accountant who has 25 years experience working on over 45 film and television productions of every size, in 5 different countries. John is also an engineer, an instructor, and an author of a book used in the mentoring program at the American Film Institute, the U. of S. California’s producer program, and the U. of Tampa’s producer program.

There are many testimonials on John’s home page. For more information on the “Film Accounting & Auditing for Professionals” workshop see http://www.talkfilm.biz/filmworkshops2.htm

Film Accounting and Budget Management for Professionals

John Gaskin held workshops on Film Accounting and Film Budget Management for Professionals in the Michigan area. This is what some of the attendees had to say about John Gaskin and about the workshop.

Vodpod videos no longer available.

The Film Business – How Do Independent CPA’s Fit In?

CPA’s who want to service the film industry as auditors in some way have several routes:

– prepare an opinion of the Estimated Tax Credits from the Film Budget in ‘prep’,

–  prepare audited statements of the Cost Report in post-production for the Tax Credits,

– service the administration of the tax credit with the State for the Production,

– claw through the interim costs to see if the Estimated Tax credits are in-line, etc.

Or, work as a Production Accountant.

To do any of these tasks, as a professional, you need to get a feel for the rapidity of the film production business from and the responsibility and authority expected fom you. The weekly petty cash is about $50,000 a week, the weekly payroll is anywhere from 0 to $800,000 for the crew alone, etc – so there’s no time to train or figure out systems, it’s got to be right first off the mark.

FILM ACCOUNTING SYSTEM:

That system has been worked out over the years and that’s what is called Film Accounting – it’s basically the same system used throughout the film production industry internationally. None of it is brain surgery, but the rapidity of the life cycle is unique – in a few weeks/months you start with nothing, open a bank account, find a studio, order furniture, hire crew and cast, buy/rent everything, finish shooting, sell/return everything, pay off whatever, close bank accounts, turn off the light – the door slams on the back of the last man/woman standing – the film accountant. A FULL understanding of the film accounting system is vital to external auditors who need to move quickly to balance their chargeable hours to a competitive field.

BOOKKEEPING-REPORTING-AUDITING:

Throughout the Film Accounting process the multiple details of bookkeeping, reporting and auditing (ensuring that the transactions are legal and ethical), can get a little overwhelming, especially if you’re not ready. If you have 3 or 4 weeks before the shooting starts, to go from an empty room to a fully functioning office, you need to have a system that is drilled to the level of habitual. There is nothing on a ‘Woman Scorned’ when compared to a producer who doesn’t get his/her cost reports on time (the Weekly Cost Report compares every line item in the budget against current Estimated Final Cost, and all variances accounted for). There are a number of ‘tricks-of-the-trade’ in managing that report; remember, it goes to all bosses everywhere.

THE FILM ACCOUNTANT’S PRODUCT:

The film accountant’s Boss is the Financier(s). That would include the funders as well as lenders and the bonding company. It’s a little difficult sometimes, because the Producers are in direct communication with the Film Accountant and technically have the right to fire him/her. I could tell you stories – actually, I do tell you real stories how to handle that situation if it gets noisy. The Weekly Cost Report, more than anything else, is the ‘product’ of the Film Accounting Department. If all systems are ‘in’, the result is a meaningful Cost Report that the Producers and Financiers take to heart – the bond company has the right to take over the production and their most used document is the weekly cost report.

WORKSHOPS #1 and #2:

The first workshop drills the film accounting system. The second gives you a look at the building blocks that comprise what you will be auditing – the costs as compared to budget. Knowing how those costs are tabulated, along with a system to capture certain types of costs with Free Fields, really gives you an understanding of where the producers are coming from – not always on the up-and-up. This is a vital area for both aspiring film accountants and for external auditors.

 

For example, here’s something I’ve seen:

The producer wants more tax credits – one way of increasing those tax credits by ‘flipping’ – an actual example is the producer puts a Story Consultant in the budget for $100K, then funds the $100K from Company A, then has the production pay $100K to a local State shell Company B, then has Company A invoice Company B for Management Fees of $100K. (or, more nefariously, has Company B make advances to someone the producer actually is doing another deal with entirely). This is a ‘flip’ or ‘turnaround’ that could be viewed as a sham and is fairly common.

SMALL GLOBAL VILLAGE:

The film industry is a small global village. I have seen line producers, 1st AD’s, production accountants, etc. keep working in spite of a downward spiral of bad habits and poor performance – simply because they already have a resume and others have ‘heard’ about them. It’s just the way it is. Almost no attention is paid to self-promotion, and even if a face-to-face meeting is finagled, the ‘I love you baby’ routine is actually real – so, you’re in a quandary that you have to solve. The only way I know of to solve it is to get started by learning the trade from the ground up and do the workshops. I say, with some humility, that I know the bond companies, I know the bigger international Tax Admin Companies, I know a few VP Finances at the Major Studios, quite a few people on the food chain at various levels, etc – simply by stating my name you’ll at least get an ‘Oh yeah, I know John’ – of course, I can’t promise anything, but I’ll always back you up as one of my attendees if called.

A COMMENT TO EXTERNAL AUDITORS:

It’s going to be a shark fight very soon for the simple tax credit audits. Really, to just do the audit is a meat grinder – stick the meat in one end and out the other end comes hamburger. But, the guys who take the extra step to learn what is really needed by the studios and producers, and provides what’s needed, will be the ones who get the callbacks. Out of State studios will need someone to set up a Prod Co (a shell company used only for the production), they’ll need access to an inexpensive lawyer for simple in-State assignments, deals of whatever kind, they’ll need advice on how to estimate the tax credit and what’s current with the State decisions, the banks will want a letter of opinion that’s accurate and quick, the producers and banks will want an interim report of the Estimated Tax Credits to make sure everything’s in-line, etc. The only way I know that you can do that is to get real familiar real fast with all film budgeting and cost reporting and general ledger formats.

WHERE AND WHEN:

In Detroit, MI near the airport at the Lexington/Hampton Inn on May 16/17 and May 30/31. See this link to learn more: http://www.talkfilm.biz/MichiganWorkshops.htm

 

I hope to see you at the workshops.

John 

www.talkfilm.biz

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